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 has some good points, although in true English tabloid fashion they sensationalize the headline. The reality is our economy has slowed, we are probably in a recession, and we must work our way through it. There is little doubt that Americans are paying more for gas, food, health care, and education. I also have no doubt that given time, this economic bear will go back into hibernation!

The Institute for Supply Management released their March survey of manufacturing, which shows that U.S. factories are continuing to slow. The index came in at 48.6, the second month in a row below 50, suggesting that manufacturing is in contraction mode. Although the drop was greater than consensus expectations, it was not a major shock to analyst who predicted some pull-back in March. On top of this morning’s disappointing news about U.S. auto sales, this is further evidence that the U.S. economy is either at or very near recessionary levels.

Could a new rule from the IRS pose a problem for small business owners? Some believe it will. The new rules will penalize accountants who prepare a return which under-reports income when the IRS believes the accountant likely knew about the fudge. In the past accountants have not carried the bulk of the liability for a small business owner’s tax return misstatements, which resulted in entrepreneurs relying on their accountants as confidential advisers. This new rule places the accountant in the pseudo-role of auditor for the IRS.

Instead of trying to fudge tax returns, small business owners should focus on managing their businesses tax liability. Income taxes are a reality of owning your business, if you spend the time to develop good practices, you can limit your tax penalty without putting yourself in personal jeopardy!

The big news today is the announcement from the U.S. Federal Reserve about their new proposal (that must pass Congress) on overhauling the methods they use to regulate the financial markets. The idea is to give the Federal Reserve more power to protect the stability of our entire banking and financial system. Although I believe the Fed’s actions are prudent, I still believe there is a major disconnect between Wall Street and Main Street.

Equity investors are making decisions about where to put money based on what will happen over the next few months, small business owners make investments based on what they believe will happen over the next few years. There is little doubt that the economy is hurting, I personally believe we have already reached the much dreaded recession. This does not mean business as we know it stops, it just means we have to fight much harder for that business we know is out there. As I started thinking through this today, I began pondering what I believe are the biggest economic issues facing all of us going forward, these are the areas where I foresee the most rough air!

1. Job Growth – We have lost 85,000 jobs so far this year, and I suspect we have lost more in March. New job growth in the U.S. has been at best sluggish since 2000. So far this decade we have generated roughly 5.5 million new jobs, which puts us on pace to have the worst decade for new job growth since prior to World War II. I believe we are likely paying the price for trade liberalization. Manufacturers have exported a number of jobs since NAFTA was passed and China received MFN status. At some point the amount of jobs being exported will level off, we are not there yet. If the economy is not creating jobs, then we are not adding new consumers, the mother’s milk of our economic engine. I expect the tepid job growth picture will continue for a few more years before we get back on track.
2. Oil Prices – Although much of the price of oil, the value of the dollar, and our economic health work hand-in-hand, I don’t foresee the price of energy receding in the future. We are dealing with a supply and demand issue. As other economies have grown, and those economy’s population’s get more money, the demand for energy increases. This increased demand pushes up prices at a time when the available supply appears to be diminishing, and getting to new sources of oil is getting more expensive. People who are waiting for gas prices to come back down are going to be waiting a long time. The steady rise of gasoline prices will continue until people start making lifestyle adjustments to offset demand. These increased energy prices hit businesses and consumers alike making it more expensive for everyone.
3. Inflation - In an environment with interest rates coming down and energy prices going up the prospect of energy driven inflation is not foreign. As energy prices rise many businesses must pass along those price increases to their customers to keep pace. The end result is a ripple effect that moves through the economy much like the negative impact of the downturn in housing did. At the end of the day this means we are all paying more for our basic needs, this means we have less for other consumer goods, and keeps the economy cooled for an extended period of time.
4. Cheap Credit – I didn’t say easy credit, I said cheap credit. Given all of the fallout from the subprime crisis, and lender’s concerns about defaulting loans, I suspect we are headed for a period of cheap credit that is difficult to get. This will make it harder for businesses to invest and consumers to pay for purchases temporarily using someone else’s money. Interest rates are going to go lower over the next few months as the Fed tries to stimulate growth, but the number of folks that will be able to take advantage of this cheap credit will be limited.
5. A Falling Dollar – I look at the value of the dollar as an indicator of the value of one share of the U.S. economy. The dollar will continue to fall against other currencies as the Fed reduces rates. We may make some of this up as other economies slow, but the general trend will continue to be down. This is increasing the price of imported goods in the U.S., and travelling outside the U.S. As our share price goes down, our debts are going up. This does not sound like a great formula for business success!

Most of these are likely not a major surprise to anyone that has been following the economic news lately. These are without a doubt five issues we will need to get our hands around if we want to move this economy forward!

There has been  a great deal of speculation by executives and pundits alike about whether the U.S. economy has slipped into a recession, or is is just experiencing a dramatic slowdown. This debate will continue to rage until we get some solid 1st quarter GDP numbers; however, there will be some data this week that may provide us a clue. The economic news to focus on in the coming week will be the Institute for Supply Management’s Manufacturing Survey on Tuesday, and their Services Survey on Thursday. Both of these will give us a peek at current business activity. On Friday we will get the employment numbers for March. If employment job growth comes in negative for the third consecutive month, then that would be a pretty clear indication the economy has slipped into a recession.

“They’re from the government, and they are here to help!” On Monday the U.S. Treasury Department will go to Congress with a proposal that expands the Federal Reserve’s authority when overseeing financial markets. The bottom line is that the Fed will be able to aggressively address areas of the market and institutions that have the potential to bring the market down. I can’t say I am exactly comfortable with giving the folks who caused the problem more authority to solve it!  

I ran across this article in The New York Times this week about the challenges small businesses are having borrowing money in a tight credit environment. Although I have no doubt that borrowing today is a challenge, I believe there are things every small business owner can do to make raising capital for your business an easier task. Not long ago I posted an article with some suggestions on raising cash in a tough environment. I thought it appropriate to re-visit the issue  in the light of this article.

Our second consumer sentiment measure this week shows the same trend as the first, consumers are losing confidence. The University of Michigan’s Consumer Sentiment Survey dropped again in March. A slowing economy combined with rising energy prices is causing consumers to worry about their future spending power. The data continues to reinforce a sharp slowdown in the U.S. economy over the last six months.

The U.S. Government released its final estimate for Gross Domestic Product growth in the fourth quarter of last year. The final estimate remained unchanged at .6 percent, a marked slowdown from the third quarter of 2007. This final number, combined with the loss of jobs in January and February, brings me to the conclusion that the U.S. economy slipped into a recession in the first quarter of this year. I think this could be confirmed we when we get employment numbers for March next week. 

The most common question I get whenever I speak to a group of business owners is, “How were we able to grow our business so successfully?” Our family business, founded by my father-in-law in 1963, was a manufacturer of custom machine controls. In the mid 1990s we began developing a line of ultrasonic sensors.At that time ultrasonic sensors were not even a recognized segment of the broader $2 billion global, sensor market. Through a tremendous amount of effort during my tenure we were able to grow our sensor business 18 percent annually, develop a recognized market segment in sensing, and become the world’s leading manufacturer of ultrasonic sensors.Many business owners want to know the secrets of our growth story. I always tell them the secrets to our success are not secrets at all. Most business owners and executives know what they must do to grow their business, but many just can’t seem to get these things done. As a business owner, if you can execute on these seven items, you will grow your business.

1. Find a Niche – The biggest mistake many small companies make is aiming at huge markets. Most successful small businesses started by aiming at a niche they could develop. Many times it will not pay a larger corporation to do the hard work to develop a small market niche. What may be a huge market opportunity to one, may be insignificant to another.
2. Have a Clear Value Proposition – Make sure you clearly understand what value you add for your customer. If you cannot articulate this to yourself how will you be able to convince prospects to do business with you? You must be able to clearly articulate what you bring to the table.
3. Target Your Communications – Once you have a clear value proposition, make sure that message is getting to the right people. One of the mistakes we made was trying to outshout the competition. Know who your customer is and figure out your best method for delivering your value proposition to them.
4. Provide World-Class Service – I despise poor customer service. Many large companies, because of mass, have a difficult time providing great, consistent customer service. All successful small businesses I know provide their customers with unparalled service. If you take care of the customer, many other things will fall into place.
5. Treat Your Vendors Well – You may not be your vendors number one customer. Your volumes may be small, but if you treat those vendors well you will get better attention than their largest customers. Pay your vendors quickly, have them involved in your business, and spend the time to cultivate relationships with them. You never know when you will need a vendor to save your “hide.”
6. Treat Your Employees Well – One key to growing a small business is finding great people and keeping them. There is always more perceived risk working for a small company than a large company. If you provide your employees a great place to work, and give them the autonomy to do their jobs, you will create a workforce committed to making your business a success.
7. Keep Feeding the Fire – Too many businesses develop one product or service offer and stop there. Don’t let innovation die. One of the most important aspects of our growth story was our effort to always have something new that would bring additional value to our customer. Never be afraid to cannibalize you own product, if you don’t someone else will.

It does not matter what your business is, or what your growth goals are. You must remember, this stuff isn’t easy. If it was, everyone would do it!

Sales of new homes fell to a 13-year low in the U.S. this past month. This is the fourth month in a row new home sales have declined, and is further evidence that depressed economic activity has led the U.S. economy into recession.

The bad economic news continues to trickle in this week as the government released data on February’s Durable Goods. Orders for durables were down a surprising 1.7 percent in February with big drops in autos, business spending, and machinery. This reinforces our post from earlier today that the economy is likely already in a recession!

Although, yesterday’s news was dominated by Senator Clinton’s epic war saga, the real story of the day was the Conference Board’s Consumer Confidence data which plummeted to a five year low. The CEO of Caterpillar said that he believes the economy is already in a recession. The good news is that if we are in a recession now that means we are getting much closer to an economic recovery. 

Over the past few days we have started seeing the slow rumblings on the political blogs that the time for Senator Clinton to drop out of the presidential race may be near. Some have even made the case that the media is perpetuating a myth that the race for the democratic nomination is a virtual tie, when in reality it is all but over. All of this discussion has me wondering if now is the time for Senator Clinton to exit the race, and if not now when?

My experience in business has provided me the opportunity to bear witness to successful ventures and faltering enterprises. The majority of the time the leaders of failing organizations are the last to accept defeat, or recognize the realities of the perilous path they face. They will hold on to any last shred of hope even if it means laying waste to any opportunity they may have to fight another day. This problem is even more significant for those who believed that their eventual success was inevitable. This makes facing failure that much harder to swallow.

For a proper analysis we must first understand the current state of the race. Using the data available from the Real Clear Politics web site we can determine that as of today Senator Obama has 1,414 pledged delegates, and Senator Clinton has 1,247. Senator Obama also leads the popular vote by about 820,000 votes, this does not include anything from Florida or Michigan, and does include the RCP popular vote estimates for any caucuses. (I realize many Clinton supporters will chastise me for not including Michigan and Florida in the popular vote numbers, but that strikes me as shifting the goal line to strengthen your case.) Last week the efforts to secure re-votes in Michigan and Florida apparently died, and now the status of those delegations is up in the air. This leaves us with 10 states left to vote which have roughly 566 delegates at stake. There are also 331 Super Delegates that have yet to commit to one candidate or the other. Currently Clinton has the support of 250 Super Delegates, and Obama has the support of 214. So by the metrics used to determine if a candidate has won the primary or not, delegate count, Senator Obama is leading.

I analyzed the 10 states that are scheduled to vote between now and June. I looked at their 2004 primary vote totals, and bumped those up 30 percent to get a rough estimate of how many folks will vote in the next three months. I estimate that 3.5 million voters will decide the fate of the remaining 566 pledged delegates. For Senator Clinton to catch Senator Obama in pledged delegates she would need to win 65 percent of the outstanding delegates. To catch Senator Obama in the popular vote total she would need to win roughly 70 percent of the remaining votes. To do either of those she would a significant shift in the current trajectory of the race, essentially an implosion of the Obama campaign. Although I would never say never, that seems pretty unlikely!

I have said in the past that it is dangerous to attempt to predict unpredictable events; however, if the demographics that have carried this nomination battle this far hold then it seems likely that the Democratic Party will end its primary contest with Senator Obama leading Senator Clinton in pledged delegates by a count of about 1,685 to 1,542. I would guess that Obama will be ahead in the popular vote column by about 500,000 votes (once again without Michigan and Florida). If you add in the current Super Delegates that have committed Obama will lead 1,899 delegates to Clinton’s 1,792. That leaves the 331 remaining Super Delegates to push one of the nominees over the top. For Senator Clinton to get to the magic number of 2,025 she would need to convince 70 percent of the remaining supers to come over to her side. I analyzed which Super Delegates have yet to commit, and split them up based on where the come from, and how their states voted. That gives Obama 180 of the remaining supers and Clinton 152, pushing Obama over the magic number of 2,025!

For Senator Clinton to win over the roughly 70 percent of Super Delegates she will likely need her campaign will probably use three arguments. The first will be that she wins the big states and Obama wins the small states. The second will be that if the popular vote from Florida and Michigan are counted then she actually wins the popular vote. The third will likely be a strategy that emerged today indicating that she is doing better than Obama when counting states by electoral numbers. Although you cannot fault the Clinton Team for their attempts to spin the results to somehow reflect positively for them, you can fault the mainstream media for taking this spin hook, line, and sinker. The reality is that none of these metrics are the agreed upon measures as to how the Democratic Party determines its nominee, and they are all an effort to change the perception of what victory really is.

All of this spin is designed to perpetuate an electability argument. I think arguing polls and electability at this point is a bit silly, but something many insist on doing. The only real measure of electability that counts is who wins the primary. You have to get past round one to get to round two! If a candidate cannot rally their base, and enough additional support to win their party’s primary, then it does not seem likely they will be able to rally the troops for the larger general election. I realize this is stating the obvious, but it appears many pundits seem to ignore this little fact, and as they say, “Facts are stubborn things!”

The real question for the Clinton Campaign is what should they do now? Should they stay and fight or should they quit. If they are going to quit when is the best time to exit the race, and what are the implications of doing either. At this point a plausible guess is that Senator Clinton will win Pennsylvania, which should give her some momentum. The problem is she needs a game changer, not a small bump in the polls. As I said I don’t believe in never saying never, although when looking at the key metrics for Senator Clinton it appears the gap is just too large to close.

The danger of staying in the race too long is that if you do lose, you really lose. The candidate is not perceived to be falling on his/her sword for the good of the party, they are being repudiated by the party. I would bet that there only so many political bridges one can burn, before it starts to negatively impact one’s long-term political career and effectiveness. There is a point in any venture where the win at any cost mentality results in a price that is too high for everyone to bear. Although staying in the race will certainly be what Senator Clinton’s supporters want her to do, it may not be the best tactic for her long-term political viability. That is a question only she and her closest advisers can answer!

In a spot of good economic news, existing home sales rose to over 5.0 million units in February as many buyers are starting to take advantage of falling home prices and interest rates. This is welcome news for an economy that is being battered by many headwinds, and welcome news for the dilapidated housing sector.

In Sunday’s New York Times Ben Stein has an article about what needs to be done to unfreeze the world’s financial markets. He makes a good case about how more transparency is needed in hedge fund trading; however, he starts the article by making the case that the U.S. economy is not in a recession. He is right on one point, we will not know if we are currently in a recession until we see the numbers, but using the fact that we don’t have data on 1st quarter economic growth as an argument that we are not in a recession is a bit silly.

I do not know if the economy is in a recession or not, I do know things seems to have slowed considerably. In many cases people who want to sell their home are finding it difficult, and many others are just having trouble finding credit to make new purchases. Consumer spending has slowed this year, and job growth has been non-existent thus far in 2008. At the very least we have an economy that has stalled, and it would appear very likely we are now in the midst of a recession.

By every metric we have an economy that is struggling, job growth has been sluggish, retail sales are down, manufacturing is down, services have slowed, and consumers are spending more of their paycheck to fill their gas tank and heat their homes. For some strange reason we have quite a few pundits and prognosticators who are always ready to claim that we are falling prey to a media in search of bad news. These folks miss the obvious, we are not falling prey to a headline hungry media, we are falling prey to the inevitable economic cycles we are destined to go through. The quicker we recognize the problem, and look for solutions, the better our chances of keeping any downturn brief and shallow!    

There will be quite a bit of economic data to digest this week. On Monday we will get the most recent data on existing home sales, Tuesday we will get consumer confidence data, Wednesday we will get new home sales data, and on Thursday the government will release its update on last quarter’s GDP numbers. We will close out the week with more consumer confidence data on Friday. Although there will be a lot of information, we do not expect anything to shift our current economic perceptions. At this point it is just a matter of getting through the slowdown to the next period of economic growth.

The nice thing about having my own blog is that I can write about pretty much anything I choose. March Madness is officially underway, and the upsets have started. My alma mater Western Kentucky University beat fifth-seeded Drake with a shot at the buzzer. It was a great upset, and a great win. Maybe, just maybe, Cinderella will come from Bowling Green in 2008!

If you are in the market to buy a new car, I would suggest buying it this year. There is an article in today’s New York Times which suggests that the automobile manufacturers are bracing for their worst year in a decade. This may indicate that buyers will be able to find better deals on new cars, and with interest rates falling, they may be able to finance those cars for less money. This looks like a good year to buy that new car!

Is it just me, or does it seem we have too many analyst out there who seem to have forgotten that the general rules of supply and demand still apply. The general rule is that if demand increases while supply shrinks, then the price is likely to go up. The transverse is also true, if supply increases, and demand drops, then prices will likely fall. Given that, is it really a surprise that oil prices should remain high for the foreseeable future, as the White House is now telling us?

Some OPEC members, and analysts are saying the price of oil is going up due to the falling dollar and financial speculators. Although I am sure the decline in the value of the dollar has some impact on the current price, oil prices have been rising steadily for quite some time. The average price for a gallon of gas in the United States in early 2002 was about $1.30 per gallon. Today that average is almost $3.30 per gallon. That is an increase of 153 percent. If that trend were to continue we will be paying $8.35 for a gallon of gas in 2014.

Common sense would indicate that the world’s oil supply is a finite resource. Whether that supply will last 50 years, 100 years, or more is certainly debatable, but I find it hard to imagine that the oil fairies are generating new crude beneath the ground today that will give us an infinite supply of cheap fossil fuel. The challenge is the world’s population continues to grow, and demand for energy continues to grow. We also know that the easy to reach oil is dwindling, we have picked the low hanging fruit. As we go forward it becomes more difficult, and expensive, to get new oil out of the ground. So we have a scenario of increasing demand, decreasing supply, and the supply we have is becoming harder to tap. There does not appear to a big mystery as to why prices continue to rise, and why it is no surprise that prices will likely hold that trend. Logic tells us the only way to halt the trend would be a significant reduction in oil demand or a significant increase in supply!     

The hypocrisy of our political leaders never ceases to amaze me, and it certainly comes from both sides of the aisle. My Republican friends have oft complained about the spiraling cost of social programs in the U.S., and the development of an entitlement mentality amongst some of our citizens. Although they may be right, they seem to be missing the abhorrent budgeting miss on the cost of the war in Iraq. The original projection was $50 – $60 billion, and estimates now indicate we have spent roughly $600 billion and the cost could reach as high as $1 trillion, that’s trillion with a “t.” This of course does not include the spiraling cost of gasoline on American consumers and business owners, which has gone from roughly $1.75 a gallon to almost $3.30 per gallon today. The GOP continues to defend this spending, and then they wonder why their prospects for November don’t look great! Hmmm!

The big news yesterday, other than the Fed rate cut, was Barack Obama’s speech on race, religion, and politics. His supporters, and other Democrats seemed to find new energy in his words. His detractors, and Republicans, seemed to be at a loss on how tear down his seemingly uplifting rhetoric.

I took the time yesterday morning to watch the speech. If you have the time to invest I would suggest you watch it as well. You can see the speech here, or read the text here. I recommend getting the whole context straight from the horse’s mouth rather than listen to all the pundits drone on about whether it was a hit or a flop. Over the years my fascination with politics has forced me to get my information firsthand. If you wait to catch the news soundbites, or the pundits analytical observations, then you will likely miss the salient points and just become another victim of political party talking points.

I thought the speech itself was excellent, certainly one of the best political speeches I have heard in my lifetime. I think he likely hit some truths about the state of race in our society today, whether we like it or not. I also think he did an adequate job of distancing himself from his former pastor’s comments without appearing to pander to the politics of the day by throwing the ”man under the bus.” The big question is will it hurt his chances of getting the nomination of his party, or did it impact his electability in November? Based on the reactions from the pundits, I am guessing the speech helped him more than it hurt him.

Democratic strategist, pundits, and some in the media were heaping praise on Obama for the speech and how he was addressing the issue. Even the folks in Senator Clinton’s campaign were at a loss for words when asked about the speech. It was reported that Senator Clinton was “glad” he gave the speech. The media reinforced the salient points Senator Obama was trying to address, and many were marking it as a historic speech. The New York Times called it his “profiles in courage.”

Republican strategist were parsing the speech and ranting about a word here or there, complaining the speech did not go far enough, or falling back on the comments of Reverend Wright as an example of why Obama is such a “bad guy.” In other words they were swinging wildly into the air hoping that they would land a blow that would deflate the other side. At this point I don’t think they were successful. The Wall Street Journal did not attack the speech as much as they attacked the liberal politics Obama represents. 

The bottom line, as a political candidate, anytime you can deliver a speech that energizes your base, has many in the media defining it as historic, and leaves your opponents either speechless or looking a bit silly then you probably did what you needed to do. 

The U.S. Federal Reserve cut interest rates .75 percent today. Although the Fed expressed some concern about rising energy prices, their primary concern continues to be growth. The Fed also cut the discount rate (the rate the Fed lends money to banks) another .75 percent today, this was on top of a .25 percent cut over the weekend. There is no doubt Bernanke and crew are focused on stimulating growth in the economy.

After yesterday’s buyout of Bear-Stearns by J.P. Morgan, I was curious who has written the most subprime loans, and who has the most exposure. Go here to see some data on top subprime originators and those banks with the most exposure. You can go here to see the top subprime originators by quarter last year. This may give us a good idea of which banks may have the biggest challenges going forward.

After a modest increase in January housing starts fell again in February coming in at 1.065 million units. This was a .6 percent drop from January and is 28.4 percent behind last year. Although this was better than expected, the cool housing market continues to be plagued by a tight credit market and a slowing economy.

The Producer Price Index rose again in February after a sharp increase in January. PPI was up .3 percent last month, and core PPI was up .5 percent. Higher prices for cars, light trucks, pharmaceuticals, and alcohol pushed the core PPI higher than expected. Headline prices were held down by a drop in food prices.

So here we are, policy makers are scrambling and investors are worrying as markets continue to roil. As each day passes the U.S. economic picture becomes bleaker. The negative data continues to pile up, not only are markets falling, the housing market continues to decline, consumers are gloomy, retail sales are down, manufacturing is down, the dollar is down, and energy prices are up. The Fed’s only weapons appear to be to induce more liquidity into credit markets to keep them whole, and reduce interest rates so credit worthy consumers have access to cheap credit. The problem is every action has an equal and opposite reaction, so every reduction in interest rates causes the dollar to fall pushing energy prices even higher. The result is an economy spinning out of control like water as it swirls down a drain.

This leaves many of us wondering how we got here, and where we are headed.One must go back more than 20 years to determine how we got to where we are today. We have two major issues pummeling our economy, the subprime mortgage mess, and the lack of new job growth. The subprime mess has it origination’s in the 1980s when banking laws were changed to give lending institutions more flexibility in terms of the interest rates they could charge, and the types of mortgage loans available. Both of these changes in banking regulations led to the creation of the subprime lending market, which began to take off in the 1990s, and hit its peak this decade.

The ability of banks to lend to riskier borrowers led to an increase in home ownership in the United States. The increase in home ownership drove up demand and prices, and led to many investors buying homes on speculation in hot markets to capitalize on the rapid price appreciation. This all worked as long the lending institutions could find investors to buy their subprime loans. As the defaults on these loans began to increase dramatically, investors panicked, and tried to sell these assets. This created a cash crunch for many of these lenders, led to tighter credit standards, and the subsequent downturn in housing demand and prices.All of this has a snowball effect as those who were at or near a 100 percent loan-to-value ratio on their home found themselves in a negative equity position in what could be their largest asset. This meltdown rippled over to other segments of the economy as consumer spending slowed, and we now find ourselves at or very near a recessionary environment.

All of the issues in the financial markets are also complicated by very weak growth in new job creation in the United States since 2000. Currently we are on pace to add the fewest number of new jobs in the United States since prior to World War II. Although the economy has been respectable in the last eight years, except for the recession of 2001, job growth has been slowed due to the shifting of many manufacturing and some service jobs from the U.S. to other low cost labor markets.There are two trade deals that set the stage for U.S. corporations to shift their labor base. The North American Free Trade Agreement passed in 1993, and signed into law by President Clinton, created a large free trade zone between the U.S., Canada, and Mexico. The significant piece being a shift in trade policies with Mexico, which allowed U.S. manufacturers to take advantage of lower labor rates south of the border, but still have a manufacturing location close to their major market. This issue was multiplied when President Clinton signed the China Trade Bill in 2000. Once again U.S. corporations were given access to another, larger pool of low cost workers, and they have taken advantage of that pool in droves.

Free-trade proponents will say that both of these agreements opened up new growing markets to U.S. companies. The hope was that as these markets developed a viable middle class, U.S. companies, and shareholders would benefit from access to these markets. The problem is that the U.S. job market has not benefited. Because labor rates are so low in these markets, and the drive for corporate chieftains to hit return numbers is so high, many companies have used these trade agreements to create points of manufacturing or service for both the low cost market where they are located, and the U.S. market. The end result is any increase in new job growth in the U.S. has been offset to some extent by jobs being exported.

Any individual, policy maker, or analyst that tries to point this out is accused of being a trade-protectionist, and not grounded in the reality of globalization. This is typically a political argument as opposed to an economic argument. One look at the job growth numbers gives even a novice analyst like me a pretty clear indication we have a job growth problem. If the growth numbers were only down in comparison to the 1990s, one could make the argument that the slowing job growth is due to the bursting of the dot com bubble. However, when you are looking at a 60-year low in new job creation, then you have to assume there is a different issue at work!

The biggest problem this creates is that slowing new job growth translates into slowing consumer growth. We have a consumer driven economy, if we keep adding fewer new consumers to our economy then growth will slow. I think this is the major underlying problem with our economy. When we add people faster than we add jobs we have to expect there will be a negative economic impact. Unfortunately, we have no political leaders who have the political will to try to tackle this issue.As to where we go from here, the only cure I can foresee is time. The contraction in the housing market will have to continue until it gets to the point where supply and demand equalize. As long as inventories remain high prices will suffer. The only real cure for the problem is to wait it out, let the banks and investors take their hits, try to slow the rate of defaulting home loans, and engineer a softer landing. How long this will take no one really knows. Some expect the problem to last through 2010.

The job growth problem is likely an issue of time as well. At some point the numbers of jobs manufacturers have that can be sent overseas will be limited. They will have gotten to the point where they have picked the low-hanging fruit. It is at that point that new job growth should stabilize. The challenge will be the types of new jobs created, and the labor pool available may be very different. The end result will likely be some major re-training effort to teach existing workers new skills. My guess is that it will take us much longer to dig ourselves out of this hole than it took to get into it!Could any or all of this been prevented? Perhaps, but it is much easier to be a Monday morning quarterback, than to actually play the game on Sunday. The problem we have now is getting everyone to recognize the problems. Too many people tie their interpretation of the economy to their political affiliation. They do the same when assessing the merits or faults of a particular program. This lack of objectivity with ideologues creates the issue of not being able to recognize problems. People work too hard at defending the indefensible rather than spending their time trying to resolve the issue. Some of this is our political leaders trying to prevent the spread of economic fear, but it strikes me that our government has never been shy about using fear to drive policy initiatives if they believe it will help them get what they want.At some point we will have to stop treating the economy as a political issue, and start treating it with more objectivity. If more policy makers and pundits would do less economic spinning, and more economic analysis we might be able to prevent some of these problems before they occur!      

The big news overnight is that J.P. Morgan has agreed to buy Bear-Stearns for $2 per share. Bear-Stearn’s investors lost confidence is the nation’s fifth largest investment bank due to their exposure to credit and mortgage markets. Bear had carried large stakes in subprime-backed securities, and as those markets deteriorated so did Bear’s cash position. The $2 per share price is just about one percent of the record share price Bear hit last year at $172 per share.

The U.S. Federal Reserve jumped in as well to stabilize financial markets, and prevent any more problems like Bear, by cutting its lending rate to banks by one-quarter point overnight. The rate cut caused the U.S. dollar to drop to a 12-year low against the Japanese yen, and set the stage for a plummet in share prices on Asian exchanges today. The expectation is that the Fed will cut interest rates when they meet tomorrow, markets are now pricing in an unprecedented one point cut in interest rates.

To get an idea of how widespread this problem could become, here is a story from our local newspaper over the weekend about an Ohio based bank, National City, which is quietly looking for a buyer. National City’s challenge has been due to its direct exposure to subprime lending. All of this is not the beginning of this problem, which was last summer, and it is not the end. We will see more issues in the financial markets, hopefully they will work themselves out over time.  

This week there will be some economic data, and one big announcement from the U.S. Federal Reserve. On Monday we will get data on Industrial Production, Tuesday we will get Housing Starts, and Thursday we will see the Index of Leading Indicators. All of that information will pale in comparison to whatever comes out of the Fed’s meeting on Tuesday, most analyst are expecting the Federal Reserve to cut interest rates by .75 percent. It does not matter what any of the other data looks like this week, the Fed announcement on Tuesday is the most important, and will tell us a great deal about the current economy.

Not long ago we (Rough Air Associates) formed a joint venture with another small firm to seek out investment opportunities in small business. Part of my vision with Rough Air is to create an investment arm that acquires small businesses, in my areas of interest, and helps take those businesses to the next level. My new partner and I created 4 Iron Development Group to do just that.My partner is new to the entrepreneurship world, but not the business world. He is a savvy executive who has been fighting the corporate wars for more than twenty years, and today he and I will close a deal on our first investment opportunity. Late last night I was thinking through all of the things we needed to get done in the next few weeks in regards to our new acquisition, and reminding myself of the principles that have always guided me in running a business. I would like to say these guidelines are something that I came up with on my own, but I am not that smart. These guidelines are really a compilation of things handed down to me by my mentors, and today I wanted to pass them along to my partner and our readers, for what is worth. Always remember, free advice is worth what you pay for it, so here are my guidelines.

1. Have a vision – No matter how large or small your business is make sure you have a long-term view of where you want your business to go. Dream big, don’t allow the doubts of others to weigh on your desire to tackle those big dreams. Grab a vision, focus on it, and keep moving forward. Every day you will run into roadblocks and challenges, but don’t let them stop you from getting to your vision.
2. Treat everyone well – I always worked hard at ensuring every stakeholder (employees, customers, and vendors) knew how much I appreciated their efforts. It is important to treat everyone well. This does not mean being a pushover. There are times when you will need to make tough decisions, and you will have to take a firm stance. Taking a firm stance does not mean being a jerk. You will catch more flies with honey!
3. Be honest – You need to be honest with yourself about your business, and with everyone around you. At the end of the day so much of your business’s success depends upon your reputation. If you lose the trust of any of your stakeholders, you set your business on a path to failure.
4. Keep your promises – My dad always told me he was successful in banking because he always delivered more than he promised. People need people they can depend on. If you can develop that reputation for your business you will go a long way.
5. Never stop selling – I never stop talking about my business. I know some folks have heard it before, and they are probably getting tired of it, but the more folks you tell, the more the word will spread. I am not great salesman, but I never stop selling!
6. Have fun – On occasion people will ask why I just don’t retire, maybe take a teaching job, or get a mid-level management position at some other business. I always tell them what my father-in-law taught me, I do it for the “fun of the run.” I love everything about being engaged in small companies and helping them grow. Whatever your are doing always make sure you are having fun, life is too short to do otherwise!

  I realize my “sage advice” may not work for everyone, but if you follow these simple guidelines I believe you will put your business on a path to success.

One major concern of many analyst is that the credit issues that originated in the housing market are spilling over to other types of consumer and commercial credit. The New York Times ran a front page article not long ago about how credit flowing to American businesses is “drying up at a pace not seen in decades.”Small business owners that are going into 2008 with big expansion plans and large borrowing needs will need to make sure their business is positioned to get the credit required. I was meeting with some local bank officials recently and they mentioned three things they look at when meeting with business owners who need to borrow in today’s environment.

1. Cash Flow – The bank wants cash flow, and proof of cash flow. If you are buying a business or investing in capital bankers will need to see evidence that your business has the cash flow necessary to cover the debt. The bank’s comfort with cash flow will be directly reflected in the borrowing terms.
2. Collateral – In today’s environment the bank wants collateral. They need to see other assets that can be used to guarantee the new debt. They will look at receivables, inventory, and equipment. The lenders are thinking about options if the borrower defaults on the loan. Collateral is a great option.
3. Reputation - If you have a positive reputation with your bankers and a strong relationship, then borrowing in today’s environment will be much easier. If you lack a track record with the lender or in the community then borrowing will be difficult.

I have been told that you can be missing one of these three keys and you still be able to borrow. If you are missing two then your chances of finding a lender will be limited!

The Commerce Department reported today that retail sales fell more than expected last month as the pressures from a downturn in housing and a credit crunch continue to weigh on the overall economy. Over the last few months consumers have been altering their spending habits as more people become concerned about the overall business environment. Sales fell .6 percent in February which was greater than expectations. This is simply another piece of data for the U.S. Federal Reserve which points to an overall cooling of the U.S. economy!

It could be the time of year, or perhaps because of the economy more people are thinking about how they can strike out on their own, and have more control of their professional lives, but lately I have been getting a lot of request for start-up support. These are typically folks who have an idea, but need cash to move their idea forward, so many times our conversation centers on how to raise cash for their new venture.

 There are many things to consider if you are trying to raise money for your business. I ran across this article in Forbes which provides some good information. I will caution you that the author seems a bit “anti-VC,” but he does provide some good food for thought.

One of things we provide Rough Air customers is an opportunity to lease space in a Rough Air Small Business Center. This is an office that is broken up into small one and two room suites designed for start-up firms. I ran across this piece in The New York Times about a similar concept in New York. I love this idea of creating spaces where new business owners can set-up shop with like individuals and work to grow their businesses together.

Do your employees suck-up just a little too much. Does it feel like your direct reports avoid you? You may want to watch this slide presentation and find out if you are a bad boss.

Are you cut out to be an entrepreneur? If you make the jump, leave that corporate job, and start your own firm will you survive? These are questions that perplex most new entrepreneurs as they contemplate whether or not business ownership is for them. This article from USA Today gives some good tips on things to consider if you are preparing to plunge in the entrepreneurship poll. The ride is never easy, but it will make life a whole lot more interesting!

For those of you that have not noticed, gas prices continue to climb. Oil prices hit another record today at $109.72 per barrel with gas prices averaging $3.22 per gallon nationwide. Neither of these are great news since we are at a point where we need to be putting more money in consumer’s pockets to get spending back to growth levels. Many analysts are projecting gas prices will hit $4.00 per gallon nationwide sometime this year! 

This is one of those small pieces of buried news, but it is likely highly relevant. Last fall when the sub-prime crisis was starting to bubble over, many financial experts were on TV telling everyone not to worry because global growth would keep the U.S. economy out of recession. We mentioned at that time our belief, which was that a slowdown in the U.S. would impact everybody. After all who is buying all that stuff coming from China?

The Financial Times has a small story on the slowdown of Chinese exports. The bottom line is that the U.S. is still the world’s largest consumer. If we slow everyone else will feel it to some extent.

For those of you that have been locked in a sound-proof chamber for the last 24 hours, Eliot Spitzer, the Governor of New York that rode into office on a reputation of being a crusader against corporate corruption found himself on the wrong side of the law yesterday. Spitzer was identified as Client #9 in an international prostitution ring, and faces possible charges including being charged with violation of the Man Act. The New York Times broke the story yesterday, you can go here for all of the front-page details.

I cannot understand what drives so many people in positions of power to do so many really stupid things. I can tell you if I was spending several thousand bucks an hour for a prostitute and my wife found out the amount of pain she would inflict would be immeasurable!  

I am going to delve into politics again today. The race for the Democratic nomination continues to slog on, and the American people continue to be pounded by the incessant bickering that seems to be normal in today’s presidential elections. This race has gotten to that point where issues, and the interest of the American people have been trumped and now it is all about who can make whom look worse!

I am not an ideologue, I am a pretty independent voter. As most of you know we have three candidates left standing in the race to be the next President of the United States. Although I do not agree with everything each of these folks espouse, I also do not subscribe to the theory that our country will be in deep trouble if any of these three get elected. True ideologues that believe every bit of spin a campaign can muster will not be happy with that comment, but the reality is we have lived though some great leaders, and some not-so-great leaders. No matter which of these candidates gets elected the country will continue to operate and move forward.

This is not to say I have no opinion in regards to this election. I have a very strong opinion, and I am as guilty as most at refusing to see things objectively. I look at the presidential race as a really long job interview. We start out with a crop of candidates that work to convince us they are the best person for the job. Over time we whittle down the field to get to the two major candidates (Ralph Nader not included) that we believe should face each other in the general election. I make my decision pretty much the same way I would make any hiring decision, I look at individual experience and what each candidate has done in the past, and hopefully that will give me some idea of how each may handle things in the future. Given that I decided to look at one candidate from the standpoint of a recruiter making a decision about a job applicant. My final summation would probably look like this.

In this election a lot has been made about Hillary Clinton’s political experience, I question whether or not it is the right kind of experience. My decision to hire or not hire this individual will be based on how she has handled challenges in the past to develop an idea of how she might manage our government going forward. For Senator Clinton there are several issues that pop-up on my radar screen as major concerns.

My first concern is about the amount of, and role spin would play in another Clinton Administration. I don’t believe the Clinton Team invented spin, I do believe they have perfected it. I am confused by some of the interpretations of events that have taken place in the current campaign. The effort has been to spin losing into winning. Senator Obama’s wins don’t matter, because the states are too small, or these states won’t matter in the general election, or caucuses only favor the well-to-do, passionate voters. These are all ways of trying to distort a picture of losses and send the message these losses are irrelevant. This is okay, but as the recruiter it makes me wonder whether or not the candidate and her advisers are accepting reality. It also makes me wonder how they will handle things when they are running the government. It indicates to me they will not be able to openly deal with their failures. Every great manager I know has an uncanny ability to understand their weaknesses, accept their losses, and find solutions for getting better. Senator Clinton and her team have not demonstrated that ability.

My next concern would be what the candidate’s past record shows. The trail behind Senator Clinton’s political career is littered with issues. They are myriad red flags on her resume that would have any interviewer asking, “What is really going on here?” These are all issues we have heard about, but appear to have been deemed off-limits by the mainstream press lately. This starts in the late 1970s with Senator Clinton’s cattle futures trades. She was able to grow a $1,000 investment in a market she had little knowledge of into $100,000 in ten months. Although many of her supporters have tried to explain away this gain of $99,000 in such a short period, I have a hard time believing them. My reaction would be that the right answer is probably the most obvious answer, some other investor got her losses and she got their gains. If not then I would question why she is in politics and not working at the Chicago Mercantile Exchange.

It of course does not stop there. When Senator Clinton’s husband ran for his first term in 1992 we got a taste of his supposed extracurricular activities. It was during that campaign that he was accused of having an affair with another woman while he was Governor of Arkansas. At first the affair was denied, and then when tapes of phone calls were produced, the Clintons went on national TV to tell us like other married couples they had their share of challenges, but were working them out. After the election there was the firing of the White House Travel Office staff, and they were replaced by people who had closer ties to the Clintons. The people who were fired were never convicted of any wrong doing. Then of course there was the Lewinsky affair, which at first was also denied. At that time Mrs. Clinton blamed it on a “vast right-wing conspiracy” (given the former President’s previous indiscretions one would have thought she, of all people, would have caught on). President Clinton even went on national TV and lied to the American people about the incident! We all know the eventual outcome.

The stories don’t stop in the 1990s. There was the pardon of Marc Rich, a businessman accused of tax evasion, and trading with Iran during the hostage crisis. President Clinton pardoned Mr. Rich his last day in office, I am sure it is pure coincidence that Mr. Rich’s wife has donated hundreds of thousands of dollars to the Clinton Library. There is also the $700,000 in stock Mr. Clinton was given by Accoona for giving a speech, perhaps congress should not only be looking at capping executive pay, but also fees earned from giving speeches! Then there is the Kazak deal Mr. Clinton helped orchestrate for a Canadian entrepreneur. Although I would never begrudge an individual citizen’s right to earn a living, I would be very concerned about some of these deals if that citizen’s spouse were a U.S. Senator, or future President. It gives the appearance we have put out a “For Sale” sign in the front yard of the United States and we are awaiting the best offer. What price for our dignity?

My final concern for the candidate would be the continued process of playing the role of the victim. I get the impression that whenever this person is criticized, which is admittedly quite often, the person leveling the complaint is attacked. These attacks are typically pretty visceral, and focus on demeaning the complaintant’s character. This calls into question the applicant’s ability to process negative feedback.

As I sum up the candidate I would come to the conclusion that this individual appears to have shown some poor judgement in her past business dealings. Although no laws may have been broken, the appearance of impropriety has certainly been ignored. There also seems to be a lack of willingness to accept results as they are, and a desire to skew the picture. This makes me wonder if her team can accurately and fairly report on the progress of running the government. Finally I would surmise that the candidate does not appear to be open to criticism, that this individual is more likely to attack her critics than recognize her weaknesses and strive to improve. That strikes me as being pretty much the exact same management style that has gotten us to where we are today. Make bad decisions, skew the results, and ignore the critics; not exactly a resume builder!

After assessing this candidate’s qualifications and background, and measuring those against the job requirements I have come to the conclusion that this particular candidate has not demonstrated all of the characteristics needed for the job. Although this candidate has a long track record, I am concerned about the substantial number of red flags on her resume. The past is never a perfect predictor of what may happen in the future, although how an applicant has behaved in the past is how we must base our decision.

I believe we can see these flaws coming out in Senator Clinton’s current management effort, her campaign for the presidency. She started out with the strongest brand, and plenty of cash, and yet she is getting beat. Her management style has resulted in inner squabbles among her staff and poor stewardship of campaign funds. The candidate’s team also has shown a strong reluctance to accepting events at face value and attempting to make us all believe losses are really wins, and they are the ones in the driver’s seat. At the end of the day, although she is a strong applicant, she has not demonstrated the qualifications deemed necessary for the job! 

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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.

There will not be a lot of new economic news this week; however, there will be quite a bit of hand-wringing as many pundits start to catch up to the idea that our current economy is not robust. Thursday we will get new retail sales data, and Friday we will get consumer sentiment data as well as the release of the Consumer Price Index. All in all a relatively quiet week, which we need after this past Friday’s employment report!

It must be getting close to the time when the economy bottoms out and starts to turn the corner, because all those “doubters” who thought there was no slowdown, and it was just media hype, are now beginning to see the picture. The job loss in February now has many experts believing the economy is already in a recession, President Bush indicated today that the “economy has clearly slowed.”

Back in October I posted an article about what we believed were recession indicators, and as early as August we were beginning to question where the economy might be headed. When I read today’s news I wonder, how much of the slowdown could we have prevented had we recognized and done something about it seven months ago?  

The U.S. economy lost 63,000 jobs in February, the largest one month drop in almost five years. The manufacturing sector was the hardest hit losing 52,000 jobs as the overall slowdown of the economy starts to impact manufacturing firms. January’s numbers were revised downward to a loss of 22,000 jobs. The economy has lost over 80,000 jobs this year as job growth has steadily declined since 2005. This is further evidence that the U.S. economy is in the midst of a slowdown. Economist now put the likelihood of a recession at more than 50 percent.

The economic data continues to point toward an economy that has slowed or is slowing.  With each day that passes more experts jump on the bandwagon to pronounce that we are in a difficult economic environment. Just remember, just because the economy is slowing does not mean small businesses simply stop. The challenges you had yesterday remain. Whether you are a new business trying to get out of the start-up cycle, or an established entrepreneur planning your exit, those everyday challenges force you to press on.

One challenge many business owners face is how to negotiate the sale of their business, and maximise its value. Although there are many aspects to creating value in your business, and realizing that value in a sale, once you are face-to-face with a buyer how you position your business could make a significant difference in the amount you will realize. Even in a slow economy, the right business, positioned in the right way, can garner the owner a strong multiple. If you want to effectively negotiate the sale of your business, and maximise your return, here are some ideas you can use that may help you along the way.

First you need to understand the true value of your business. Too many business owners approach selling their business from a standpoint of how much they need to sell for to maintain a certain lifestyle. Many times this does not reflect the true value of the business. Any entrepreneur getting ready to sell needs to determine what the business is worth to them going forward. I suggest using a model where you look at the cash or income you can pull out of the business every year, and then determining the value of those future cash flows in today’s dollars. Savvy sellers also determine what they believe the business is worth to the seller using the same model.

When determining the value the business will have to the seller you need to determine what expenses will leave the business when you are gone, and won’t need to be replaced. These add-backs will help the buyer understand what the potential profit and cash flow from the business may be going forward. It is critical that any add-backs you demonstrate are realistic. Many times sellers will include expenses that don’t go away when the business is sold. Most buyers will pick up on this quickly when they start their financial analysis, overstating these up-front will cause the buyer to question all of the numbers.

Once you have an idea of what you believe the business is worth to the buyer, and what it is worth to you, lay these numbers out and see where they overlap. That would be the range where the value is something both the buyer and the seller are comfortable with. When trying to drive the buyer to a particular value you must be able to demonstrate the profitability of the business through an established track record of continuing profitable growth with a realistic forecast. Buyers typically look at the past three to five years and a forecast going forward five years.

When dealing with buyers or their representatives, be open without giving away the store. Ensure they have all the information they need to make a reasonable decision. Too many people get nervous when supplying information, always remember that if you refuse to give the info it will make the buyer’s job more difficult in determining a value. It will also force them to ask if the seller has something to hide. Being open during the negotiating process will make things go much smoother.

Once that first offer is on the table, make sure you are firm with your reply. If you have developed a range of values based on what the business is worth to you, and what you believe it is worth to the buyer, then saying yes or no to an offer will be much easier. I always suggest when responding to an offer to thank the buyer for the offer, and if you are saying no, make sure they understand why. If it is not in the range you want, don’t be afraid to tell the buyer the business is worth more to you going forward.You should always be prepared to walk away from the deal if things are not going the way you like. I remember when we sold our family business we ran into an issue with one of the people on the buyer’s due-diligence team. It got to the point that we had to threaten to pull back from the table to resolve the issue. You don’t want to become so emotionally tied to the prospect of getting your business sold that you start giving too much up in the process of closing the deal.

Keep in mind the process of negotiating the sale of your business may take months of negotiating with the same buyer. It took us 18 months, and seven offers from two buyers, to get to an offer we thought was acceptable. If you have a good understanding of what the business is worth to you, what it is worth to a potential buyer, and you can demonstrate it, then negotiating the sale will be much less daunting task.

I am going to venture a bit off topic today to delve into a political discussion, and the raucous Democratic primary. I must admit, as many of my friends and colleagues know, I am a political junkie. On occasion I cannot get enough, and sometimes I get just a bit too much. This past Tuesday, billed as Super Tuesday II, I was glued to the TV, and the web until I could take it no longer. I finally shut everything off and went out and sat in my hot tub for some solitude. This has certainly been an exciting ”silly season,” with many twists and turns along the way.

Two months ago who would have predicted that by March the Republican race would be locked up, and the GOP would be coalescing around one “unexpected” candidate. Last summer it appeared John McCain’s presidential ambitions had been left for dead as his campaign imploded. During this election, more than anyone, he has earned the title, “comeback kid,” after clinching the nomination this past Tuesday. So now the GOP is ready to start raising cash and move forward to a general election, and the Democrats are far from finished!

Although Hillary Clinton scored some hard earned victories this week, I believe this past Tuesday will be remembered as the day she lost the battle for the Democratic nomination. As her strategist as said, this race is all about delegates, which makes this week’s wins somewhat of a bitter success. Although the Texas caucuses still need to be figured out, it appears that her overall net gain delegate gain on Tuesday was about 11. By next Tuesday it is likely that this gain will be erased with probable Obama wins in Wyoming and Mississippi. If Obama does pull out wins in the next two contests, then he will have gained about 3 delegates in the seven day period with the next contest in Pennsylvania more than one month away!

The spin, of course, is different. The Clinton Campaign had created a pretty solid narrative within the media so that wins in Texas and Ohio would be interpreted as a big comeback! The idea was to get her back to the position of the inevitable nominee, and with the “right” interpretation these two wins could do just that. The Clinton Campaign is now doing the same thing with the upcoming primary in Pennsylvania. The strategy is to pull everyone’s attention, the media, donors, supporters, and super delegates, away from the reality of the delegate count, and focus them solely on the candidate’s wins. I would call this the Vietnam War strategy, try to get everyone to focus on the big battles you do win; however, the problem is that she is getting beat by losing a lot of small battles!

For Barack Obama, despite many of the expert’s opinions, the numbers and time are working in his favor. There are currently 12 states left to vote in the Democratic primary, not including whatever happens in Michigan and Florida. According to Real Clear Politics, Obama currently leads Clinton in pledged delegates by a “score” of 1366 to 1222, 144 delegates for those of you without a calculator. Clinton currently leads in the super delegate column by a “score” of 247 to 207. I analyzed the next 12 contest, and came to the conclusion that Obama is likely to win seven, and Clinton five. Given their average margins of victory so far, of the 611 delegates in those contest, Clinton will pick up about 288, and Obama about 323. This alone gets neither of them to the magic number of 2025. Even with the super delegates they already have pledged, Clinton would be at a total of 1757, and Obama a total of 1896. That leaves the decision in the hands of Florida, and Michigan, and a possible redo. Between the two they would have about 366 delegates at stake, my best guess is that Clinton would win both states and pick up about 193 of these delegates, and Obama about 173, somewhat similar to the margins that Clinton won Ohio and Texas. That would leave Obama with 2069 delegates (over the magic number), and Clinton with 1945. There would still be the matter of the 347 super delegates on the table. Senator Clinton would need to persuade 68 percent of these folks to support her just to tie Senator Obama.

Senator Obama, regardless of the media drubbing he will likely take over the next few days, can win the Democratic nomination even if he does not do as well in the next 12 contests as he has in the last 42. Senator Clinton on the other hand must perform significantly better in the next dozen contest just to catch him, much less win. Obama just needs to things to keep going pretty much the way they have, Clinton needs some major unforeseen event to change the trajectory of the race. Barring that she will likely not be able to get there through any means, conventional or non-conventional!

There are some speculating that a Democratic primary race that last all the way to the convention is somehow good for the party. The spin is usually something like, “Think of all the press coverage these two candidates will get as they battle it out.” I am not really sure I buy that spin. If I am John McCain I want these two folks focusing on each other, and ignoring me for as long as possible. The more they work at making each other look bad, the better I will appear to the public! The GOP is focusing on fundraising for the general election at this point, the Democrats are paying for a primary season that gets more expensive every day! That cannot be positive. I would also guess the longer the race goes on the more hardened individual positions will become, and the less likely either Obama or Clinton will be able to attract the other’s supporters to their side. It will probably take some time for that animosity to heal, I would bet the nominee would rather have from April to November to do that than August to November!

This has certainly been a fascinating primary season from both sides of the aisle, and despite my expert math and rather speculative predictions I would guess that we are a long way from the finish line! 

The ISM Non-Manufacturing Survey rebounded slightly in February from a sharp drop in January. The survey came in at 50.8 after dropping to 41.9 in January. The primary concern is the softness in the services sector is typically an indicator of the economy being in a recession. The bounce back in February may signal that the economic slowdown will not be as bad as some had projected!

U.S. Factory Orders fell in January after a sharp rebound in December. Orders were down 2.5 percent mainly due to a large drop in duable goods orders. The drop in factory orders corresponds with other data that points to an overall slowing of the U.S. manufacturing sector. This is a pretty good indication that the first part of 2008 will see a relatively flat manufacturing environment.

ADP released the employment report for February this morning and they are forecasting a decline in new jobs of 23,000 in February. I normally don’t pick this report up, but this is the first time since I have been following it that it has gone negative. The numbers are starting to indicate that the economy has slipped into a recession. We may be able to nail this down a bit more as we get additional data this week.

Daniel Griswold is the Director of the Center for Trade Policy at the Cato Institute in Washington. I am sure he is a well respected and highly regarded economist. Given the opinion piece he wrote in a recent Wall Street Journal, I am not sure he has spent much time in the great state of Ohio! Mr. Griswold was trumpeting NAFTA and its positive impact on Ohio’s exports. I have lived in Ohio for pretty much my entire life. I have been involved in the manufacturing sector in Ohio for almost 20 years. Like many Ohioans I have been a witness to the negative impacts of globalization on our state, and on our country in general. 

I am not a trade protectionist! I am a realist when it comes to the numbers. I believe globalization is here to stay, just because I understand that does not mean there are no negative impacts, or that I like it! I once worked for someone who had a favorite saying, “Figures lie, and liars figure!” Having lived and worked here I understand the negative impact of global competition on local employment. Large companies that have the capital resources and infrastructure have taken advantage of lower cost labor markets and moved assembly operations out of the U.S. When labor rates in Mexico are 10 percent of labor rates here, and labor rates in China are 10 percent of that, then publicly traded businesses that are beholden to shareholders are obligated to take advantage of strategies than can increase profit. Most of them seem to be very willing to live up to that obligation!

If you take the time to break down Mr. Griswold’s numbers you can begin to see the picture that takes shape. He argues the U.S. economy has generated 26 million new jobs since NAFTA went into effect. Although this is true, what he doesn’t say is that 20 million of those jobs were generated from 1994 – 2000, during the dot com boom. The U.S. economy has only generated 5.5 million new jobs since 2001. Ohio is one of the states taking the brunt of slower job growth with only 300,000 new jobs since 1994, and 200,000 fewer jobs today than there were at the start of 2001. I think it is safe to assume that most large companies that moved manufacturing operations to lower cost countries were not positioned to do so on January 1, 2004, it would take some time to execute their manufacturing cost reduction strategies.

Mr. Griswold also argues that Ohio is benefiting from NAFTA due to our great exports. Although we are an exporting state, two of our top exports, aircraft engines and vehicles (and parts) have declined since 2002. What have we replaced our manufacturing jobs with? The top five fastest growing jobs in Ohio are all service related, with three of the five being retail sales, cashiers, and food preparation. These jobs pay an average of $7 to $11 per hour! I am not an expert economist, but it appears to me that Ohio’s biggest export has been its middle class!

Globalization may be here to stay, but to try to spin it as a boom to U.S. manufacturing or as a great creator of new jobs is to ignore the facts, and everything we see on a daily basis. To grow the U.S. economy we need to add consumers. The drug that keeps our economy going is the U.S. consumer, if our job growth continues to slow our consumer spending will continue to slow. If that happens it just won’t be the people in Ohio complaining about the effects of NAFTA and globalization, we can continue to lower the bar for everybody!

The Institute for Supply Management released its survey of manufacturing this morning, and the news was not great. The survey fell to 48.3 in January, any number below 50 indicates manufacturing is in contraction mode rather than expansion mode. This is the second month in the last three that the survey has come in below 50. Today’s release reinforces Warren Buffet’s comments on CNBC this morning that the U.S. economy is likely already in a recession!

The Rough Air Demand Index was unchanged at a strong negative in January. The U.S. economy has slowed in recent months due to a downturn in housing and the credit crisis. Demand has fallen across the board and we are now starting to see the effects of the slowdown in other areas. Job growth in January was negative, consumer confidence continues to fall, manufacturing has slowed, and projections for GDP growth in 2008 are not great. Overall the slowdown we have been projecting for the last several months appears to be on top of us.

The Rough Air Cost Index remained at positive in January due to continued increases in energy and food cost. In January the Consumer Price Index, the Producer Price Index, and Commodity Prices all rose greater than expected. The challenge before the U.S. Federal Reserve is how to stimulate growth while keeping a lid on inflation!

The economic discussion in today’s media is centered on the possibility we are in a recession. Some have even mentioned the possibility of stagflation, as growth slows and prices rise. We are continuing to see increases in food and energy cost, which is putting inflationary pressure on other areas of the economy. This week we will get additional data that may help us understand just how much the U.S. economy has slowed in the last few months.Monday we will get the latest ISM Manufacturing Survey. Wednesday we will get additional manufacturing data as we see the most recent information on factory orders, and we will also get a glimpse of how the service market is doing with the ISM Non-Manufacturing Survey release. We will close out the week on Friday with the employment numbers. The February job growth numbers should give us a good view of what we can expect for unemployment and new job growth in 2008. 

Are you like the multitude of small business owners that flies by the “seat of their pants” when it comes to running their business day-to-day. It is the same for many business owners, we love the thrill of running our business, but we never seem to have enough time to get everything done that needs done.

Most small business owners are doers. They are the kind of people who can take on any task and get it done. This is generally why they are successful in owning their own business. The trick is to harness that ability and energy that allows you to get things done, organize it, and make it work for you.

I follow a simple process to make myself as productive as possible. Here it is:

1. Plan the next day – Every day before I leave the office I spend the last 30 minutes planning my next day. My daily plan includes an hour-by-hour plan. No matter the task I make the effort to dedicate time to getting the task done. After a task has made my calendar, it then goes on a task list. The next day as each task gets done I earn a check-mark, my reward!
2. Utilize your time – When I am in the office, I work on the things that need done, I don’t allow my time to get away from me, Too many people get distracted with what is not important. This includes those lunch and breakfast meetings. Make sure when you dedicate time to someone at lunch or breakfast, that there is an objective, and it is time well spent. Building relationships is time well spent.
3. Balance – If you do nothing but work, even if you enjoy it, you will burn out. Our brains need diversions or distractions. Give yourself time with your family and friends. Shut off your email, turn off you Blackberry. There is nothing there so important that it cannot be answered the next day.
4. Exercise – My workout regimen in the morning is recharge time. It gets my brain and my blood moving. It also allows me to burn off that excess stress that tends to build up for all small business owners.
5. Be flexible – Having a planned day is critical to getting stuff done; however, business is dynamic, so our schedules need to be dynamic as well. Don’t become so focused on following a daily plan that you lose sight of other opportunities.

Here is some more good advice on making the most of every day.

In today’s world we seem to be working hard to teach the next generation the wrong principles of success while burdening them with even greater life and social challenges. The lessons of success being learned in the reality television classroom teach younger generations that 30 days is a “long time” to work to earn $1,000,000, that lying and disloyalty are key success factors, and that not much is off limits! These are not lessons for success, they are the basis of a workbook for achieving mediocrity!

We often referred to our family business  as a 40-year-overnight success. The successful people I know all put in the time to move their venture or their career forward. They made sacrifices, whether personal or financial, over an extended period of their lives to get to where they are today. Many of these people were just pursuing something they were passionate about, they had no time-line!

I have come across many people in my career in business who expect to get to the top, but not put in the time. These are the folks who want to put in 40 hours every week, and believe that is all they need to do to move up the ladder or create a successful business. To be successful you will have to put in the time. The people that move ahead are the ones who are committed, whether it is in sports, business, or any other venture, those that put in the time will achieve some measure of success.

On occasion you will fall short of your goals, the most successful people know have learned to cope with these challenges and keep moving forward. They do not allow a set-back to be a take-down. They learn to deal with adversity, pick themselves up and keep moving. They understand that the road to success is a long journey with many twists and turns, failure is just one of the stops along the way.

Here are five things to remember as you chart your course for career or business success:

1. Set a goal – Without a goal or a direction there is no telling where you will end up. Make sure you start by knowing where you want to finish.
2. Craft a plan – This does not mean the plan won’t change, it just means you will have a general idea of how you plan to achieve your goal.
3. Commit – Be prepared to put in the time and a long term effort. Overnight successes in business are rare. Make sure you have a long term view of success, and enjoy the ride.
4. Prepare for adversity – Most successful people will tell you that their journey was not smooth. Creating true business or career success is more about how you deal with set-backs rather than victories.
5. Update your goals – You should constantly be revisiting your goals and your plans and make sure it all still makes sense. The business world is dynamic, therefore, our plans need to be dynamic as well.

If you want to move your business or career forward, be prepared to do the hard work. Those that do will reap the rewards, those that don’t will reap what they sow!

Durable Goods orders fell 5.3 percent in January. The drop was greater than consensus expectations and the largest drop since August of last year. The softness was across the board in all areas of spending with electrical equipment being the only area of increase last month. This is just additional evidence that points to the current overall slowness in the U.S. economy.

I know many prospective entrepreneurs who have an idea, but are not sure how to get it to reality. Here is an article from Fortune Small Business which has some tips on how to go from an idea to an operating business. Here are a few things I suggest to keep in mind that are less operational and more inspirational.

1. Persevere – You will hear no a lot. Remember when you stop the pursuit of your idea, you are killing your idea. It won’t take off on its own. If you need funding, find funding. If you need suppliers, find suppliers. Always remember it can be done, even if no one has done it yet.
2. Have a vision for success – I always suggest painting a picture of what you believe your business will look like once you have reached your goal. Keep that picture in mind, especially on the tough days!
3. Be patient – It will not happen overnight! The quicker you understand this, and embrace this the better off you will be. Too many entrepreneurs get discouraged because things don’t happen quickly.
4. Have fun – The most successful entreprenuers I know are usually doing something they are having fun with, something they are passionate about. If you are going to jump in and take the risk make sure it is something you can stay committed to.

I was once told that starting a business will be one of the most challenging things I will ever do in my professional life, and it will be one of the most rewarding!

The Producer Price Index for January rose 1 percent, and core prices (less food and energy) rose .4 percent. The overall index was pushed up by higher oil prices and continued price pressure on consumer’s food purchases. The slowing economy and rising prices are continuing to weigh on consumer sentiment. The Conference Board reported today that February consumer confidence had dropped to a five year low. The index dropped to 75 from 87.3 in January. The data continues to paint a picture of a slowing economy with continued price pressures, stagflation!

One of the most challenging things for family businesses to work through is management succession, getting your business from one generation to the next. Each time a family business goes through a generational transition the odds of success go down. For example, the odds are not in your favor going from the first generation to the second, and they get worse going from the second to third, and so on.

Generational transitions are certainly not impossible. I serve on the advisory boards of several multi-generational businesses, one is currently going from the fourth to the fifth generation of family leadership. I have watched what these families have done and developed some quick tips on how you can get your business from one generation to the next.

1. Set a date – Management succession is not real until the generation in power steps down and lets the next leader or group of leaders step up. Setting a date makes it concrete for everyone. This can give all those involved time to prepare for the transition, and it creates a solid transition. Setting a date makes it real!
2. Define who does what – Too many families don’t define responsibilities for each generation which only serves to confuse everyone involved. When responsibilities are clearly defined and communicated, everyone involved begins to understand that the current generation is no longer calling the shots. Combine this with a set date and you show everyone the torch has been passed.
3. Communicate – The generations need to talk to each other and to everyone involved. Make sure employees are aware of the transition, let them get comfortable with the idea. If the current generation has been leading the business for some time, there will be a major adjustment for the employees as they test the boundaries with the incoming generation. Keep them informed!
4. Hold the line - Many times, simply out of habit, the outgoing generation will make decisions when asked by employees, or act as a go-between when employees have an issue with the new leadership. You cannot allow this to happen. Everyone needs to understand who is in charge.
5. This is not a monarchy – In a monarchy the first born gets the job. Regardless of talent and skill the first born child gets the first crack at leading the business, especially if the first born is male. You need to pick a successor based on who is qualified, not who is first. Making that tough decision early in the succession process will help everyone in the long run.

These are just some simple tips, if you would like to dive in to succession further you can listen to my free podcast on succession here. 

Last October I posted an article about some key indicators which I believed were pointing towards a recession, at the very least I felt we were headed for a downturn. At the time many of my colleagues rolled their eyes with slight indignation letting me know they thought my economic analysis was off base. Today I have seen several articles regarding recent surveys of economist, all of them indicate the likelihood of recession is growing. 

When it comes to discussions about our economic condition we need to ditch the pundits and policy makers who have a hidden agenda, and focus on the realities. If we can shift our thinking from trying to defend indefensible positions and move to rational analysis, then we can address economic challenges earlier in the cycle and attack downturns before they are on top of us! 

Many of our Rough Air clients involved in manufacturing are grappling with the challenge of competing with low cost manufacturing. Two of our family businesses had to deal with this issue, with one we were successful, with the other we were not. You can read about both of these cases in my book Rough Air Ahead, available here, or at your favorite book retailer (sorry about the plug)!

When we were faced with this challenge we put together a strategy that had several key pieces. We worked hard at building our brand and lifting the quality perception of our product. Our belief was that we needed to position ourselves as a high quality, high technology producer. We also developed a lean program to help drive productivity. Our lean expert, and one I highly recommend, was Frank Giannattasio, here is his bio. Frank worked with us to improve our productivity, his efforts helped us significantly improve our bottom line.

One of the challenges we ran into up front was getting the employees to buy in to the lean effort. Many of our manufacturing employees were worried that productivity increases meant job cuts. We reinforced that our lean effort was designed to be able to grow our volume, and at the same time improve the output of each manufacturing worker. We did not want to cut jobs, we just wanted to add fewer than old system would require due to growth. This of course, did not ease their fears, and it took time to get people to buy in.

It strikes me that while no one wants to get forced out of business because of a low cost competitor, our businesses would be far better off if we accepted the reality that we operate in global markets and adjusted our businesses to compete in those markets!

We will get quite a bit of economic data this week ranging from numbers on housing to growth to inflation. We will start the week with Existing Home Sales on Monday, the Producer Price Index and Consumer Confidence on Tuesday, and Durable Goods and New Home Sales on Wednesday. We will end the week with Adjusted GDP numbers on Thursday and more Consumer Sentiment data on Friday. 

A Vice-President that worked for me when I was CEO of our prior family business once told me that good quality is no longer considered a competitive advantage, it is now expected as business as usual. This may be true, but your quality reputation can help or haunt you for years.

It takes years to develop a reputation for good quality, and a very short period of time to destroy that reputation. How many of us are rushing out to buy our kids toys made in China? Once your reputation for good quality or poor quality is established you will carry the responsibility for that reputation, whether it is the responsibility to uphold it, or the responsibility to change it.

Good quality may be understood, but many times it is not practiced. Here are some simple thoughts on quality and building or maintaining your quality reputation.

1. Quality is not just the product – If you believe that your only quality focus is the product you provide you are mistaken. Delivering on time, keeping commitments, ensuring customers stay informed, and providing accurate product or service information, these all establish your quality reputation.
2. Keep Your Balance – Too many business owners, in an effort to boost revenues, emphasize getting the product out the door at all costs. Don’t create the perception among your employees that shipping product is more important than shipping quality product.
3. Know the details – Whenever we would be shipping a new product or a major new customer order, I would go back and spot check the order myself. I remember one experience when I found a manufacturing error when spot checking a new strategic partner’s order. Make sure your employees know you are committed to quality, and you are willing to commit time to the effort, lead by example.
4. Do more than registration – I know many business owners that automatically respond they are ISO certified when asked about their quality. ISO is about process, it ensures that you do things the same over and over again. While certification is good, it is not the end all solution. A company making cement life vests could meet the ISO standard by doing it the same every time.
5. Talk to your customer - Look past all the folks in the middle and speak directly to your customer. They will tell you about your product and your service. Too many times the business owner or CEO gets the filtered view. They get their feedback from the folks around them and not from customers who are willing to give them the straight scoop.

These are just some simple tips in regards to your quality effort. Always remember, while good quality may be understood, poor quality can damage your reputation and haunt your business for years.

It is official, we are now overwhelmed! Just a couple of weeks ago, we acquired a new business with one of our partners. The number of “little things” I didn’t think about prior to the acquisition is quite amazing. There was nothing serious, just a lot of stuff that is now sucking up a lot of time!Fortunately we have three people focusing on integration, six sales reps to help us, and someone who takes care of the production piece. If not we would really be in trouble! We are also lucky that we have some time to get things in order! The most important thing is that we are taking the time upfront to get organized, and not panicking.We all feel buried or overwhelmed at times, if you are feeling like you don’t have enough hours in day read this article for some tips.

I am currently working with several start-up businesses. Some are in that first stage, these prospective business owners have an enterprising idea, but they are just not sure how to pull it off. Some of these have moved past getting started and the owners are just now realizing the joy and the pain of starting their own business. The big challenge for both is finding the right support and advice to help them get their business going and keep it moving forward.

I have been searching for articles on start-up businesses to help coach these prospective entrepreneurs. Here is an article from USA Today that gives some pretty good practical start-up advice, and here is a good article from the Harvard Business Review on entrepreneurial behavior.

There are many things an entrepreneur needs to focus on when trying to cultivate their idea into an operating business. Here are four that I believe are absolutely key:

Perseverance - A fundamental ingredient for getting any business idea from the drawing board to an operating entity. At some point most of us have an idea about a new business opportunity. The people that recognize and act on that opportunity are the ones who create success. These are the folks that seem to be able to endure through myriad challenges to come out on top.

Relationships- It is not what you know, it is who you know. We have all heard it at some point in our lives, when it comes to raising money for your business who you know is key. Entrepreneurs who take the time to develop and nurture relationships with their banker, investors, suppliers, and customers will benefit in the long run. Who you know is key!

Diverse Skills – If you are looking for partners or are starting a business with someone you know, having a diverse skill set up front will carry a start-up a long way. If you are going on your own, work through local chamber and entrepreneurship programs to develop the wide array of skills you will need to make your business successful. You will take out the trash, clean the coffee pot, prepare the financial statement, and fix the network when it goes down. Diverse skills are not an option!

Optimism - I like to call it unbridled optimism. When you strike out on your own there will be plenty of “level-headed” people who will try to talk you out of it. It may be family, it may be friends, or it may be business associates. They will all talk about your limited chances for success, and the big risk you are taking with your future. Some may even suggest the real answer is therapy! Your job is to stay focused on your goal, and believe in your ability to pull it off. It is all about attitude!    

Some businesses are models for great customer service. They seem to know how to get it done, so they always deliver! Some businesses never seem to get it right. In these short-lived businesses they don’t seem to develop the ability to take care of the customer.

Those small businesses that never seem to get it right have some things in common. If you are trying to guarantee failure in your business then follow these easy steps to losing a customer.

1. Focus Inward – One common characteristic of businesses that fail is they lose their focus on the customer. These companies deliberate all of their actions based on the internal impact versus the customer impact. Processes are designed to improve efficiency internally, but the impact on the customer is not considered.
2. Ignore The Customer – Many unsuccessful entities not only focus internally, but they ignore the customer all together. They don’t take the time to understand the customer’s needs. They assume that whatever they have to offer is exactly what the customer wants, they don’t listen.
3. Be Difficult to Deal With – This is another guarantee for chasing away customers. If your sales and support people are hard to find, if it is hard to do business with you, then I can guarantee you will lose customers. Create a warranty that is not clear, be inflexible, and customers will flock to your competitors.
4. Don’t Keep Your Promises – Promise to deliver, and then be late. Promise to show up, and then cancel. Promise to answer a question, and then forget. These are all great ways to chase customers away. If the customer believes you are not reliable then the customer will reliably leave!
5. Believe Your Own Public Relations – Too many companies begin to believe their own sales pitch. They determine they are the best, their quality is perfect, and they never make mistakes. This way the customer is never right. If you act as though you don’t need your customer’s business they will oblige!

Winning new business is a major investment for every firm. Why waste that time, energy, and effort only to lose it later in the process. If you stay away from these five deadly business sins, you will retain those hard-earned customers and develop a long-lasting relationship!

One of the challenges many new businesses have is resolving the issue of accepting credit cards. Many folks resort to setting up a PayPal merchant account, which is good if you need to get something going quickly. We use a merchant service available through Quick Books, since that is the financial package we use for all of our businesses. I ran across this article which gives you some additional ideas if you are looking for an alternative to PayPal.

Seasoned entrepreneurs understand that when you take risks sometimes you will fail. Many people look at successful business owners and assume they are the type who never make mistakes. The reality is that they have taught themselves to live with their mistakes, and learn from them.

My first job out of college was for a trucking company. I remember not long after I started my boss gave me the responsibility for supervising the office during the third shift. His one piece of advice, which has stuck with me for more than 20 years, “If you have a problem, make a decision.” His point was that he would rather see me try and fail, than leave a problem for the next guy to clean up. This became something I have followed for my entire career.

I try not to fall into analysis paralysis, or any other trap that prevents me from making a decision and moving the ball forward. I also try to learn from my mistakes. The bottom line for me is to ensure I don’t allow fear of failure to impede my decision making. When I do fail I try to learn something for the next time.

This article has some good advice on how to view entrepreneurial failures.

We will have a lot of economic data to digest in the next two weeks as we get indicators of both inflation and economic activity. This coming week on Wednesday we will get the Producer Price Index. We will get more data on the housing market as Housing Starts are released on Wednesday as well. Finally on Thursday we will get the Index of Leading Indicators which should give us more insight into the current economy. The real data to watch this week will be the PPI numbers. If inflation is tame then the U.S. Federal Reserve can focus on stimulus, if not the markets will be worried! 

Lately I have been inundated with computer problems. One of my laptops died and I replaced it with a desktop. Our cable modem died, and it took days (and six different cable company employees) to get it replaced. My desktop computer has Windows Vista which has a habit of dropping its wireless connection, and my travelling laptop has decided it has had enough frequent flier miles. It has seemed for the last few months that every morning when I come into the office, I need to steel myself for the potential bad news when I try to power up and get online!

My wife keeps telling me to get support for these problems, my solution has always been to junk the old and start over! If starting over is not an option for you here is an article with some humorous advice on dealing with a PC meltdown. 

Former Chairman of the U.S. Federal Reserve Alan Greenspan said yesterday that the U.S. economy is on the edge of a recession. Greenspan believes there is more than a 50 percent chance the U.S. economy will head into a recession this year fueled by the downturn in the housing market.

This what I love about policy makers in the Federal Government. They spend months telling us the economy is fine, that the fundamentals are sound, and there is no need to worry. It does not matter that we generated 40 percent fewer jobs in 2007 than 2006, or that all of the major indicators from consumer confidence to industrial activity showed the economy was slowing, up until the last 30 days many analyst and policy makers were expending enormous energy trying to convince us that black is really white!

Now that the data has become overwhelming these same people jump into panic mode with stimulus packages, and speeches to show the public they are in-tune and prepared to handle the crisis. Several months ago we were alerting our clients to a possibility of an economic slowdown. We were suggesting that they prepare a contingency plan so they could be positioned to handle a downturn in the economy, and we let them know we believed the economy was slowing.

Politicians in Washington spent that same time last fall debating whether or not the economy was slowing. They marched in front of TV cameras and accused anyone that ruminated concern for a slowdown as being a pessimist, and then they said the it was the media’s fault. It strikes me that if these same folks had spent last fall working on the problem, and creating real economic stimulus, then we would be in a much better position today.

A Vice-President that worked for me when I was CEO of our prior family business once told me that good quality is no longer considered a competitive advantage, it is now expected as business as usual. This may be true, but your quality reputation can help or haunt you for years.

It takes years to develop a reputation for good quality, and a very short period of time to destroy that reputation. How many of us are rushing out to buy our kids toys made in China? Once your reputation for good quality or poor quality is established you will carry the responsibility for that reputation, whether it is the responsibility to uphold it, or the responsibility to change it.

Good quality may be understood, but many times it is not practiced. Here are some simple thoughts on quality and building or maintaining your quality reputation.

1. Quality is not just the product – If you believe that your only quality focus is the product you provide you are mistaken. Delivering on time, keeping commitments, ensuring customers stay informed, and providing accurate product or service information, these all establish your quality reputation.
2. Keep Your Balance – Too many business owners, in an effort to boost revenues, emphasize getting the product out the door at all costs. Don’t create the perception among your employees that shipping product is more important than shipping quality product.
3. Know the details – Whenever we would be shipping a new product or a major new customer order, I would go back and spot check the order myself. I remember one experience when I found a manufacturing error when spot checking a new strategic partner’s order. Make sure your employees know you are committed to quality, and you are willing to commit time to the effort, lead by example.
4. Do more than registration – I know many business owners that automatically respond they are ISO certified when asked about their quality. ISO is about process, it ensures that you do things the same over and over again. While certification is good, it is not the end all solution. A company making cement life vests could meet the ISO standard by doing it the same every time.
5. Talk to your customer - Look past all the folks in the middle and speak directly to your customer. They will tell you about your product and your service. Too many times the business owner or CEO gets the filtered view. They get their feedback from the folks around them and not from customers who are willing to give them the straight scoop.

These are just some simple tips in regards to your quality effort. Always remember, while good quality may be understood, poor quality can damage your reputation and haunt your business for years.

Over the last 30-days we have heard a great deal about a slowing economy and what the government is planning to do to stimulate growth. The stimulus package signed by President Bush this week may provide a sizable boost to small business.

The extra cash in consumer’s pockets may mean additional revenues for restaurants and retailers, and the provisions for accelerated depreciation of capital equipment and higher allowances for deductible expenses may motivate small business owners to invest and help them control their tax liability. Here is an article outlining the package; make sure you understand how this stimulus package may impact your business.

Retail sales unexpectedly rose .3 percent in January after a .4 percent decline in December. The rise was partly due to better sales of autos and retail gasoline purchases. The increase was a welcome surprise to many analysts who have settled on the idea that the U.S. economy may be headed for or in a recession. Consumer activity fuels more than two-thirds of our economy, so if retail sales can stabilize that may be a good sign for the remainder of 2008. Although, I would add a word of caution that this is only one data point, so it is likely premature to assume the economy has turned the corner.

The economic discussion today is that the subprime crisis is causing an overall credit crisis that is spreading to other types of credit. The downturn in housing is putting many homeowners in the difficult position of being upside-down in their home, they now owe more than their home is worth. The tightening of credit has slowed the private equity buyout boom, which boosted stock prices in 2007, and is putting many highly leveraged companies in the same position as some highly leveraged homeowners.

I ran across an article in The New York Times today which discusses the expanding credit problem, and here is a post from yesterday which also discusses the same issue. The bottom line is the credit crunch is the gift that keeps on giving, until the economy turns the corner we will have to continue to fight this battle.

One challenge many small business owners have is getting the right information. They have questions about taxes, governmental regulations, workers compensation, and health insurance. Many times entrepreneurs are left to find these answers on their own or guess about how to handle a specific question.

There are many resources business owners can utilize when they have questions, the local chamber of commerce can sometimes be a great help. One of my most effective resources has always been other small business owners, those that have been there, and can provide some guidance. Many times I can learn from the mistakes others have made.

There are also some governmental resources to help entrepreneurs with business challenges. I ran across this article in The New York Times today with several links to government resources that are specific to small business owners. You may find some of these links helpful.

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In September I posted the following article in regards to my concerns about the private equity buyout boom, and the impact of tighter credit markets on these highly leveraged companies. The Wall Street Journal has a front page story today about widening credit woes, and one of those woes are the low-rated corporate loans that fueled the buyout boom.

The decline in the housing market has fueled the foreclosure crisis due to homeowners not being able to pay their mortgage. We are likely to see a similar problem with some of the highly leveraged deals of the last few years. A slowdown in the economy will make it difficult for these folks to meet their loan covenants. As they miss covenants lenders will get nervous. The lesson for every small business owner is that if you load your business down with too much debt you run the risk of not being able to service the debt in the event of a downturn. Never allow yourself to fall into the upside trap, always make sure you can deal with the worst case scenario. 

When I was at Harvard one of my professors, Linda Hill, said “Culture change is evolutionary, not revolutionary.” I understood what she meant immediately. Any leader who wants to change their business can expect to make incremental changes, but changing the culture of the business, the personality of the business, is an evolutionary process. It does not happen overnight, it only happens over time.

The New York Times has an article about Hertz Car Rental. The article holds up Hertz as a success story of the private equity buyout boom. Although Hertz has been burdened with a significant debt load as a result of the buyout, because the new owners made some incremental process changes, they have significantly increased the value of the business. They back up their data with a stock price for Hertz which has risen over 40% since their IPO in 2006.

I have said before I am not a big fan of generalizations; however, I have trouble seeing how loading up any company with significant debt can be anything but unhealthy for that business. I have had experience with businesses carrying a large (and growing) debt load. The real issue for these businesses is they have no room to move. If the market tightens or there is the slightest hiccup they can get into significant trouble quickly. This is not unlike the home buyer, who puts no money down, takes out a big loan with a low interest rate up front, and hopes to refinance in a few years. If the market turns on them they can get into trouble quickly. Sound familiar?

The model many of the big PE firms have used is not new. I see it as similar to flipping a house. An investor who wants to flip a house, buys it, slaps on a fresh coat of paint, and tries to sell it at a quick profit. This is the reality of the PE model, buy a business at a discount, put on a fresh coat of paint, and sell it or create an IPO.

These are not great business operations people, they are business finance people. For the last few years they have been using cheap credit and easy credit to finance large buyouts. Have you taken notice that these buyouts have slowed? As the credit markets have gotten tight the buyout activity has slowed. Is this the next economic bubble.

At some point this bubble has to burst. Hertz is held up as a success, the reality is during the same time frame the Dow has risen 30%. How much of the rise in their stock price was due to inertia in the markets, and not operational improvements? My concern is what happens to companies that were acquired during the buyout boom through significant leverage if the economy slows? If credit markets continue to tighten what do these businesses do to support their debt load?

Is this the next economic bubble getting ready to burst?

Over the past several months I have advised many of our clients to prepare for the rough air ahead. I have cautioned them to position their businesses for a possible economic slowdown. I have advised our clients to create a contingency plan that focuses on lowering discretionary cost and building their cash base. This could help them manage through any downturn. I ran across this article in The New York Times which has some great advice on preparing a small business for a turbulent economic environment! During challenging times focus on the basics and you will build a stronger business for the next cycle of growth.

Over the past several weeks the conversation about the economy has shifted. It was just a few weeks ago that politicians and analysts were warning that too many people were talking themselves into a recession. They kept telling us the fundamentals are strong, and that we needed to ignore the data which showed the economy was slowing. It was if they kept saying it, it would be so!

Now many of these same folks are warning of a slowdown, and this week we will have more data to chew on which reinforces where the economy is headed in the next few months. Wednesday we will get an idea of how consumers are doing when we get information on same store retail sales. Thursday we will get new data on international trade, and Friday we will get a look at the most recent numbers on industrial production.

Our expectation is that as we go through the week none of this data will shift our overall economic view. The bad news is that we are in the midst of a slowing economy, the good news is that every day we take one more step on the path to getting back to economic growth. 

I ran across this question in the Small Business Section of USA Today about the effect of doubt on the success of your small business. Maintaining a positive outlook is a major key to being a successful entrepreneur. If you allow the challenges to get the best of you then you can drag your start-up down the drain.

In my book Rough Air Ahead I write about some of the challenges of starting your own business, and what I believe are the keys to being successful in the start-up cycle. I believe perseverance is the key to getting your business from an idea on paper to an operating entity. Whenever you start a new venture you will have considerable doubts. You will have many people around you who will seem to go out of their way to remind you of the challenges and the pitfalls. Many will question your sanity when you give up that nice-paying corporate job to go it alone. I know because these are many of the comments I heard when I started my new business.

I have had folks question my sanity for risking capital, and investing in new business opportunities rather than stocks and bonds. Perhaps they are right, and I suffer from some strange genetic disorder that compels me to jump into entrepreneurial ventures in lieu of taking a more conventional path. Although I believe one should not trudge through life following the same road everyone else travels, one should go through life following the road that gets you to where you wish to go!

If you have chosen the path of entrepreneurship, and you have doubts, always remember what it will take to be successful. Focus on the big picture, persevere through the challenges, and you will steer your new venture to success.  

The big news on Super Tuesday this week was not the election results, but the major drop in stock prices around the world, starting right here in the U.S. The fall on Wall Street was precipitated by the release of the Institute for Supply Management’s survey of service providers. The index came in below 50, which shows that the service segment in the U.S. contracted for the first time since 2003. Many believe the contraction in the service sector is an indicator of a looming recession, which led to the panic on Wall Street.

I witness this behavior from the sidelines and I wonder what these folks have been doing for the past seven months. Have they been paying a bit of attention to any data? How can the possibility of a recession catch them “off guard” today? These folks are supposed to be the experts, and all of sudden one piece of data tips them off to a looming slowdown.

The slowdown of our economy has been bearing down on us for quite some time. Anyone who tells you that it is a surprise has not been paying close attention. We were alerting our customers to this possibility several months ago. We were not surpised, we were prepared.

The following is an article I posted back in August in regards to the coming economic storm. This is one of several I posted alerting our customers to the possibility of a slowdown, and what they should do to be prepared. When you are trying to position your business for the future I suggest looking past the pundits. They will only prepare for the next 24 hours when you should be prepared for the next 24 months! 

 (Article I posted last August)

I cannot help but wonder as I wade through the economic news if we are headed for the “perfect economic storm.”  I would define the perfect economic storm as one where cost are going up, demand is going down, and consumers are worried about their economic future. Despite the jubilant mood on Wall Street this past Friday some fundamental economic questions remain.

The first of these is a question of cost. As the U.S dollar falls the buying power of that dollar also falls, making imported goods more expensive to the U.S Consumer. Also some analyst believe that despite a better 2007 hurricane forecast crude oil prices will remain high. It appears that these two factors combined with a tougher climate for financing debt will give the consumer less cash to continue their buying binge. This raises the question as to what the impact on demand will be and the overall economic impact. A big factor here is how consumer’s feel about the overall economy and their prospects. Consumer sentiment is widely tracked through several surveys. We mainly follow the Conference Board’s survey although the University of Michigan index showed a decline in August.

The question for the business owner is what to do with all of this information. We suggest now is a good time to pay close attention to cash and keep an eye on what is just ahead. In an environment like this good short-term forecasting tools will come in handy. Our recommendation is to lead your teams to create a reasonable and realistic short-term forecast for revenue as well as spending. If you see a potential revenue downturn on the horizon reel in those costs so cost declines can keep pace with revenue declines. We can all manage for profit, we just need to make the difficult decisions to keep our businesses profitable.

It is inevitable, if you are in business you will eventually have a customer that pays slowly or not at all. We have all been there, these are the customers that always seem to try to stretch their invoices as far as possible. When you allow a slow paying customer to continuously pay slow, then you are financing his business. So we all know we want to get paid on time, the question is how.

First to remember is that the majority of your customers will pay on time. However, it is up to you to set the expectation on how quickly you want to get paid. As a business owner you always need to avoid allowing the collections process to get personal. The process gets personal when you or one of your employees allows that “special” customer to get away with paying 30, 60, or 90 days late. Many times for these slow paying customers, because of special relationships, we create a unique procedure just for that customer. The problem is that many times the unique procedure or “exception” we create to a normal policy becomes the standard procedure. The risk for the business owner is tighter cash flow as they finance more of his or her customer’s business.

Here are some easy tips for ensuring that your customers pay on time:

1. Have a set policy and stick to it. Having a policy in place takes the “personal” aspect out of collections.
2. Always reinforce your policy. There will be a time when, because of a special relationship with a customer, you will want to waive the policy to take care of that particular customer. Just remember, if you waive it once it will get waived again.
3. Be assertive about collections. This does not mean you need to be difficult or unprofessional, it just means you need to make sure the slow payers are getting followed up continuously. The squeaky wheel gets the grease. Be the squeaky wheel.
4. Don’t let the customer hang on with a “promise” to pay. Once they are behind consistently make them clean up their receivables before they will get more credit.
5. Make slow payers pay in advance. You typically have more leverage here than you realize!
6. Do credit checks. Use Dun and Bradstreeet and ask for credit references. This will help you build a picture of how a particular customer will pay.

The bottom line to a good receivables policy is to be consistent with its implementation, persistent when collecting, and vigilant about who you give credit to!

Today is Super Tuesday, voting has begun as millions of Americans head to the polls to decide their party’s choice to lead them into the 2008 presidential election. The race, which has centered on many themes, seems to be one of management versus leadership. The question for voters is are they looking for demonstrated competence or visionary leadership? This is a question that has plagued business leaders, boards, and shareholders for all eternity. Which serves my organization better, a strong manager or a strong leader?

An article in today’s Financial Times has me considering this question of management versus leadership. The writer is a management consultant and he seems to be making the case that “boring management” is more valuable than visionary leadership. For the top of any organization I am not so sure this consultant is correct.

I have never thought of myself as a great manager. At times I can be disorganized, administrative tasks grate on my nerves, and I have no patience for meandering through bureaucratic systems. I like to to have data to help me make decisions, and I really prefer discussion. I always liked to hear my managers debate their positions before I chipped in with my thoughts. My preferred method has always been to get as much input as I can before I pull the trigger.

I have always viewed strong managers as those who can effectively manage resources. They know how to get things done using people, and assets. They ensure tasks are completed and everyone stays on track. These traits are key to the success of any organization. It strikes me that management and leadership are keys to making any organization work well. Every successful organization has someone at the top who is not afraid to look at the big picture and set the vision for where the organization is headed. As the head of any organization you must know how to manage assets, but it is more important that you set the broader direction. An organization that just relies on managers to ensure the day-to-day business is completed is one that has relegated itself to stagnation. This is an organization that has reached its peak, and has come to the conclusion that they will likely go no further than they are.

Every great leader knows that to succeed he or she must be surrounded by world-class managers. Every strong manager knows that to lead one must break out of the myriad details that drive the organization and set a bold vision for where that organization should go!

Someone told me once when you start a new business don’t tell anyone. Even your closest friends will doubt your ability to succeed. As a business owner and entrepreneur I know exactly what these folks are talking about. It strikes me that not many organizations want to support your start up business, everyone assumes your effort will fail, and until you prove them wrong, they maintain that assumption.

This can be true for your family, your friends, and the community. Our local governments will spend billions of tax dollars trying to attract major companies (large employers) to our geographic region. They are all looking to bag the elephant or get the big win. Banks generally do not want to lend you any money until you have some, and many times suppliers will not take your new venture seriously. I find this odd considering that facts. Half of the GDP in this country is created by small businesses, those companies with less than 500 employees. More than half of the private sector workforce works for a small business, and where do you think the majority of new job growth comes from, that’s right, small business. With these facts it strikes me that if local governments spent more time and money educating and supporting entrepreneurs and small businesses they would win in the long run.

Regardless, here is a good resource from the Small Business Administration for creating a plan for your start up business.

I ran across this article in Fast Company on habits of bad managers. Some of these habits hit the nail precisely on the head. There are many causes of bad managers. Some are promoted too early and are not ready for the job. Some are promoted too late and have become bitter about a company they believe did not recognize them. All of them have one thing in common. They don’t get results. They don’t have the ability to motivate teams to get to the next level.

I agree with all the habits this author describes except for one. She indicates that incompetent managers work long hours. I think she missed this one. In my experience people that put in the time usually do so because of a high-level of commitment to get the job done. I have heard the “long hours” theory many times, it is usually given to me by someone who does not want to get up early and stay until the job is done. It strikes me that the one thing highly successful people never do is work 40 hours per week. They press themselves to get everything done today that they can, because they understand they cannot predict what will happen tomorrow.

At this point we have developed a pretty good idea of where the U.S. economy is currently headed. Once the economy bottoms we will begin to see mixed data showing a combination of growth and a slowdown. For most small business owners, now it is simply a matter of managing through the challenge.

This coming week we will have additional data to dissect. Monday we will get data for factory orders last month, Tuesday we will see the ISM Non-Manufacturing Survey for January, and Wednesday we will see pending home sales. There is little here that will change our overall view that the economy has slowed in recent months, and is preparing to poise itself for another long bull run!

The Institute for Supply Management’s factory survey for January unexpectedly rose to 50.7, after a contraction in December. The expansion in January surprised many analysts who expected manufacturing to continue to pull back for a second month in a row. This was welcome news after today’s labor report showed a decline of new jobs in the past month.

The economy lost 17,000 jobs in January as new job growth fell in the first month of 2008. Unemployment was stable as December’s numbers were revised sharply upward, but October and November were revised downward. The mixed job data is an indicator of a slowing economy, and an indicator that the job market begin to soften late in 2007.  The U.S. Federal Reserve’s aggressive 1.25 percent combined cuts in interest rates in the past two weeks will likely help drive economic growth later in 2008 and early 2009.

Always remember you never know where a relationship with one customer will take you. I developed a relationship with a vendor when we were starting our business a few years ago. Although we were a start-up this vendor was attentive, responsive, respectful, and treated us like a big customer. In the last few months I have had more than one business owner I know locally inquire about doing business with this vendor. I had a great experience so my responses have always been positive.

I had another one of those phone calls recently, and it reminded me how important it is to always put your best foot forward with every customer contact. A positive referral or testimonial from a current customer goes a long way to getting a new customer. You never know how far one customer relationship will take you!

Not long ago we (Rough Air Associates) formed a joint venture with another small firm to seek out investment opportunities in small business. Part of my vision with Rough Air is to create an investment arm that acquires small businesses, in my areas of interest, and helps take those businesses to the next level. My new partner and I created 4 Iron Development Group to do just that.

My partner is new to the entrepreneurship world, but not the business world. He is a savvy executive who has been fighting the corporate wars for more than twenty years, and today he and I will close a deal on our first investment opportunity. Late last night I was thinking through all of the things we needed to get done in the next few weeks in regards to our new acquisition, and reminding myself of the principles that have always guided me in running a business. I would like to say these guidelines are something that I came up with on my own, but I am not that smart. These guidelines are really a compilation of things handed down to me by my mentors, and today I wanted to pass them along to my partner and our readers, for what is worth. Always remember, free advice is worth what you pay for it, so here are my guidelines.

1. Have a vision – No matter how large or small your business is make sure you have a long-term view of where you want your business to go. Dream big, don’t allow the doubts of others to weigh on your desire to tackle those big dreams. Grab a vision, focus on it, and keep moving forward. Every day you will run into roadblocks and challenges, but don’t let them stop you from getting to your vision.
2. Treat everyone well – I always worked hard at ensuring every stakeholder (employees, customers, and vendors) knew how much I appreciated their efforts. It is important to treat everyone well. This does not mean being a pushover. There are times when you will need to make tough decisions, and you will have to take a firm stance. Taking a firm stance does not mean being a jerk. You will catch more flies with honey!
3. Be honest – You need to be honest with yourself about your business, and with everyone around you. At the end of the day so much of your business’s success depends upon your reputation. If you lose the trust of any of your stakeholders, you set your business on a path to failure.
4. Keep your promises – My dad always told me he was successful in banking because he always delivered more than he promised. People need people they can depend on. If you can develop that reputation for your business you will go a long way.
5. Never stop selling – I never stop talking about my business. I know some folks have heard it before, and they are probably getting tired of it, but the more folks you tell, the more the word will spread. I am not great salesman, but I never stop selling!
6. Have fun – On occasion people will ask why I just don’t retire, maybe take a teaching job, or get a mid-level management position at some other business. I always tell them what my father-in-law taught me, I do it for the “fun of the run.” I love everything about being engaged in small companies and helping them grow. Whatever your are doing always make sure you are having fun, life is too short to do otherwise!

  I realize my “sage advice” may not work for everyone, but if you follow these simple guidelines I believe you will put your business on a path to success.

One common challenge that many new business owners have is they have created a great idea, but have no capital to move it forward. Many entrepreneurs take their idea all the way to point where all they need is money, and they fail to convert.

Since most banks are not overly fond of providing start-up capital many business owners find themselves in search of an angel investor. An angel investor will take the investment risk in a start-up in hopes of a strong potential return, sometimes that return may be years down the road. Most angels are focused on areas of interest rather than investments of opportunity.  Although most investors look at many deals, they typically only invest in 2 percent of the opportunities that are pitched to them. Here are some tips for how you can improve your chances for being part of that 2 percent.

• Have a plan – The first thing any investor will ask for is a business plan. The plan only needs to be as long as it takes to make the case that yours is a solid investment. Having a well written business plan indicates to the angel investor that you are not an amateur, and can demonstrate your knowledge of the market, and opportunity. This is something you must get done before you even schedule your first appointment.
• Have a story – Angel investors are looking for returns that can beat traditional investments in markets that interest them. Your story must demonstrate how you believe the investor can garner the returns they are looking for, and needs to be targeted to the right audience. The story has to be believable and verifiable. If you paint an unrealistic picture your target will pick up on it pretty quickly.
• Know what you can live with – Most investors are going to want a piece of the action. I would never say never; however, if you approach an angel investor with an opportunity, and all you can offer is to pay back a loan, then you will probably not get far. If someone is going to bet on your opportunity then they will likely want a piece of the action.
• Stay upbeat – Finding the right investor will take time. Be prepared for a long haul and don’t give up your search too easily. This is a game where persistence will pay off.

Here are some links from Inc. Magazine for angel investor information.

The U.S. Federal Reserve announced this afternoon an additional one-half point cut in the prime lending rate on top of last week’s three-quarter point rate cut. The announcement comes on the heels of this morning’s GDP report which indicates the economy slowed significantly in the fourth quarter of 2007. The Fed is taking an aggressive stance to pump stimulus into the economy sooner rather than later.

The U.S. Department of Commerce released their estimate for fourth quarter Gross Domestic Product this morning. GDP grew an anemic .6 percent in the fourth quarter confirming what many already suspected, the U.S. economy has slowed significantly. The poor results from the last quarter of 2007 come after the incredible 4.9 percent growth in the third quarter of 2007. Although the economy did not retract in the final quarter of 2007, the slowdown does have many analyst wondering what rough air may be just ahead.

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 check out our podcast on our resources page. Also, here is an article with some tips on increasing the value of your business.     

Durable goods orders rose in December after drops in both October and November. December’s number was a surprise to many analyst as the 5.2 percent jump was much stronger than expected. 

The Conference Board reported this morning that consumer confidence fell this month. January’s reading came in at 87.9, just below December, but above consensus. Consumers continue to worry about a slowing economy, slowing job growth, and higher energy prices. Although the durable goods data was welcome news, the consumer confidence data points to a slowing economy, something that has been reaffirmed by the efforts going on with the U.S. Federal Reserve and policy makers in Washington to help hold off a severe downturn.

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. 

New home sales fell again in December after a 9 percent drop in November. Sales of newly constructed homes were down 4.7 percent in December and fell an astonishing 22 percent in year over year data. Inventory remains the major concern as inventories rose 9.6 months. The market for new homes won’t start expanding again until we bleed off the inventory of unsold homes. Over the past year the problems in the housing market and the fallout from the credit crisis have spilled over to other areas of the economy. Hopefully the recent action by the U.S. Federal Reserve and the stimulus package on the table will help jump start a slowing economy.

According to Brian Wesbury in an Op-Ed in today’s Wall Street Journal, our economy is fine. If one ignores the fact that we generated almost 1,000,000 fewer jobs in 2007 than we did in 2006, that manufacturing is soft, consumers are gloomy, and housing is in the tank then sure the economy is fine. Although the current economy is not the end of the world, it is not “fine.” We do have some challenges and the sooner we recognize those challenges and try to do something about them the better off we will be. Someday (probably not in my lifetime) people will rise to a level where they realize the economy is not so much a reflection of the party in power as it is a reflection of our collective actions. When that happens we will come to the realization that slowdowns happen, and we will work together to deal with it!

A question we posted recently in regards to service was, “What makes some companies great at customer service, and what makes others appear lost?”

During the service revolution we heard about those that are great like the Ritz Carlton, and Nordstrom. Both of these companies are considered premium players in their market segment, they also tend to be the highest priced in their segment. So, is their service great because they charge more, or is their great service giving them the opportunity to charge more?

I remember a story about Nordstrom’s extraordinary service. An executive I know was on a business trip. When he got to the airport to hop on the company plane he realized there was a problem. All of his colleagues had on suits and ties, he was dressed business casual. The signals had gotten crossed and he had not gotten the message about the change in dress code for the meeting. When he arrived at his hotel, he noticed that his hotel was in a downtown area near a Nordstrom. He ran into Nordstrom, told them his problem and an hour later he had a suit and tie, altered to fit.

Another story is about a friend of mine who was staying at the Ritz Carlton. He was sitting outside by the pool having cocktails with some friends. It was in the afternoon and he suddenly decided he was hungry for cereal. Most hotels would have let him know they were no longer serving breakfast, not the Ritz Carlton! The waitress promptly asked what type of cereal he would like!

So do they give this service because their prices are high? Our view is that great service cannot be bought, you must earn it. Most companies that have great service have two important elements, they trust and they verify.

Employees at both of these companies have management’s trust. They can make decisions for the customer on the spot. They do not have to go through layers of paperwork or approvals. They have the authority to make a decision and resolve the customer’s issue. Both companies, through customer feedback programs, ensure the process works, they verify!

Recently while traveling in London and Paris, I saw the perfect example of poor customer service. During our trip everywhere we went we had great service. The restaurants in Paris were outstanding, and the service was always top notch. One afternoon while strolling up the Champs Elysees my wife and decided to stop for coffee. I wanted espresso, she wanted a traditional American style coffee. When our coffees came we had two espressos. My wife tried to explain to the waiter in her broken French/English that she wanted a regular coffee. A kind French couple sitting next to us even got into the act, explaining to the waiter that she wanted a café ole. The waiter gave up on us, never returning to our table, and literally ignoring us as we tried to speak with him. I wonder if that is what the owner of this restaurant, Monte Cristo, on one of the most international streets in the world, had in mind when he hired this fellow. Were his instructions, “Ignore the customers you do not understand, they will go away eventually.”

I doubt these were his instructions, and had the owner known his employee’s actions would be documented for thousands to read about on the Internet he likely would not have been happy!

Always remember, trust, but verify!   

Although there was considerable excitement this past week in regards to the economy, none of it was due to any new economic data. The turmoil in world markets early last week prompted the U.S. Federal Reserve to announce a three-quarter point cut in interest rates. The Fed meets again this coming Wednesday and many analyst are expecting them to act again! The action from Bernanke and crew was not the only effort to stimulate the U.S. economy as the White House and Congress agreed on a stimulus plan that includes rebates for many taxpayers.

It would appear that all of this news would be hard to top; however, this week will be a busy one. Not only do we get another FOMC announcement on Wednesday, we will also get data on new home sales Monday morning, consumer confidence numbers Tuesday morning, and jobs and manufacturing data Friday morning. The biggest piece of data will come Wednesday as the U.S. Government releases preliminary Gross Domestic Product numbers for the fourth quarter of last year. The consensus is that this number will show the economy grew 1.2 percent at the end of 2007. If we get a number well below that mark, the U.S. Federal Reserve may take some very aggressive action that same day. We will learn this week just how close to a real downturn we are!

In my second book, which is on its third draft, I share a story about a business owner I was having dinner with. This entrepreneur had a start-up business that was moving much quicker than she and her partner had planned, and they were grappling with the issue of whether or not they should create a business plan.

Their product was in place and their customer base was growing quickly, but someone somewhere told them they should create a business plan to move the business forward. She asked me what I thought she should do. I told her what I tell every new business owner who has this question, “The joy of entrepreneurship is you get to decide!”

I always tell entrepreneurs, and people pondering a potential start-up, that some plan is beneficial. The depth and complexity of the plan is up to the business owner. If you are trying to raise money for your business and are pitching your idea to potential investors, an in-depth business plan is essential. You need a document that will sell your business idea to those investors. If you are getting your business going on your own, with your own time and money, I suggest something like a one page plan.

A one page plan is exactly as it sounds, a business plan on one page. On that page you should indicate your vision, set a few objectives, and create some actions to hit those objectives. The idea with a one page plan is to just give you some direction, you don’t need to sell yourself on your own idea, you just need to understand where you are headed.

So if you are grappling with whether or not to create a plan for your business, weigh what you need as an owner, and what you will need if you are seeking out investors. Make sure you are creating a plan that meets your needs.

Change has become the new “marketing mantra” of many of the current crop of candidates running for U.S. President. Many of them are trying to position themselves as the change agent, or the person most capable of bringing change to Washington. Good luck with that one!

I have seen many small business owners, and organizational leaders that have refused to pursue or accept change, despite an obvious need. I remember one business owner who balked at the idea of having email accounts for all of his employees. This was an extremely successful entrepreneur that believed customers would never want to communicate via email. He felt they preferred to be contacted by phone, regular mail, or face-to-face. Most business owners today believe that mastery of the Internet is a key to running a successful business.

Many times the fear of change is due to a vested interest in the status quo. Some people who are afraid of change are afraid of the unknown, they are concerned about a loss of power and influence, or they are concerned they will not be able to make the needed adjustment. There is considerable comfort for everyone in maintaining the status quo, to them it is as if they are wrapped in a warm blanket! Change is that cold shower that requires them to move to the next level!

Although change for the sake of change is silly, like rearranging the chairs on the deck of the Titanic, no oragnization can survive without adjusting to the realities of the outside world. Many times when an organizational leader tries to take on that challenge of making big adjustments he will run into some common verbal road-bloacks. The first road-block is the person who will say it cannot be done. This individual is usually passed up by someone doing it. Next someone will chime in, “We tried that and it didn’t work!” These folks generally neglect to mention that poor execution was the direct cause of the previous failure. Finally someone will say, “Things seem to be going o.k. now, why fix what is not broken.” I always ask these people if they are willing to stake their careers on the status quo!

Many times organizational leaders will tout change when they really mean let’s change to “more of the same!” Business owners need to remember that big change is evolutionary, not revolutionary. It takes time to get buy in, to implement, and to see results. Big changes don’t happen overnight, don’t create the expectation that they will!

Always remember, as a business owner, it is your responsibility to understand what is going on in the world around you, and modify your approach to guide your business to success. In any organization pinning your hopes on the status quo is a guarantee for eventual failure!

I am going to go off topic a little today. Although this is not a small business management issue, it is prevalent given all of the news surrounding the 2008 U.S. Presidential election.

I am not sure when it happened. Some will say it was the radical 1960s, some will say it was caused by the Reagan revolution, some attribute it to Bill and Hillary Clinton, and some to talk radio. Many point out that politics in America is not nearly as bad as it was 200 years ago, as if it is perfectly acceptable for us to have made very little progress on this front in more than two centuries. The bottom line is that too many people have developed a vested interest in keeping the American electorate stirred up and split! This helps many people and organizations keep their stranglehold on power and the coffers full!

Why is it that politicians who talk about reaching across the aisle and creating a sense of unity to solve the nation’s major problems are vilified by the elites in their respective political parties? It is as if compromise is something to fear! That we should be afraid of working together, because we cannot trust the motives of those on the other side!

Political parties do this because it helps them raise money. If they can convince you that people who don’t share your opinion are out to change your way of life, then they can use fear to motivate you to make contributions or get involved. Conservative and liberal talk show hosts, commentators, and columnist have a vested interest because it helps them get an audience. The problem is that they are just shouting at each other. They teach millions the “talking points,” and people who tell you they think for themselves just repeat the message they read in the paper or heard on the radio!

The end result is an environment of mistrust. This mistrust breads paralysis, and nothing gets done. Can you imagine running your organization this way. Take everyone in your organization, split them down the middle, pit them against each other, and then hope for progress. It strikes me that the way forward is coming together, not splitting apart! Keep in mind the founding fathers view of balance of power was to split the power of government between the executive, judicial, and legislative branches, not Republicans and Democrats!

This issue manifests itself in all sorts of ways. We don’t present a unified front to the outside world, we don’t trust each other enough to solve the big problems, and we can’t even agree on what those problems are. Look at the current economy, we can see exactly what happens when we try to bury a problem to achieve some political gain. It just makes things worse!

The U.S. Electorate needs to wake up and realize they are being duped! The people with a vested interest in promoting fear and mistrust among conservatives and liberals are getting what they want. They want you to believe the ”other side” is the source of all your problems and is out to destroy your way of life. They want you to believe the opposing views are the source of all the things that are bad in the world, and that they have all the answers and are 100 percent correct. They want to perpetuate fear, and then give you someone to blame for that fear! That fear gives them power, and they will do anything they can to maintain that grip on power.

We are all Americans, we share in our successes and our failures. If we continue to allow our leaders to take us down this path then we are committing ourselves to the same destiny as another global power from the past, the Roman Empire! If we learn to work together and solve the tough issues through compromise and reason then we can get back on the track to success. There is little doubt, we will either come together to succeed, or we will drift apart on a path to failure!  

It appears this morning that many investors around the globe have determined what we here at Rough Air Associates have known for quite some time, the U.S. economy is slowing and it will impact global growth. What a shocker!

The U.S. equity markets will likely open down today as investors digest the last two days where international markets tanked due to fears of a U.S. led recession. The question is, “What changed?” Stock markets have been falling since the start of the year. New job growth in 2007 was not strong, and we are on pace to have the worst decade of job growth since prior to World War II. Consumer sentiment has been falling for several months, manufacturing has softened, energy prices are up, and asset prices are down. All of this did not happen in the last three weeks, it has been happening for months.

What we are seeing today is a perfect example of what happens when you ignore problems and set unrealistic expectations for investors. Since the subprime meltdown hit the front pages last summer we have had analyst and politicians coming on the news everyday to let us know the economy is sound. They tell us the fundamentals are good, and the U.S. economy will keep expanding. Some have said that we can withstand a downturn in housing, because global growth will keep the economy moving forward, and some have said that we are just letting the media talk us into a recession.

Would you run your business this way, ignoring potential problems, trying to “spin” them, so everyone believes the problems are not real? Burying your head in the sand is not a strategy, and denying a problem exists simply because it makes the party(ies) in power look bad is bad business. Success always requires us to face up to adversity, if we ignore it we doom ourselves to failure!

Now that everyone has caught up, we can expect things to begin to turn around soon. Will we have a slow start to 2008? The answer is yes! However, it just means we can look forward to the rebound that is just around the corner! 

In an effort to hold back what is sure to be a tsunami of a sell-off today in the U.S. markets, the U.S. Federal Reserve announced an emergency rate cut this morning. So on one hand we have politicians telling us the economy is fine, and there is nothing to worry about. At the same time, these same policy makers are creating a stimulus package, and cutting interest rates. It is as if they are saying, “Don’t panic, we will do that for you!”

Too many entrepreneurs believe that if they ignore a problem it will go away! Common sense tells us that ignoring a problem does not solve it, it simply buries it so it can rise another day. Business owners must address the issues in their business as they come up. Too many leaders turn a blind eye to major issues, and hope that no one notices. Every path to success is blocked with challenges. Ignore those challenges and you can gurantee that you will steer down the wrong path!

This past November I posted an article about the delusion being forwarded that global economic growth would prevent the U.S. from an economic slowdown. At the time many analyst and policy makers were expressing the idea that due to the tremendous growth in China and India, and a falling dollar helping exports, the U.S. economy could weather the downturn in housing and slower consumer spending.

In markets across the globe today investors let their opinion of the “global growth idea” be known. All of the major European and Asian indexes were pummeled today. The common theory is that they dropped due to concerns about a looming slowdown in the U.S. Although this is only one day, it does reflect the global concern that a slowdown in the U.S. will impact everybody.

We are typically the world’s largest consumer market. A slowdown in the U.S. will have a global impact, hoping that the problems in our economy are isolated is simply a strategy of hope. The quicker we implement stimulus the quicker we can get things moving forward again.

Well it must be official, the economy is slowing and Washington is jumping in to save it. I am not sure how excited I am about that. The words “We are the government and we are here to help,” scare the heck out of me! Although I must say the political positioning is not without irony!

For the last several months we have listened to many politicians and experts tell us the economy is doing fine. In fact it is doing so well that Congress and The White House are working together to come up with a fiscal stimulus package. Democrats and Republicans are working together, and still we here there is nothing to worry about.

This past summer I pointed out our concern about slowing job growth and the fallout from the subprime mortgage crisis. We have discussed issues of potential recession and stagflation. I am not an expert, nor an economist. I am a small business owner who is simply trying to position his business to survive the turmoil. It would be healthy for us all if the political parties would do the same. Stop trying to point a finger at someone, so we can blame them for our troubles, and start working together so we can solve some real problems.

Economic issues are too important and touch too many lives to relegate them to petty partisan bickering. Conservatives and Liberals need to put their differences aside and work together to solve our country’s problems. Hopefully the unity we witnessed this past Friday is real, and will not be short-lived. For the good of our country and our people, we need to start working together and stop trying to tear our political opponents apart!

There will not be much new economic data to chew on this coming week. That is probably for the best, since most of the discussion in the financial community will be about proposed stimulus packages coming from the White House and Congress. The bottom line is some of the challenges in the economy that we have been discussing for several months are bubbling to the surface, the politicians are getting into the act (albeit a little late), and hopefully we will get some reasonable ideas to help pump up a slowing economy.

A bird in the hand is worth two in the bush! I often think about this when trying to buy or sell a business, or a piece of real estate. Too many people approach an asset negotiation as if they are holding all the cards. This of course only works if you actually are!

The best deals are ones where the buyer and seller both work to create a win-win. When the deal is completed both parties feel as though they got some of what they wanted, but not all of what they wanted. The people who approach this type of negotiation with a take it or leave it attitude, many times get left without a deal! If you are fortunate enough to be the only game in town, you may be able to approach the deal with a winner take all mentality. I would always recommend caution, because you never know when you may to have negotiate with this same individual again.

If you are trying to buy or sell a business there is typically a range at which both the buyer and the seller will find some comfort. The trick is getting to that range. When we sold our family business several years ago I analyzed what I thought our business was worth to us, and what the business was worth to a potential buyer. I looked at the transaction from both points of view. I determined a minimum level at which it made sense for us to sell, and a maximum level at which it made sense for them to buy. The first offer was well below what we needed. I did not respond indignantly, I structured my response so the buyer knew if they got to the right number we would be interested in selling. I let them know how much we appreciated their offer, I reinforced our initial position of not being in the market to sell the business, and I made sure they understood that we believed we could do better keeping the business rather than selling. My goal was to let them down easy, and keep the door open so they would be motivated to come back again!

Several years ago I observed a deal where a business owner wanted to retire and had decided to sell his business. He hired a business broker, had a valuation done, and began marketing the business. He received an offer that was close to what he wanted to get out of the business, but not quite there. Instead of negotiating this business owner chose to draw a line in the sand, and did not respond. The problem with drawing a line in the sand is that you have to ensure the other guy is willing to cross it! In this case the buyer walked away, they were left with the impression that the seller was just fishing, and had no real intention of selling the business.

Selling or buying a business is an art. It requires patience, discipline and common sense. As a buyer know your limits and stick to them, as a seller understand your needs and work to fulfill your needs. In any case always remember, it is always easier to negotiate with the guy in front of you than try to find another guy to negotiate with!  

The University of Michigan released their survey of consumer sentiment on Friday, and the news was good. The Sentiment Index jumped to 80.5 in December despite consumer concerns about falling home prices, tighter credit, and more expensive gas. The economic data continues to point to a slowing economy, although if consumer spending improves then the propects for the economy will be brighter!

I recently read an opinion piece in the New York Times about free trade. The economist who wrote the piece indicates that all economist know that the wages we lose due to outsourcing are more than outweighed by the cost savings from the wide availability of lower priced goods. This is a new twist on the free trade argument which I have not heard before, and strikes me as a bit silly.

Let me preface my thoughts by saying I am by no means a trade protectionist, although I am not sure we are seeing any great benefits from the liberal trade policies that have defined international trade with the U.S. since the mid-1990s. It is apparent where I live that many small manufacturing companies are suffering directly due to the challenges of increased competition from low cost labor markets. The bottom line is our manufacturing base is shrinking quickly. This leads me to conclude that although there are some benefits to keeping trade barriers low, some of the arguments for free trade agreements are false.

The idea that free trade lowers cost is a nice thought; however, the facts don’t match the rhetoric. Although we may be paying less for “Barbie and Ken,” we are now paying much more for energy, health care, housing, food, and education. It seems that the cost of many of our basic needs are rising rapidly, and at the same time we are replacing well-paying manufacturing jobs for lower paying service jobs. Given that I can’t see the benefit of trading low wages for lower cost on some non-necessities. Keep in mind lower cost also makes the assumption that the manufacturer or importer will lower the price of their product when they move it to a low cost labor market! I am not sure that is a realistic expectation.

Another common argument is that lower trade barriers create in-sourcing. This is the idea that foreign manufacturers will want to open plants in the U.S. to be closer to the customer. The problem with this argument is that the majority of in-sourcing started prior to NAFTA. In the 1980s Toyota opened their U.S. manufacturing in California and Kentucky, Nissan in Tennessee, and in the 1990s BMW and Mercedes also opened plants in the south. It strikes me that a foreign manufacturer is more likely to open a plant here if there are some import restrictions in place.

Also, the numbers don’t agree with the in-sourcing argument. I looked at job growth for the first seven years of each decade since 1940. The economy added 13.0 million jobs from 1940 to 1947, 8.9 million jobs from 1950 to 1957, 12.7 million jobs from 1960 to 1967, 13.1 million jobs from 1970 to 1977, 12.9 million jobs from 1980 to 1987, 15.5 million jobs from 1990 to 1997, and 7.9 million jobs from 2000 to 2007. The overall population has grown an average of 24 million people each decade, and the current decade is keeping pace with that growth. The bottom line is that our although our population continues to grow, new job growth this decade has been at the slowest pace in the last 60 years! I would conclude we have created a process where our economy adds fewer jobs that pay less! That does not strike me as a great growth strategy!

Many will say that lower trade barriers support small business. I would argue that lower trade barriers support businesses that can afford to set up international operations or partner with international suppliers. Most small companies have a difficult time rationalizing the cost of overseas trips, much less making the six or seven figure investment to create an international partnership! The process favors large multi-national corporations. They have the cash flow, and the resources to move manufacturing operations to low cost markets, so they can get a foothold in those markets as well as be cost competitive here in the U.S. There are not many family-owned machine shops in Dayton, Ohio setting up manufacturing operations in Shanghai!

The reality is that what seemed like a good trade strategy in the mid-1990s has now become a major issue for the U.S. Government. For more than ten years we have essentially been transitioning the wealth of our middle class to places like China and India. They have slowly bled U.S. manufacturing jobs, and those jobs are not coming back. Some will say this is pessimism, I would argue that it is being grounded in reality. When manufacturing jobs do start leaving China and India, they will be headed to the next burgeoning low cost labor market, not back to the U.S. Anyone who tells you different is not being honest with you or themselves!

Although, many companies and their investors have reaped tremendous benefits from utilizing workers from developing countries, whose wages are substantially below the average American’s, it appears that with an economy teetering on recession the benefits have not outweighed the long-term cost. The policy maker who insists that lowering trade barriers has no negative impact on the U.S. economy is burying his head in the sand. The reality is giving up good paying jobs so we can pay less for “Barbie and Ken” does not sound like a good deal. We send them jobs and opportunity, and they send us junk!  

The Rough Air Cost Index improved slightly in December despite increases in overall energy cost. Prices, although fluctuating, are remaining in check, which gives the U.S. Federal Reserve significant leeway when making their next interest rate decision at the end of January.

The Rough Air Demand Index fell in December, and now stands at a strong negative. A poor December jobs report, slowness in manufacturing, a drop in retail sales, and gloomy consumers are keeping our demand expectations low. The question for business owners and analyst is, “Where is the bottom?”

In another sign that the U.S. economy is either in or may be headed for a recession, the Index of Industrial Production released Wednesday was flat in December. Although this was better than the expected .2 percent drop, it was weaker than November’s .3 percent gain. This follows a drop in the Institute for Supply Management’s Manufacturing Survey last month, and a drop in the Empire State Survey released Tuesday. The economy has reached a precarious point where business owners need to focus on their efforts to manage for profitability in a difficult environment. 

It never ceases to amaze me how common sense in business seems to evaporate when greed comes to the forefront! Many experts are only now becoming concerned about the rising health and safety issues due to China’s burgeoning, low-cost manufacturing sector.

I believe common sense usually dictates that you get what you pay for. Free advice is usually worth what you paid for it, and if you aim for the lowest cost product, then that is what you get. It is no surprise that we are continuing to see stories like this one from The Wall Street Journal which details the real problems facing China.

Globalization is here to stay; however, the Chinese government is allowing issues to be created that will plague its citizens for decades to come. Quality and safety cannot be ignored or swept under the rug in any business. Failure to deal with these issues will most likely result in a failing business! Just because you ignore the problem does not make it go away!

This year we have the first open election, one in which we have no incumbent President or Vice-President running for office, since 1952. Therefore we are at the start of an extremely long silly-season. The media will play up the horse race aspect of the presidential contest so they can keep viewers tuned in, and the candidates will all be making their case as to why they should be the next President of The United States.

With this process comes the long-practiced political strategy of pandering to voters by making false promises that cannot be kept. Only in politics can a person who has positioned themselves as a strong supporter of free trade, go into a state like Michigan, which has been decimated by manufacturing jobs being outsourced, and promise to bring those jobs back. The common argument seems to be that current trade practices will cause so much global growth that eventually demand will require that these manufacturing plants re-open and we can return to the good old days. Right!

This of course has no bearing on reality, but the candidate can blame outside sources if their “vision” never comes to pass. The reality is the average manufacturing worker in the U.S. makes about $25 per hour (unburdened). The average in Mexico is $3 per hour, and the average in China is less than $1 per hour. If labor rates were to grow an astonishingly 20 percent per year in China, it would take 15 years for them to catch up to the current rates in the U.S. Any manufacturing person worth his salt knows that if you have a high-volume product with a high-labor content you will seek out low cost labor environments. Some will call this pessimism. I call it reality.

One of the first lessons I learned in business was never to make a promise I could not keep, and always deliver more than I promised. It appears that some politicians today believe you should always make convenient promises that you will not be held accountable for, and only deliver if failure means you will lose your financial support. There is no doubt, I am sure we are in for quite a few false promises in 2008, and most of these will be forgotten by January 21, 2009! 

The Producer Price Index for December came in down .1 percent, the core rate was up .2 percent. Both numbers were better than consensus forecast, which gives the U.S. Federal Reserve some flexibility when they meet later this month to decide what to do with interest rates.

The U.S. Department of Commerce released a retail sales report Tuesday that indicates the economy may have already slipped into recession in December! Consumers did not spend last month as retail sales dropped .4 percent in the final month of 2007. The fall in sales activity comes on the heels of a dramatic drop in new job creation and is a clear indication that the economy is not slowing, but has already slowed! Our job now will be to fight our way back!

There is no employee that cannot be replaced. We have all heard that same sentiment expressed. Typically we hear this just about the time a key employee quits to go work for a competitor, retires, or is disabled. In the past I subscribed to this theory. I thought that over time we could replace anybody, and many times the person we replaced them with would do better. This was not one of my better management theories!

Human nature being what it is, we probably convince ourselves that everyone can be replaced so we don’t have to deal with the fear of losing a key person. I like many business owners had to learn the lesson the hard way. Several years ago when I was CEO of Hyde Park I had a marketing manager that was right in synch with my promotions strategy and was doing a tremendous job of executing that strategy. This person quit and I was never able to get us back to where we were from a promotions standpoint. Our execution in this area was never quite the same, and I believe our customers noticed.

The question for a business owner is what can I do to protect against the loss of a key employee? If the loss is an owner or someone that has a major impact on the health of the business there is the possibility of keyman insurance. For the loss of a key manager, or staff, there are some things you can do to try to prevent those losses, and some you can do to prepare. To be prepared we suggest:

1. Create a depth chart- Using your organization chart identify your key employees and who could replace them.
2. Understand their jobs – Spend time with your key people to understand what they really do. Make sure you have a clear, accurate job description, not just the one in the file so you can pass ISO 9000. One that is a true indication of what they do.
3. Know their strengths – Good people are hard to find, stars are even harder to find. Once you have one, develop a list of their strengths. You must understand what makes them a great performer.
4. Do a simulation – Create a simulation of what you would do in the event that key employee is gone. How would you train their identified replacement, what would your expectations be, and how could the replacement be taught to perform like the person leaving.
5. Don’t fool yourself – This is what many of us do. You will lose a key employee, and it will challenge your business. If you accept these facts then you can prepare and be better prepared when it happens.

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I am the type of customer who does not generally complain about service. I don’t jump and down and scream at the top of my lungs when I get poor service. I am more likely to silently take my business elsewhere making the assumption that this business did not want my patronage.

Recently I have had an issue getting my newspapers on time in the morning. I read three newspapers, as well as reviewing online resources, before I begin blogging every day. When the papers don’t arrive before I leave for the office, my entire day is thrown off track. I was dealing with a customer service representative from the local paper to resolve this issue when I thought about why companies fail at the service game. I came up with the five “I’s” for customer service failure.

1. Information – Many companies fail at customer service because the people on the front-lines don’t have the right information. When an issue crops up these customer service people follow the company line and deliver a message to the customer that is unbelievable. These front-line folks are not given the right information.
2. Insight – Customer service people are trained to follow company policy, and many times don’t seem to believe a problem exists. There are times when customers may not be spot on, but customers generally have a much better unobstructed view of how a business is performing.
3. Investigation – Some organizations do not compel their customer service people to carry out a full investigation. They teach them to give a canned company response, and the end result is a bewildered customer. Companies need to let service reps dig into issues and investigate until they fully understand the cause of the issue.
4. Independence - Customer service people are often locked in to company policy, and are not given the autonomy to resolve a customer issue on the spot. Customers don’t want to hear that you will get back with them, they want their problem solved. Employees need to have the authority to resolve customer issues.
5. Initiative – Rarely are customer service organizations trained to follow the problem all the way through. They pass a quick answer (excuse) as to why the problem has occurred and they move on to the next customer. Nothing frustrates a customer more than having to complain continuously about the same problem. Surprise your customer and follow up to ensure their problem was resolved.

Customer service is not rocket science. If you allow your customer service teams to attack the five “I’s” you will separate yourself from the competition. People will pay for a great product, they will pay more for a great product backed up with world class service!

Do we talk ourselves into a recession, or do we see the signs, start the discussion, and forecast a looming downturn? Many economic pundits complain when someone points to the current economic data, and mentions they see some rough air ahead in the economy. Ben Stein mentions this in the New York Times yesterday.

The real problem is that by the time we see the signs of problems in the economy, it is likely too late to talk ourselves into or out of anything. Business owners should pay attention to the signs and not the pundits. The New York Times has an analysis on the current economy and some of the challenges. Even if we are in a recession, we will likely not know for a few more months.

A recession is not the end, it is simply an economic cycle that requires us to manage our business in a different way. In August I cautioned business owners about the potential fallout from the subprime crisis, I also mentioned this in post in September and October. The easiest way to make a problem worse is to ignore it. Taking an objective view and working to understand the problem can keep your business out of trouble.

We will have a lot of economic data to digest this coming week as we get indicators of both inflation and economic activity. Tuesday we will get the Producer Price Index and Retail Sales. Wednesday we will get another mix of data with the Consumer Price Index and Industrial Production. We will get more data on the housing market as Housing Starts are released on Thursday, and we will get more data on Consumer Sentiment Friday. The bottom line is that by the end of the week we will have confirmed our biggest concerns, economic growth has slowed and energy cost are providing inflationary pressures! Stagflation. 

The U.S. Trade Deficit widened more than expected in November due to increasing oil prices. Exports continued to grow, but higher energy cost are offsetting some of that growth. The good news is that growth in our export business may help hold off a recession. The bad news is higher energy cost are continuing to eat away at overall consumer spending pushing the economy closer to a recession. The next step will be to see if the Fed comes through with a significant rate cut this month to stimulate growth, although a rate cut could also boost oil prices, the proverbial catch 22!

During my career as a business owner and executive, I have been fortunate to have had the opportunity to sit on both sides of buying or selling a business. That experience has helped me develop a sense for what buyers focus on during a transaction, and nothing gets more scrutiny than the seller’s financial statements.

As a buyer, one of my major pet peeves is poorly organized financial statements. Today there are myriad small business software accounting packages that are easily understood, and cost only a few hundred dollars. No matter how small your business is I recommend taking advantage of one of these packages, so you can better govern your business. A little time spent getting your financial statement in order today will go a long way if you decide to sell your business.

If you are getting ready to sell your business, here are a few things I suggest you do to help increase the value of your business and give the buyer a better level of comfort.

1. Have clear statements – Make sure a buyer can clearly pick out total revenues, gross profit, and operating income in a quick glance. These are the first three numbers most buyers look at. If the financial statement is difficult to read, and not organized then the buyer may quit trying to figure it out. Don’t muddy up your income statement with too many categories, keep things general.
2. Clean up the income statement - Many business owners end up with their car expense, club expense, and other miscellaneous expenses on the income statement that are not important to the operation of the business. If you are going to sell the business, get these items off the income statement. Buyers are cynics, if the expense is not there then you don’t have to explain it away.
3. Add backs – It seems that every time I look at a business, someone tries to convince me there is a long list of add-backs. It is as if they are saying this business would be really profitable if it weren’t for all these darned expenses! Make sure anything you say is an add-back is something the business can truly do without. Don’t just throw stuff into the pot in hopes of running up the perceived returns.
4. Honest disclosure – One thing that can drive buyers crazy is when the facts don’t match the rhetoric. Don’t tell the buyer you are generating millions of dollars in cash if you are not. Don’t tell them the business is easy if it is hard. Don’t be insincere about the reason you are selling the business. Whenever you mislead a buyer, and they find out, everything you give them or tell them becomes suspect.
5. Understand the value – I have mentioned this before. It is imperative you understand the real value of your business. The real value is not the amount you need in the bank to retire, it is the value of the business as an ongoing entity to the new buyer. Too many business owners don’t understand the value of what they are selling and they become disenchanted with the process when they are getting offers they feel are well below the value of the business.

 Selling a business is never easy, but if you do the right things up front you can make the business much easier to sell!

Just a few minutes ago an email crossed my inbox from one of my colleagues. At his firm, a financial services business, they are positioning their investment strategy for a recession. Since last week’s employment report, talk of the U.S. economy slipping into recession has grown very loud. Some have even suggested we are already there!.

Remember, as I have mentioned before, a recession is simply the end of an economic cycle. If you position your business for a downturn, control your discretionary costs, and build cash you can be prepared to take advantage of the next cycle of economic growth. The right decisions today will help you build momentum for the next bull run!

A Vice-President that worked for me when I was CEO of our prior family business once told me that good quality is no longer considered a competitive advantage, it is now expected as business as usual. This may be true, but your quality reputation can help or haunt you for years.

An article recently in the Wall Street Journal Europe discusses how U.S. car makers are playing tricks to lure buyers. The real story is not what is being reported, but the negative impressions car buyers have of American cars. It takes years to develop a reputation for good quality, and a very short period of time to destroy that reputation. How many of us are rushing out to buy our kids toys from Mattell? Once your reputation for good quality or poor quality is established you will carry the responsibility for that reputation, whether it is the responsibility to uphold it, or the responsibility to change it.

Good quality may be understood, but many times it is not practiced. Here are some simple thoughts on quality and building or maintaining your quality reputation.

1. Quality is not just the product – If you believe that your only quality focus is the product you provide you are mistaken. Delivering on time, keeping commitments, ensuring customers stay informed, and providing accurate product or service information, these all establish your quality reputation.
2. Keep Your Balance – Too many business owners, in an effort to boost revenues, emphasize getting the product out the door at all costs. Don’t create the perception among your employees that shipping product is more important than shipping quality product.
3. Know the details – Whenever we would be shipping a new product or a major new customer order, I would go back and spot check the order myself. I remember one experience when I found a manufacturing error when spot checking a new strategic partner’s order. Make sure your employees know you are committed to quality, and you are willing to commit time to the effort, lead by example.
4. Do more than registration – I know many business owners that automatically respond they are ISO certified when asked about their quality. ISO is about process, it ensures that you do things the same over and over again. While certification is good, it is not the end all solution. A company making cement life vests could meet the ISO standard by doing it the same every time.
5. Talk to your customer - Look past all the folks in the middle and speak directly to your customer. They will tell you about your product and your service. Too many times the business owner or CEO gets the filtered view. They get their feedback from the folks around them and not from customers who are willing to give them the straight scoop.

These are just some simple tips in regards to your quality effort. Always remember, while good quality may be understood, poor quality can damage your reputation and haunt your business for years.

Someone told me once when you start a new business don’t tell anyone. Even your closest friends will doubt your ability to succeed. As a business owner and entrepreneur I know exactly what these folks are talking about. It strikes me that not many organizations want to support your start up business, everyone assumes your effort will fail, and until you prove them wrong, they maintain that assumption.

This can be true for your family, your friends, and the community. Our local governments will spend billions of tax dollars trying to attract major companies (large employers) to our geographic region. They are all looking to bag the elephant or get the big win. Banks generally do not want to lend you any money until you have some, and many times suppliers will not take your new venture seriously. I find this odd considering that facts. Half of the GDP in this country is created by small businesses, those companies with less than 500 employees. More than half of the private sector workforce works for a small business, and where do you think the majority of new job growth comes from, that’s right, small business. With these facts it strikes me that if local governments spent more time and money educating and supporting entrepreneurs and small businesses they would win in the long run.

Regardless, here is a good resource from the Small Business Administration for creating a plan for your start up business.

Every small business owner knows, cash is king! Regardless of the environment around us, our primary concern is always cash flow. The question our clients are asking, “Given the current condition of the economy, how do the rules of the game change?”

The data pointing to a softer economy continues to mount. It seems as each day passes, someone puts another nail in the coffin of strong economic growth. Are we headed for a recession, inflation, or both. No one really knows, and don’t let anyone convince you they do. Too many of us work very hard to assign predictability to unpredictable events. That said, we still need to figure out which way the wind is blowing, and position our business to manage the rough air.

As we head into a uncertain future (as if any future is certain), we are suggesting to all of our clients the best offense in this environment is a good defense. If a slower economy has the potential to hurt your top-line, it can hurt you competitor’s as well. If you are proactive and position your business to build cash you will be better positioned to sustain an extended downturn, as well as invest for growth. Here are five simple things you can do to build cash during a slowdown.

1. Cut Discretionary Cost – Advertising, promotions, sales travel, bonuses, magazine and newspaper subscriptions; these are all expenses on the income statement that we believe we need, but in the short-term we could possibly live without. I am sure for your business there are discretionary costs that can be cut, and the business will survive. If you want to build cash during a downturn, this is a place to start.
2. Capital Equipment – Are you thinking about a new computer system, or a new machine for the shop floor? Capital Equipment sucks up cash. Many businesses operate in a Cap Ex = Deprecation model. This means they try to limit their capital spending to an amount equal to their equipment depreciation. Lowering your capital outlays has two benefits, you use less cash on capital, but you are still getting a tax benefit from current depreciation. A temporary hold on capital equipment can help build a healthy cash base.
3. Accounts Receivable – How do your customers pay? Do they pay in 30 days, 45 days, or 60 days? Depending on the level of your receivables, reducing the days sales are outstanding, or how long it takes for you to get paid, can help supplement your cash flow. Don’t become your customer’s bank during a downturn. Always remember when it comes to collections, the squeaky wheel gets greased. If you ignore your receivables you will get paid when your customer is ready. A little extra effort on receivables can improve short-term cash flow and reduce bad debt.
4. Inventory – If you a manufacturing or distribution business, there is always cash to be found sitting in inventory. Getting those inventory numbers down can build cash. If sales growth is slowing or stagnate, your inventory should be coming down in proportion to a slowdown in your business. Bleed off excess inventory, and save some cash. Now would be a good time to obsolete old inventory as well. This is money already spent. If you obsolete it and expense it now, you reduce your income and overall tax liability.
5. Taxes – Explore opportunities for reducing your tax liability. Obsoleting inventory is one way. For many small businesses taxes are a major cash burden. A slowdown will likely result in a natural reduction in revenue and income. If there are other opportunities in your business to increase expenses without sucking up cash, take advantage of them now.

The reason many small businesses fail is not because the economy or the market puts them under, it is because the leaders of those businesses refuse to recognize the environment they are in. Every business owner can manage through the good times or the bad times. The most successful business owners position their business to succeed regardless of the world around them. 

Managing a family business is not an easy task, not only must you deal with the day-to-day issues that challenge all businesses, but you also must deal with the unique emotional issues that come with a family business. Selling a family business can be a major emotional issue for the entire family. Most family firms are not just an asset to be traded, they are the family’s legacy. Many families that own their own business are known in the community for that business, giving up that status through the sale of the business is an emotional roller-coaster.

The Wall Street Journal has a great article today on selling a closely held business.  The article touches on some of the challenges of selling a business in today’s environment. Although it is not focused on family business, it has some great tips on what you need to do to get the multiple you want when you are ready to sell.

One of the issues for a family business is where each generation is on the Small Business Life Cycle Map I describe in my book, Rough Air Ahead. An older generation that is ready to exit the business is thinking about retirement, a younger generation is still thinking about investing for the future. One generation is concerned about protecting their assets, the other is concerned about growing their assets.

I experienced all of this turmoil when we decided to sell our family business. On the surface it seemed like a ”no-brainer” decision. We could have run the business for another 25 years and we likely would not have made as much money as we did selling the business. Although, the value of the deal was a critical factor, it did not eliminate the emotional issues. We had family members who wanted to sell and family members who did not want to sell. In the end it worked out well for our family, but it was not without its challenges.

If you want to sell your family business here are some tips that can help you calm the emotional turmoil and get what you need from the sale:

1. Know the real value of your business, get outside help in understanding that value
2. Remember, the value of your business is not what you need to maintain your lifestyle, it is what someone is willing to pay
3. Make sure there is clear communication within the family through the entire process
4. Get the family issues out on the table early
5. Educate everyone in the family on the value of the sale versus the value of keeping the business
6. Make sure you have a “what if” plan if the sale does not go through
7. Ensure you business is prepared for sale
8. Ensure the family is prepared for the sale
9. Every family member should have a financial plan for after the sale is completed
10. Every family member should have a personal plan for after the sale is complete

Selling any business is a complex task that requires a lot of patience. The legacy of a family business makes that task even harder, we know, we have been there!

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.

  For more ideas on creating an advisory board you can pick up a copy of my book, Rough Air Ahead, at your favorite retailer.

The business news is full of stories today about economic stimulus packages that are being discussed by Congress and the White House. The irony is although politicians are debating how to keep the economy moving forward, they are telling us that the economy is solid and doing just fine! It appears that they want to deal with the economic realities, but not talk about them!

Last summer I posted an article about the potential ripple effects from the downturn in housing and the subprime fallout. Our belief was that the U.S. economy could not withstand major turmoil in one large segment (housing) without some broader impact. In October I posted an article in regards to stagflation. Our view was that the slowdown in the economy was being helped along by skyrocketing oil prices.

Will the U.S. economy slip into a recession? The odds seem to be increasing every day; however, no one really knows for sure. The bottom line is if the politicians in Washington are talking about economic stimulus, then short term growth prospects cannot be great. My advice is to continue to position your business for growth, but keep that contingency plan close by in the event an economic downturn shows up at your door.

The most common question I get whenever I speak to a group of business owners is, “How were we able to grow our business so successfully?” Our family business, founded by my father-in-law in 1963, was a manufacturer of custom machine controls. In the mid 1990s we began developing a line of ultrasonic sensors.

At that time ultrasonic sensors were not even a recognized segment of the broader $2 billion global, sensor market. Through a tremendous amount of effort during my tenure we were able to grow our sensor business 18 percent annually, develop a recognized market segment in sensing, and become the world’s leading manufacturer of ultrasonic sensors.

Many business owners want to know the secrets of our growth story. I always tell them the secrets to our success are not secrets at all. Most business owners and executives know what they must do to grow their business, but many just can’t seem to get these things done. As a business owner, if you can execute on these seven items, you will grow your business.

1. Find a Niche – The biggest mistake many small companies make is aiming at huge markets. Most successful small businesses started by aiming at a niche they could develop. Many times it will not pay a larger corporation to do the hard work to develop a small market niche. What may be a huge market opportunity to one, may be insignificant to another.
2. Have a Clear Value Proposition – Make sure you clearly understand what value you add for your customer. If you cannot articulate this to yourself how will you be able to convince prospects to do business with you? You must be able to clearly articulate what you bring to the table.
3. Target Your Communications – Once you have a clear value proposition, make sure that message is getting to the right people. One of the mistakes we made was trying to outshout the competition. Know who your customer is and figure out your best method for delivering your value proposition to them.
4. Provide World-Class Service – I despise poor customer service. Many large companies, because of mass, have a difficult time providing great, consistent customer service. All successful small businesses I know provide their customers with unparalled service. If you take care of the customer, many other things will fall into place.
5. Treat Your Vendors Well – You may not be your vendors number one customer. Your volumes may be small, but if you treat those vendors well you will get better attention than their largest customers. Pay your vendors quickly, have them involved in your business, and spend the time to cultivate relationships with them. You never know when you will need a vendor to save your “hide.”
6. Treat Your Employees Well – One key to growing a small business is finding great people and keeping them. There is always more perceived risk working for a small company than a large company. If you provide your employees a great place to work, and give them the autonomy to do their jobs, you will create a workforce committed to making your business a success.
7. Keep Feeding the Fire – Too many businesses develop one product or service offer and stop there. Don’t let innovation die. One of the most important aspects of our growth story was our effort to always have something new that would bring additional value to our customer. Never be afraid to cannibalize you own product, if you don’t someone else will.

It does not matter what your business is, or what your growth goals are. You must remember, this stuff isn’t easy. If it was, everyone would do it!

The coming week will be more about digesting last week’s big news, $100 oil, a weak jobs report, and an Iowa surprise rather than dissecting new data.

Tuesday we will get pending home sales data, so expect more doom and gloom surrounding the U.S. housing market. Voters in New Hampshire will go to the polls on Tuesday and select who they want to be the nominee of their respective parties in this year’s presidential election. It is possible that by Tuesday evening we will have a pretty clear idea of who the nominee for the Democratic party will be in 2008; however, the Republican nominee may not be known until the delegates hit the floor at the convention in September. An event that is sure to be an epoch battle as the old guard in the party fights to maintain their hold on power.

When Friday comes we will get data on international trade and import/export prices. Given higher oil prices, and weak export data we will likely get more affirmation of a slowing economy! Although we may not have any more clarity about the economy this week, we may have a pretty clear picture of who will be leading the Democrats in November!

I have known some really good salespeople, and some really poor salespeople. There have been times when I knew in my heart that a person was going to be great in sales and they flopped, and there are times when I was absolutely certain an individual would flop and they succeeded. It is not unusual for people who speak well to be considered good salespeople. Although being able to articulate the value your business brings to the equation is important, it is not the only characteristic a great salesperson needs.

As I developed in my career I learned what worked for me in selling and what didn’t. My best lessons came from watching other salespeople in action, whether they were good or whether they were bad. There are certain mannerisms the great ones all seem to share.

• Listening Skills – Being a great communicator is as much about listening as it is talking. The best salesperson that ever worked for me was great at listening. He would start every call by probing the customer to find out the customer’s knowledge of our particular technology, what competitive products the customer used, and what major issues the customer was having in his plant. He would never get product out for a “show and tell” until he felt he knew what his customer needed.
• Goal Driven – To succeed in sales you must be goal oriented. All salespeople are measured on how much they sell in some way. That measure may take different forms, but in most cases the salesperson is given a target, then measured on how he or she  is doing at hitting the target, and beating the prior period. If you are in sales and you are not driven to hit goals, then you will likely not succeed at it.
• Competitive – The great ones want to compete at everything. Sales is all about competition. You are competing against other salespeople, company targets, and personal goals. The most successful salespeople thrive on competition.
• Tenacious – If you are in sales then you better be able to handle rejection without blinking. The best salespeople know that rejection is part of the game, and they try to learn something every time they lose a selling opportunity. This is not a profession for people who are overly sensitive, or can’t handle losing on occasion. To succeed in sales you must never give up. It isn’t that every no is a yes in disguise, rather it is that every no motivates you to find the next yes!
• Attitude – I have never met a successful salesperson that does not have a great attitude. One does not happen without the other.

There are a plethora of books, articles, websites, and magazines that specialize in helping you sell better. There are myriad experts that are dedicated to helping you improve sales performance. Many times they will tout some new method or theory, but in most cases it is all about the basics. If your salespeople understand the company, its products, and its value proposition they can talk to the customer. If they have the skills I outlined here, they can sell!

The economy created few new jobs in December. The Department of Labor reported this morning that 18,000 new jobs were added in December, well below the consensus expectation. Unemployment rose slightly to 4.8 percent, above expectations. The soft job numbers are further evidence that the broader economy is feeling some ripple effects from the downturn in housing and credit crunch. The U.S. economy generated 41 percent fewer jobs in 2007 than it did in 2006, which was 11 percent below 2005. The problem is complicated by hourly earnings data which indicates that wages accerlerated slightly faster in December. As we have mentioned here before, accelerated wages and prices with slowing growth equals stagflation!

One of the most challenging things for family businesses to work through is management succession, getting your business from one generation to the next. Each time a family business goes through a generational transition the odds of success go down. For example, the odds are not in your favor going from the first generation to the second, and they get worse going from the second to third, and so on.

Generational transitions are certainly not impossible. I serve on the advisory boards of several multi-generational businesses, one is currently going from the fourth to the fifth generation of family leadership. I have watched what these families have done and developed some quick tips on how you can get your business from one generation to the next.

1. Set a date – Management succession is not real until the generation in power steps down and lets the next leader or group of leaders step up. Setting a date makes it concrete for everyone. This can give all those involved time to prepare for the transition, and it creates a solid transition. Setting a date makes it real!
2. Define who does what – Too many families don’t define responsibilities for each generation which only serves to confuse everyone involved. When responsibilities are clearly defined and communicated, everyone involved begins to understand that the current generation is no longer calling the shots. Combine this with a set date and you show everyone the torch has been passed.
3. Communicate – The generations need to talk to each other and to everyone involved. Make sure employees are aware of the transition, let them get comfortable with the idea. If the current generation has been leading the business for some time, there will be a major adjustment for the employees as they test the boundaries with the incoming generation. Keep them informed!
4. Hold the line - Many times, simply out of habit, the outgoing generation will make decisions when asked by employees, or act as a go-between when employees have an issue with the new leadership. You cannot allow this to happen. Everyone needs to understand who is in charge.
5. This is not a monarchy – In a monarchy the first born gets the job. Regardless of talent and skill the first born child gets the first crack at leading the business, especially if the first born is male. You need to pick a successor based on who is qualified, not who is first. Making that tough decision early in the succession process will help everyone in the long run.

These are just some simple tips, if you would like to dive in to succession further you can listen to my free podcast on succession here. 

The headline says it all. Oil prices rose to over $100 per barrel yesterday due to many of the same factors we have seen over the last twelve months, primarily strong demand in developing economies. The rise in oil prices, as well as new data which showed a pullback in manufacturing, caused stocks to have the worst start to a new year ever! The ADP employment report released this morning showed weak job growth in December, which indicates the government’s jobs report out tomorrow will not be strong. All of this as Iowans gather this evening to caucus to select who they would like to see head their respective party’s ticket for the 2008 U.S. Presidential Election.

There is no doubt 2008 is off and running, beware of the light at the end of the tunnel, it might be an oncoming train! 

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.      

The Institute For Supply Managment’s December Manufacturing Survey showed a sharp drop in manufacturing activity in the last month of 2007. The survey came in at 47.7, which indicated the manufacturing sector retracted at the end of the fourth quarter. There was weakness in several areas of the report with declines in orders, inventories, and exports. All of these pieces of data, as well as employment, were below 50.o indicating these areas also contracted.

Although the calendar changed from the old year to the new year, the challenges facing the economy have not shifted. Our issues did not magically go away, we are still faced with the same headwinds that have been hammering the U.S. economy since last summer. The downturn in housing and the credit crisis have rippled over to many areas including manufacturing and consumer confidence. Given the pullback in manufacturing our expectation is that the employment numbers to be released Friday will be somewhat disappointing.

Running any business, whether a small retail shop or a large manufacturer, is always challenging. Business owners invest their time in growth opportunities, employee issues, cash crunches, and myriad other tactical problems. When you add in an uncertain economic environment you create a full meal of issues for any business owner to chew on.

The most effective business owners and CEOs I know spend more time asking questions and listening rather than talking. These business leaders take the time to listen to their customers, employees, and strategic partners. They invest their time learning, so when necessary they can effectively teach!

As a business owner, in today’s challenging environment, what questions should you be asking? Here are the ones we believe are the most important for the new year:

1. What new opportunities are created for your business in an uncertain environment? – If the economy slips into recession are there opportunities you can capitalize on? Will there be competitors you can buy or customers looking for help? Many times challenges are opportunities in disguise.
2. How will $120 oil impact your business? – As energy cost rise where will it impact your business? If you and your customers are spending more due to rising oil prices what will happen to your business downstream?
3. If consumer spending slows will you feel it? – If the American consumer stops buying cars, beer, and clothes will it impact your business? Make sure you understand who your customer’s customers are.
4. Are tight credit markets an issue for your business? – If you rely on a line of credit from the bank, and your business is going to grow in 2008, will you be able to increase your line of credit? Do you have all of the banking relationships you will need in a difficult credit environment?
5. Does U.S. trade policy impact your business? - Are you an importer? If the U.S. takes a less friendly stance on international trade will your business be impacted? If you export, are you going to fall victim to another country’s trade policies?
6. In your market, who will win and who will lose? – When you look across the spectrum of your competitors, which will excel in a difficult environment and which will fail? Position yourself to win!
7. Is your business nimble? – Can you position your business to conserve cash, but push for growth? Being nimble in uncertain conditions is an absolute necessity.
8. As a business leader, what will you need to do different in challenging times? - Strong business conditions and growth require one type of leadership. Poor business conditions require another type. Can you be both? 

There is no doubt running your business today can be challenging. Are you asking the right questions to keep your business moving forward!

My wife told me recently that it is bad luck to do too much work on New Year’s Day. I am not an overly superstitious person; however, there is no reason to tempt fate. Therefore this will be my only New Year’s Day post.

The past year was a tremendous year for Rough Air Associates. We were able to get two pieces of our overall business launched, the small business center and management services. We have seen a tremendous increase in our site viewership since its launch last summer, and we have been blessed to meet and work with some new clients and old friends.

We expect 2008 will be quite a busy year. Our hope is to significantly expand our business in the coming year as we continue our effort to help small business, and family business take flight. As we move into the new year, everyone here at Rough Air Associates wishes you the best, and we raise our glasses in a toast to all of our client’s business success in 2008.

Always remember to fasten your seat-belt, and watch out for your rough air!

Happy New Year! 

What would you do if a major disaster fell upon your business? If you woke up this morning and went to your office or your plant, and discovered it had been destroyed by a fire, a flood, or a tornado would you have a plan for the survival of your business? Recently I wrote about emergency preparedness and provided some resources for preparing your business for an emergency. Today we will discuss creating a disaster recovery plan for your business.

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 final stage of any disaster recovery plan is dealing with the long term aftermath. A major disaster can obviously impact your business operations in the near term. It can also create a source of frustration for the business for many years. You need to have a plan for dealing with the aftermath of a disaster, after the business is up and running. There may be long term implications.

• If there are going to be legal issues, make sure you designate where you will go for legal support
• Depending on the disaster there may be new regulatory issues to deal with, have someone designated to deal with these issues
• Make sure you assess the overall financial impact
• Have a process for reviewing what went right and what went wrong

A good disaster recovery plan involves being prepared, practicing, and knowing how you intend to recover.

Existing home sale rose slightly in November to an annualized pace of 5.0 million homes, versus October’s rate of 4.97 million homes. Average prices fell 3.3 percent, and the November numbers reflected a 20 percent decline from November of 2006. Inventories came down marginally; however, supply still remains high at more than 10 months. Although the data is welcome news, it does not indicate the housing market has hit bottom and is on its way up. New tighter lending standards will likely have a negative impact on home sales, construction, and prices as we head in to 2008.  

Past performance is never an indicator of future results, although it is important to understand trend data, and we should learn from our mistakes. That said we should never rely too heavily on the past when we are trying to get an idea of where we may be headed.

Peter Bernstein discussed this issue in a recent New York Times article as he was trying to frame where he believes we are headed in 2008. Although I have never been a big fan of trying to predict unpredictable events, in the interest of putting myself out there to be skewered I am willing to give it a shot. So here are my expectations for 2008.

• Housing troubles – We expect the turmoil in the housing market will worsen in 2008, as we have not seen all the potential foreclosures come to the surface. We do expect interest rates will improve; however, the high inventory levels will suppress new and existing home sales. It will take some months for bloated inventories to bleed off and housing to resume its expansion mode.
• Slow job creation – The slowdown in the economy in the fourth quarter of this year will likely cause new job growth to stagnant in 2008. In 2007 the economy created more than 30 percent fewer jobs than it did in 2006, which had fewer new jobs than 2005. We do expect this trend to shift; however, we expect that shift is still some time off.
• Consumers grumpy – The slowdown in housing and a tighter job market will cause consumer spending to slow a bit in 2008. Difficult credit conditions and higher energy prices will take more out of the average American’s paycheck. The end result will be a consumer pullback early in the year.
• $120 Oil – I am not sure oil will rise more than 20 percent in 2008; however $120 per barrell is not totally out of the question. The main driver of higher energy prices will be a weaker dollar.
• Lower rates – The weak dollar will be perpetuated by the U.S. Federal Reserve’s need to lower interest rates to stimulate growth. As rates come down so will the value of the dollar, this will help some exports.
• Slow growth – All of the above will add up to slower economic growth in the coming year. Our expectation is for growth to be slowest in the first half of 2008, and pick up as the year goes on, and we work our way out of the slump.

We are suggesting business owners should be somewhat suspicious of an extremely aggressive top-line sales forecast for 2008. Although a slowing economy is not guaranteed, the signs are certainly pointing that direction. If you keep your eye on expenses, and have a contingency plan at the ready you should be able to navigate any rough air in the coming year.  

This week we will close out 2007, and move on to 2008. As we turn our calendars from one year to the next we will have a slew of economic data to digest along with our New Year’s champagne.

Monday we will get existing home sales for November. The expectation is that home sales will continue to be flat as inventories remain bloated. We will see more data for manufacturing on Wednesday with the ISM manufacturing survey, and Thursday with the report on factory orders. We anticipate both of these reports will continue to expose a slight slowdown in manufacturing. We will round out the week, and the first few days of 2008, with the ISM non-manufacturing survey, and the December employment report.

The jobs number will be the major news for the week. If it is good markets will react negatively on anticipation that the U.S. Federal Reserve will hold rates at their January meeting. If the jobs number misses expectations then markets will react positively as hopes for a January rate cut will remain high! 

I have found one of the most difficult things to do in business is make a decision! In large organizations I see a process which often results in analysis paralysis. This is when the numbers are crunched so much that a decision cannot be made. In small companies the problem is often perceived risk, and the challenge is getting over the psychological hurdle of that risk.

This problem crept into my thoughts recently while I was having a meeting with one of my business partners. Together we own an investment company that focuses on acquiring undervalued business assets, and improving their performance. We were meeting one afternoon and we found ourselves at that point where we could not make a decision. This was not because we disagreed, as can often happen with partners, it was because we just were not quite sure what to do. It reminded me of all the times I have wrestled with the decision process in business.

I remember several years ago running into this problem at our old family business. We were making a decision about product development, and whether we wanted to pull the trigger on a new development project. The projected price tag was in the $500,000 range, and I was grappling with the investment decision. We decided to move ahead on that project, and it turned out to be a total flop. To this day I doubt we even recovered 20 percent of our initial capital investment. This was definitely not one to talk about on the resume!

I often remind myself of this project, not to tear down my decision making ability, or talk myself out of a new opportunity, but to remember that I survived. The project may have been a total flop; however, I am still here today. I still have a pulse and I don’t recall being burned in effigy, despite the projects failure. This is my way of reinforcing the idea that failure, while not the preferred course, is also not the end of the world. You just need to learn from your mistakes and move on.

I have developed a list of questions to help me move forward in the decision making process.

1. What is the worst thing that can happen?
2. Can I live with the worst thing that can happen?
3. Are my expectations realistic?
4. Am I rationalizing an answer, or preconception?
5. What are my alternatives, and how do I feel about them?

I can’t say asking these questions makes it any easier; however, I can say asking myself these questions often helps me move things forward, and get on with business. For me business has always been a process of small failures and small successes. I have always just worked to make sure the success side of the ledger has more weight than the failure side!

As a small business owner I have watched international events unfold from the sidelines with a certain ambivalence as to how these events will impact my business. The news yesterday of the assassination of former Pakistani Prime Minister Benazir Bhutto could be the shot felt from Pakistan to Paris to Pittsburgh.

Aside from the major political and security issues created by instability in the world’s only Islamic nuclear power, there are some significant Main Street business issues that could result from the potential chaos. The appearance today is that terrorist groups in Pakistan are now starting to pursue the same strategy they pursued in Iraq over the last several years. Their hope is to drive a wedge between rival political factions in an attempt to create civil unrest.

After yesterday’s sad news oil prices rose and stock prices fell. The fall in U.S. stock prices was driven by the news in Pakistan combined with more data indicating a slowdown in U.S. manufacturing. The rise in oil prices is a direct reflection of the risk created by instability in a nation so close in proximity to the world’s major oil suppliers.

For small business owners the Main Street issue is rising energy cost. Unrest in Pakistan may mean a sustained oil price over $100 per barrel. These higher oil prices will drive inflationary pressures while at the same time taking a bigger bite of the American Consumer’s paycheck. The U.S. economy can only sustain so many blows before it falls into recession.

The events yesterday are a grim reminder that we live in a very small world. Although events around the world may seem distant and the impact remote, the reality is our dependence on foreign sources of energy requires us all to become students of the geopolitical environment!  

New home sales fell significantly in November after rebounding in October, this was well below economist expectations. Construction on new homes remains stagnant as housing inventories remain high. Many analyst believe inventories must fall before we see a full turn-around on the overall housing market.

The fallout from the subprime crisis, higher energy costs, and housing issues all continue to weigh on the overall economy. Although this past year was dominated by rising defaults on subprime loans, many expect the hidden problem for 2008 is falling home prices. The deterioration of home prices in the U.S. is putting many highly leveraged home owners in the position of owing more on their home than it is currently worth. The impact of this problem remains to be seen, but it would indicate that consumer spending will continue to suffer in the months ahead as some homeowners continue to feel pinched!

The entrepreneurs we always hear about are the ones who create their new venture from nothing. However, many business owners get their start by buying their first business rather than starting one from the ground up. Sometimes these businesses are acquired solely because of someone’s desire to have their own show, and sometimes these are simply acquisitions of opportunity. Depending on the individual, many times buying a business is a better strategy for creating a path to entrepreneurship.

When you acquire an existing business you will hopefully start with some up front cash flow. An established entity may also have some assets that can be leveraged to make the deal happen. It is much easier to finance the assets of an existing business than find capital for a pure start-up, and unless you have a lot of cash, financing may be a necessity.

If buying a business is your best route to entrepreneurship, then here are some steps to help you get there.

1. Networking – You need to get to know the people who know what is for sale. Usually this means developing relationships with people who buy and sell businesses. Many times accountants and attorneys are also sources of potential acquisitions. Make sure you have an idea of what you are looking for, and how you will pay for it. No one wants to spend their time catering to a tire kicker who does not have the resources or tenacity to pull a deal off.
2. Relationships – Unless you have a great deal of cash you will need relationships with potential sources of financing. This means cultivating that relationship with your banker. Get a feel for how your bank makes lending decisions for acquisitions, so you can have an idea of how much cash you will need to put into the deal. Use your primary banker as a sounding board. Always remember your job is to convince the bank you are a reasonable risk.
3. Analyze opportunities – Before you start looking at opportunities make sure you have the tools to evaluate good and bad deals. This means being able to do a discounted cash flow analysis, and determining the long-term entity value. Your objective is to develop a tool that helps you measure your return on investment.
4. Create an LOI – The LOI is the Letter of Interest. This is the offer letter which indicates what you want to buy and how much you are willing to pay. The LOI is designed to prevent the seller from negotiating with another buyer while you are doing your due diligence.
5. Understand due diligence – The due diligence process is when you determine if what you have been told about the business is accurate. This is the process which protects the buyer from hidden liabilities, and allows the buyer to confirm the real value of the assets being acquired. This is the inspection process for buying a business.

Of course this is only a snapshot of the business acquisition process, but it does give you an idea of the process you will go through. As you search for your opportunity and go through the process, also keep these things in mind.

• Have a clear direction
• Keep emotions in check
• Be able to measure your investment
• Understand the value of the business to you
• Don’t pay for synergies you will create
• Always remember no deal is perfect, beware of analysis paralysis

In my book, Rough Air Ahead, I outline the process we have used for acquiring new businesses. You can also go to the Small Business Administration site for some tips as well this site on due diligence suggestions.

The Conference Board’s Consumer Confidence Index rose slightly in December, the index came in at 88.6 up from 87.8 in November. The underlying data indicates American Consumers are still uneasy about an economy that is trying to find its footing. High energy prices, falling home prices, and tightening credit continue to weigh heavily on consumer’s minds as they move past the holidays and look to an uncertain 2008!

Durable goods orders were soft again in November as orders rose just .1 percent. The increase in November was well below the consensus expectation of a 3 percent increase, and orders excluding transportation were down . 7 percent. Today’s data does show a definite softening of manufacturing; however, the current decline is not as negative as some analyst have suspected it to be. The economic data continues to point to an economy which is softening due to the impact from a housing recession and the subprime mortgage crisis. 

Most entrepreneurs go into business because they envision an opportunity. Sometimes they see a large opportunity, and sometimes a small one. Many times they are just pursuing their passion. This could be their passion for a specific vocation, or just a passion to own a business for themselves.

I know few entrepreneurs who go into business with the hope or strategy of just being as good as the competition. Most business owners I know started their business because they felt they could surpass their competition. However in many cases, over time, being as good as the competition becomes okay. Perhaps they decide that maybe the competitors know something they do not, and they follow the competition right off a cliff!

I always believed in trying to set yourself apart, and make your business standout in a positive way. If you can pleasantly surprise the customer when they do business with you, you will be a cut above your key competitors. Sometimes beating the competition is as simple as answering the phone with a person, or making sure someone is in the lobby to greet people when they arrive.

These were some of the simple things I insisted we do (taught to me by my mentor) in our old family business. Having a person dedicated to answering the phone and sit at a receptionist desk was not the most efficient way to do business, but the people we did business with always let me know how much they appreciated our efforts. Doing this told our customers, and our employees, that nothing was more important than taking care of the customer. It was a visible example of my commitment to taking care of all of our stakeholders.

As things are apt to do, this all changed after I retired. On occasion, while I was still running our old business, managers would suggest we go to an automated phone attendant, and no longer have a receptionist sit in the lobby. I always resisted these request. I knew that these ideas could save us money, but I was always more concerned about the long-term impact on our customers.  

We all work very hard to build our brand and our business. We stretch ourselves and our employees to establish our credibility in the mind of a doubting customer. Many times we invest all of this effort only to toss it aside in later years because we forget what got us to where we are. It seems to me that if something like answering the phone helps differentiate your business from the competition, then why not do it? Why commit yourself to being just like everybody else? 

You should always commit yourself to understanding why the customer does business with your company. You must also never fall into the trap of believing that the customer does business with you solely because of your product. When you do you begin to slowly peck away at those things which truly differentiate your business, and help you keep customers coming back to your door.

Don’t allow your business to fall into the complacency trap. Never set the bar at a level that just meets the competition, and invites someone else to come along and leap over you!   

There is no shortage of opinion on taxes. Some will say we need to raise taxes so we can balance the budget, and some will say it is not the government’s money, it belongs to the people being governed.

There are those who would use a progressive tax system to redistribute wealth from higher wage earners to those who are less fortunate. They will often use the weapons of class envy and class warfare to convince voters that the wealthiest don’t pay enough. Their effort is to increase the government’s coffers. The more money the government has to spend, the easier it is for members of congress to create earmarks for their districts, or support special interest groups. For a politician getting money back to their home district, state, or preferred supporter is key to securing reelection and holding power.

Some tax experts use the Laffer Curve as their model for how governments should tax their citizens. The Laffer Curve indicates that there is a point at which raising taxes has a negative effect. The idea is that as the tax burden increases, the incentive to earn, or be productive decreases. If you cannot keep what you make then why bother earning it?

The New York Times has an article which is a good example of the Laffer Curve in action. In Denmark the tax rate can reach 63 percent of an individual’s income. This tax burden is proving to be detrimental as young people, educated at the expense of the Danish government, are leaving the country to pursue careers in locations where their tax burden is much smaller. Although this may be difficult for some people to understand or accept, the reality is individuals will typically try to find a way to reduce their tax burden. In the case of Denmark that method is to leave once you have consumed the resources you need!

The highest marginal rate today in the U.S. is 35 percent. If you live in Ohio you can add 7 percent to that number, and if you live in a city like mine you can add another 2.25 percent. That is a tax burden of 44.25 percent for the highest wage earners. If you add sales taxes, gasoline taxes, property taxes, and others, a wage earner’s tax liability can get to 50 percent or more. In 2011 when the Bush tax cuts expire that burden will go to 54 percent, and if Charlie Rangel has his way, the burden on highest wage earners would go to almost 60 percent. To put that into perspective, if you fall in the highest marginal rate bracket, you have to work until after Independence Day to cover your tax bill!

If you are a small business owner, and you want to keep your tax liability in check, here are some suggestions.

• Lower your profits – Our strategy was to load up buying in December. We use to say we would spend 11 months driving sales and profits up, and one month driving profits back down. If there were office supplies, or other things we would consumer early the next year, we would buy them in December to lower our tax burden. It is a spend it or lose it proposition.
• Profit sharing – We had a qualified profit sharing program which allowed us to pay a percentage of all employee’s wages, including employed shareholders, into a 401k. As owners this allowed us to save 15 percent of our base salary for retirement without a tax penalty.  We always felt we might as well spend the money on our employees rather than losing it for taxes.
• Buy capital early – We always cut capital spending in the fourth quarter. This was more a cash flow issue, because we could not get the full depreciation recognition if the equipment was purchased too late in the year. If you can anticipate your capital needs buy it early in the year and get as much depreciation as possible.
• Charitable deductions – If there is a charity you support you might as well contribute money to them rather than letting it go to the government in the form of higher taxes. If your wealth is going to be redistributed, take the opportunity to decide where some of it will go. One way of doing this is to contribute appreciated stocks. This can reduce both your marginal rates and capital gains!

You will likely never reduce your tax burden to zero; however, with good planning, and smart strategies you can lower your tax burden, invest in your business, motivate your employees, and support your community. All great things that can help you grow your business over the long term!

Many retailers were hoping for a big holiday push just before Christmas to bolster fourth quarter performance. Many of these retailers have been left with the holiday blues following lackluster activity in December.

It appears retailers will miss expectations this holiday season as the tight credit markets, higher energy prices, and gloomy consumers are weighing on spending. Many stores were hoping heavy discounting would bring more shoppers in during the holidays, but it appears they have just been successful eating into revenues and profits. The challenge going forward will be the expectation of slow consumer spending in the first and second quarters of 2008. Retailers are feeling the ripple effects of the downturn in housing, so hopefully these ripples are small and don’t become a tidal wave!

The turkey is prepared, the packages are wrapped, and the excitement of Christmas is in the air. This will be my last post until later this week, as I sign off to spend the holidays doing what is most important to me, enjoying some precious time with my family and remembering what we are celebrating, the birth of Christ.

We will go to church service later today, and watch our youngest daughter in the annual Christmas celebration. This year is the first time she has had a “speaking” part, and she is very excited. The next 48 hours will be filled with the laughter of children celebrating their favorite holiday, and my wife scrambling to get things ready for tomorrow’s guest.

This past year was a tremendous one for Rough Air Associates. Our web traffic has been growing at a rate well over 50 percent per month the last several months. Site visits have grown four fold since September alone, we seem to be filling a void for business owners hungry for solid ideas on running their small business.

As I mentioned in my book Rough Air Ahead, no successful business venture is ever built alone or in isolation. We are not an exception to that rule. We have been fortunate to have our Friends (no pun intended), Debra and Jeff at Forward Media helping us along the way. Our business brokers, Aaron and Bob have been instrumental in helping Rough Air find new opportunities and stay away from bad ones. Our board Bill, Joe, and Greg have kept us in line and focused on our goals, and our banker John has been a key in the start of our small business center. Finally of course, our clients and site visitors have helped us build a new community for small and family businesses.

As you can see behind the scenes there have been a tremendous number of people helping us move Rough Air ahead, and get our business to the next level. To everyone we would like to say Merry Christmas, now get offline, and go enjoy the holiday!

I was doing my morning economic news research in a quest for some interesting analysis to post, and as usual the financial news media has my head spinning in several different directions.

The Financial Times ran a story today that indicates U.S. consumer confidence lacks a foundation (not a major surprise). They indicate that although spending is holding up for now, consumer confidence is plunging. They questions if this will be enough to tip the economy into recession.

The Wall Street Journal has a different spin on the same story. The Journal ran a story on how the consumer confidence data may no longer may be in sync with consumers. Their story indicates that we are seeing modest growth in consumer spending (I am not sure how they are accounting for energy spending), and things are not as bad as the consumer confidence polls suggest.

Finally The New York Times has a story about Target Stores. The premise of their story is that high energy cost, and the downturn in housing were likely to have shoppers going to discount stores this holiday season versus the mid-tier retailers. This was supposed to be good for Target, but they are not having a stellar fourth quarter. The article seems to indicate that things are not great, and consumers are not spending.

So I guess we can take our pick. Either the polls are wrong and consumers are doing well, or the polls are right and consumers are not doing well. As always the reality is probably somewhere in the middle. The consumer confidence data may be a leading indicator, and we have not seen the slowdown on the spending side. On the other hand it could be a lagging indicator, and the softening in retail sales we saw in the fourth quarter may corroborate the data.

The bottom line is that we know there are significant headwinds in the economy today, and all we can do is position our businesses for growth, but always keep our seat-belt fastened in the event we encounter some rough air ahead!

This past year we witnessed recall after recall of goods that were deemed unsafe or hazardous to adults and children alike. At one point it seemed as though we could not get through a day without a new announcement of a product recall. Whether it was pet food, toothpaste, or toys we certainly fell victim to the oldest business advice in the book, “caveat emptor“, let the buyer beware. We had opted for the lowest priced goods, and we got what we paid for!

Some of these products are still tucked away on shelves or sitting in warehouses in quarantine. The furor of the issue seemed to die slightly late in the year as the subprime crisis and the economic slowdown began to dominate the headlines. Many of the manufacturers and importers responsible have worked to create the perception that the problem has been contained, although the reality of containment is yet to be known.

I am not against free trade. Whether we like it or not globalization is here to stay. We can beam bits of data around the globe in a matter of seconds, which has made the world a much smaller place. The problem with living in a smaller neighborhood is that it can get crowded quickly, so you need to have a great deal of respect for property lines. You must watch out for your neighbor’s well being as well as your own. To me this does translate to a system of fair trade!

Everything can be improved. There is no treaty or policy that was perfect when written, or perfect when implemented. Although we need to work to create new opportunities for U.S. manufactured goods overseas, we also need to protect ourselves and our businesses back home. We must create balance. I have heard too many stories from small business owners about dealing with closed markets abroad and getting margin pressure from low cost competition at home. This is a problem our policy makers need to get their hands around.

Although we hope for a solution, the likelihood things will change in the near term are limited. Given that, as we have in the past, we will continue to recommend our U.S. based clients focus on these three things to stay competitive at home.

• Efficiency – You cannot beat manufacturers from low cost markets on price or cost. You must focus on efficiency, use you ingenuity to determine how you can increase the productivity of your business, so you can stay competitive. Make sure your employees understand this is a form of economic war, and to win we must get better.
• Service – Anyone can compete on price, and sooner or later they will get pushed out of the market by someone who is willing to live with lower margins. Business owners can separate themselves from low cost competition with service. Every customer wants to feel special, make this your priority and you will give them a reason to buy from you.
• U.S.A. – Emphasize these three initials. If you manufacture in the U.S. you have a significant advantage. I reviewed the December list of product recalls from the U.S. Consumer Product Safety Commission. The vast majority of these products came from outside the U.S. Brand differentiation is always a key and U.S. manufacturers are quickly becoming the premium brand!

Globalization is here to stay, but if we adapt and figure how to compete we can continue to grow our businesses despite the negative outside forces!

Here are a couple of product recall sources if you would like more information on this year’s recalls.

• U.S. Consumer Product Safety Recall Page
• Toy Hazard Recalls

In a few short days Santa will be making his annual trip around the globe, and the biggest meal we will all have to digest this week is Christmas dinner, and not a slew of economic entrees.

Due to the celebration of Christmas on Tuesday the coming week should be short and sweet. Thursday we will get data on durable goods orders and consumer confidence. Durable goods tends to be a pretty volatile number, although we expect the trend for softening in manufacturing to continue. The consumer confidence number is expected to fall again; however, we had a surprise this past week from the University of Michigan with a firming up of their consumer numbers, perhaps we will get another Christmas surprise under our tree. We will round out the week with new home sales on Friday, the expectation is that new home sales will remain depressed for some time, at least until the high inventory levels start coming down.

This week for the economy it is all about taking a breather and getting ready for 2008. We have much more important things to focus on over the next few days, so enjoy the break, it will all still be here when we return!

I have had my share of bad business ideas, and I have had my share of poorly executed business plans. I remember many of them quite well.

There was the time I was convinced by some folks on my team that the wireless, parking lot sensor was going to be our next big idea. Needless to say it wasn’t. Then there was the sensor for measuring the thickness of sugar on the wall of a centrifuge, a project that was like gum on my shoe. It would never go away, and just kept sticking to me! The list of failures and mishaps is long, but you know what they say, “You have to spend money to make money.” Of course the folks who say this are usually spending someone else’s money!

My failures have typically been caused by one of three behaviors.

1. Overconfidence – On occasion I (or someone on my team) would become so convinced of a potential products success that we would ignore the signs around us. We would not take the time to understand the real market potential, which would have allowed us to better guage a reasonable investment level. We would also not ask ourselves if this is such a great idea why has no one else done it? We just kept marching forward, keeping our eyes straight ahead, and not looking back. We kept throwing good money after bad!
2. Putting all my eggs in one basket – Over the years I came to the conclusion that dedicating engineering and design resources to one customer was not a good idea, unless there was an obvious market payoff. Too many times we would let one customer convince us they had the next great idea, and we would commit a large portion of resources to their project, only to end up empty handed. I always found it best to aim my resources at a small target within a broad market opportunity. In other words, make sure I can sell more than one!
3.  Loss of interest – A mentor told me once that we often get sick of our advertising long before most of our potential prospects even see it. Development projects are the same. Once we would spend a year going from concept, to prototype, to production, we would start to lose interest. The entrepreneur’s dilemma is that they sometimes can quickly lose interest. They will be on to the next great thing before the first idea is seen through to completion.

Inc. Magazine has a story on the worst products of 2007. As I was reading the story I wondered if these entrepreneurs had suffered from some of the same issues we had in our business. The problem is you never know which great idea is the next great idea. My advice is to keep plugging away, try to avoid my mistakes, and pray that the good fortune from your successes will outweigh your failures!

The University of Michigans’s survey of consumer sentiment firmed slightly in December as American’s continued to feel the pinch of a slowing economy and higher gas prices. Although many American’s now believe the economy is headed for or already in a recession, December’s reading still rose to 75.5. Gloomy consumers continue to provide the overall economy with some significant headwinds.

With the Iowa caucuses just two weeks away, and a load of early primaries immediately following, 2008 is sure to be a picture perfect silly season!

One issue that we will hear a lot about next year is health insurance and guaranteeing insurance for the uninsured. Some politicians have proposed a “pay or play” system where small business owners that don’t offer insurance to their employees will have to pay into a fund to cover the uninsured.

Where we end up largely depends on the political landscape after the election. Here is an article from the New York Times which shows how the National Federation for Independent Business sees the issue.

I ran across an article recently from Fortune Small Business on how to write a business plan that will get you a loan. The article has some good tips on assembling a solid plan, although there are also some things in the article you may wish to avoid. Regardless, here are some ideas that can help you write that killer business plan.

• The Executive Summary – Every plan needs one and it must be the best document in the plan. How your plan is perceived is all about this page. Everyone that reads your plan will start at the Executive Summary. If it interests them they will move on to the meat of the document, if not they won’t go any further with the plan or your business. You get one chance to make a first impression.
• Realistic projections – Too many entrepreneurs believe they need “hockey stick” projections to get the bank interested in their plan. The financial projections need to be aggressive, but realistic. This will show the reader you have some grasp on reality and are a top notch professional. Predicting 50 percent growth in a 10 percent growth market will fall flat quickly.
• Display market knowledge – Outline the competitors and competitive intelligence. Give details on market size and growth in the last few years. Show the reader that you know what drives this marketplace, what motivates buying decisions, and who are the winners and losers. The objective is to instill some confidence that you know what you are doing.
• Talk about the customers – Give examples of customers who have used your product or service. The bigger the customer name the more excited the reader will be. If you can talk about customers they know, and their positive experience you can bring a lot of credibility to the plan.
• Don’t go overboard – Some might suggest that a business plan needs to be 50 pages to be a real plan. This is not a Grisham novel, so business plans are not exactly gripping. Don’t put a lot of fluff in your plan that will hide the real beauty of your venture. The document must be readable and easy to digest.

Regardless of your plan always remember the three “C’s” of getting financing, cash flow, collateral, and character. If you are writing a business plan to raise money, and you can clearly lay out these three things, you will be well on your way to cashing that check.

The SBA and Score have some good resources on writing a business plan.

The economic data continues to telegraph mixed signals! As expected the final  third quarter Gross Domestic Product came in at 4.9 percent, although jobless claims for this week were up again. The overall expectation is that the U.S. economy began to slow late in the third quarter and into the fourth quarter. This fourth quarter slowdown was accompanied by a spike in energy prices. The challenge for policy makers and business owners alike is slowing growth combined with higher cost. If it looks like a duck, walks like a duck, and quacks like a duck, it must be a duck. It appears our duck is named stagflation, and it is coming home for a Christmas visit!

Few business owners are operating in an environment where they do not have competition constantly nipping at their heels. Every day we work hard to separate ourselves from our competitors, and it seems some days we take one step forward and two steps back. The question many small business owners ask is how do I create a huge gap between myself and the competition?

1. Create value – You must convince the customer you create more value for him than your competitor does. This does not mean just set a low price, this means when a customer does business with you they are getting more for their money. Your job is to create the perception of a value gap between you and the competition.
2. Service – If you are going to put in the effort to get the customer in the door, don’t let them slip away by providing poor service. It is critical that your employees understand the value of each customer, and the value of ensuring each customer’s experience is a motivator to coming back.
3. Quality – Many people tell me quality is now assumed in most every product or service we buy. I can’t say whether that is true or not, but I can say poor quality will destroy any business quickly. It does not matter how low your price is, if what you deliver to the customer does not satisfy his or her need, then your business will not be around long.
4. Response – People expect immediate response on most everything today. The Internet has trained us that we don’t have to wait to get our answer, we can get it now. Businesses that are slow to respond to customer inquiries, or hard to do business with will never reach their full potential. Responding to customers quickly lets them know they are important to your business.
5. Information – All business owners must educate their customer about who they are and what they have to offer. The Internet has become a primary source for information for many customers. It does not matter whether it is a business to business transaction or a business to consumer transaction, many people rely on the Internet to help them with their buying decision. When a customer arrives at your website what do they find? Are they three clicks away from their answer, or will they spend precious time searching your site to come up empty handed? Are your press releases current, or has it been years since you posted something new? If you can help the customer with their buying decision by providing them timely, and valuable information you can leave the competition on the other side of the gap.

Always remember anyone can sell on price. If your aim is to be the cheapest keep in mind that someone can always come in to your marketplace and sell the same thing for less. Things like great service and fast response are not easily replicated. If you can perfect things like this you will create that huge gap between you and the competition!

The perception created by a premium brand is that what they offer is reachable by some, but not by all. We are surrounded by high-end brands of varying degrees, Rolex, BMW, and Hartmann to name a few. For these brands people will pay more for the additional value the brand gives them. Sometimes that value is real, like quality, and sometimes it is intangible, like experience.

Strong premium brands are built over time, and although each is different in its own way, there are some similarities. Here are a few things these types of brands have in common, and what you should keep in mind if you are trying to build a luxury brand.

• Price – Where you price your product or service is a direct reflection of the value you believe it creates for a customer. A low price in comparison to the competition typically sends the signal of lower quality, image or service. A higher price indicates that what is being sold has additional value above and beyond the competition. You can buy a briefcase for $100 or you can pay $500 for a Hartmann case. The functionality is the same, the experience is not!
• Promotion – The promotion for your brand indicates where you are positioning the brand in the marketplace. Consider where your target audience will be. For a premium brand you are generally looking for affluent buyers. The method you use to promote your brand and where you promote will say as much about the brand as the message. Advertising in a high end speciality magazine tells the buyer this is where your brand belongs.
• Service – Many times people will choose a premium brand because it serves as a status symbol. Some discriminating buyers choose a premium brand because of the service level. The service and support from a Lexus dealer will be much different than the service and support when you buy a Chevy.
• Experience – To create real high-end brand value, you must create an experience for the customer. For many people making the choice to dole out the extra cash to buy the “best” is all about how they will feel before, during, and after the transaction. They are after more than just a car, or a watch, they are after that feeling that reinforces their success in life.

Creating a premium brand is more than just product quality, it is creating an emotional experience for the buyer. If you want to position your brand as “best in class,” start with these simple things. If you do them well you will have a great base for a luxury brand!

One challenge for many new businesses is getting the word out about your business. It does not matter whether you are a retail shop, a restaurant, or a manufacturer you have to introduce the public to your business and help them understand who you are.

In some respects this is one of the few times in your business where you will have complete control of the message. There are no preconceived notions about who you are, and what you do. You get to set the tone, and the lyric. The problem is getting your targeted audience to listen. Since many new businesses have little cash sitting around, getting your message out becomes an even bigger challenge.

The first thing you must do is decide who your target audience is. I suggest you aim small versus a shotgun approach. Aiming small will cost less money, and allows more room for error. If you take an approach that is too broad it will be harder to take the message back! Once you know who you are targeting, and you have developed a message it is time to deliver! Here are some suggestions on how to do that.

• Develop a web presence – A great web site is a gift that keeps on giving. You can develop a good site, that is clean and user friendly for a few thousand dollars. This may sound like a big chunk of change, but a well designed site can stand the test of time. If you spend your money printing brochures you will eventually run out of brochures. Other than keeping the site updated, your initial investment can last quite long. So the first thing you need to do is get that website up and running.
• Word of mouth – Talk to everyone you know about your business, and have your 30 second elevator speech down pat. In that 30 second speech mention your brand frequently. Your initial objective is get people to know who you are, and perhaps take the next step to investigate. Go to chamber of commerce meetings, networking events, and anything else you can find. Spread the word one person at a time.
• Press – Utilize the press release. Target local papers, industry related magazines, and other media. Because your business is likely an unknown quantity getting editors to pick up your story will be challenging. If you are fortunate you will develop a relationship with some of the local media that may be beneficial in the future.
• Sponsored links – If you want to drive people to your site, and you want to control your budget, sponsor some links on web sites. I prefer targeted sites rather than the generic Google or Yahoo searches. We have had better luck going to web sites where we believe our customer will be and sponsoring links there. Most of these programs allow us to control our monthly spend and target our audience. This an effective, yet relatively inexpensive way to create buzz.
• Buy space – There will come a time when you must invest in advertising more than just sponsoring some web links. This means finding the right media and creating a targeted advertising program.  Too many business owners are not willing to invest in promoting their brand. If you want to get your name out, you will likely have to pay to do it.

If you have the cash to invest early do it. You can build the brand, control the message, and move your business forward much quicker. As a new business owner your challenge is to get people to know who you are. Make that bet early in the process and you will build a solid base for your business! 

The U.S. Federal Reserve announced new rules that will require lenders to follow tighter standards on subprime loans. This appears to be a step in the right direction for reigning in the subprime crisis. The genesis of the mortgage crisis is lenders that are too aggressive, lending money to borrowers who have a questionable ability to pay. In the past the Fed has encouraged subprime loans.

Although we don’t agree with freezing ARM rates on subprime loans, we do agree with this effort by the Fed and believe it will help slow the problem before it gets worse. Some lenders are still promoting loans targeted at individuals with no discernible income or poor credit histories. This has been proven to be a dangerous business model, and folks that continue down that path really get what they deserve.

The Fed’s announcement yesterday appears to be a smart move and protects lenders and borrowers from themselves and each other!

As I reflected on the passing year I wondered what economic stories from 2007 had the biggest impact on small business owners, and what are their biggest concerns going into 2008. After speaking with several entrepreneurs I narrowed my list to these five.

1. The economic slowdown – While the slowdown in economic growth has not been reflected in Gross Domestic Product numbers yet, it likely will when fourth quarter numbers are released.  The ripple effects from uncertainty in the economy can be seen in many different areas. New job growth in 2007 will likely finish the year more than 30 percent behind 2006. Although manufacturing is still expanding, and is being supported by a cheap dollar, it is growing at a slower rate than it has in the past. Nowwhere are the problems in the economy more prevalent than in consumer’s moods. Consumer confidence has been trending down for the last several months, and is keeping a lid on retail sales.
2. Energy driven inflation – Oil prices are up 50 percent this year and have flirted with the $100 per barrel mark. This has translated to prices at the pump rising almost 31 percent in 2007. The rise in energy cost has been accompanied by rising food prices. Many blame the increase in food prices on government ethanol mandates which are forcing refiners to use more bio-fuels. This is driving up prices on commodities like corn, grain, and wheat. The bottom line is that economic growth is holding wages down while prices go up. The prospect of stagflation is looming large in the window!
3. The subprime mess – The downturn in housing, increasing foreclosures, and subsequent credit crunch has been the genesis of many of the current headwinds in the economy. The tightening credit markets have impacted consumer spending and entrepreneur’s ability to raise money using the equity in their home. The subprime mess has garnered significant media and government attention as policy makers grapple with solutions to the problem.
4. Global trade – A main topic of discussion for the last several years has been the migration of U.S. manufacturing jobs to low cost labor markets, primarily China. This has been a hot political and economic issue. The issue screamed back to the headlines this year with poisoned pet food, poisoned tooth paste, and lead filled toys. Smaller U.S. manufacturers are taking advantage of the problem by proclaiming their “made in U.S.A.” credentials. This just goes to show that every competitor has a weakness.
5. Taxes - If you want to get the attention of small business owners start talking taxes. There were several policy debates in Congress on taxes, the three main topics were estate taxes, the alternative minimum tax, and the expiration of the Bush tax cuts. Warren Buffet got into the act testfying before policy makers in Washington that the estate tax was good. One tax proposal actually reduces taxes on corporations like Wal-Mart, Exxon, and Chevron while raising taxes on individuals and small businesses.

These were the economic stories that garnered most of our attention in 2007. In 2008 the stories may no longer be the issue, but the resolutions could set the tone for the entire year!  

New home starts fell 3.7 percent November as the decline in the housing market appears to be far from over. Overall permits fell in November to the lowest level since 1993. While both numbers dropped from October, they were both within the consensus forecast. The downturn in housing continues to weigh on the overall economy, and will be a drag on economic growth until housing inventories start to come down. 

Former U.S. Federal Reserve Chairman Alan Greenspan said this past Sunday that stagflation is a growing possibility. Here at rough-air.com we sounded the stagflation alarm in October.

In Inc. Magazine Joseph Ellis wrote an article to help business owners understand the economy. He suggests entrepreneurs should follow longer term trends rather than the month-to-month fluctuations that capture the financial news headlines every day. His analysis points to an economic slowdown, and a possible recession. Back in September we working to educate our clients about the economic environment, and the looming economic slowdown. In August we were telling our clients to put together contingency plans in the event the economy slowed!

When I decided to start rough-air.com, an online community for small and family business, I was determined to wade through all of the economic static and give small business owners a clearer view of the world around them. I will not talk up the economy or talk down the economy. I believe both are equally dangerous.

I determined that one of things I needed most as a small business owner was unfiltered information about what is going in the current economy and where it is headed. I do not believe we can talk ourselves into a recession or incredible “bull run” anymore than we can talk the weather into a thunderstorm. Both are unpredictable and uncontrollable.

I will do my best to present you a reasoned view of the economy and how we can all best position our businesses to take advantage of it!

On the first business day of the year a top manager walks into your office to break the bad news, things have suddenly changed and the business plan you labored over for months is now obsolete. This is the time of year when many entrepreneurs reflect on the past 12 months, and prepare to start a new business cycle. For too many business owners their new business plans will be obsolete before the ink is dry.

In the latest Rough Air In-Flight Video from entrepreneur, author, and business blogger, Vince Lewis, you can learn the five key questions you should be asking about your 2008 business plan. Invest a few minutes of your time to find out if your plan will survive the coming year.  

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The economic discussion is focused on controlling inflation and stimulating growth. If you doubt whether these are the two major challenges facing our economy read this story from the Financial Times, and this one from The Wall Street Journal. Both stories put the challenge into perspective, and show some of the underlying weaknesses and strengths of the overall economy. The bottom line is that inflation might be prevalent while growth is questionable!

It does not matter whether you are a business owner, an investor, a government official, or an average American an environment of low growth and high inflation is challenging. The purchasing power of business’s and consumer’s alike erodes when everyday expenses rise quickly and asset growth is harder to achieve. Purchasing power erosion ripples through the economy just as the downturn in housing and credit crunch created a wave of economic turmoil in the past several months. The challenge is positioning your business for success despite the tumultuous conditions.

Last week I posted an article on how to combat stagflation. Several weeks ago I posted another article with some tips on cash management. Both of these posts will give you some ideas on how to focus your business for continued success, regardless on the conditions we all face.

As we move into 2008 we are advising our clients to stay in tune with the economic news. Having a good grip on the current environment, and how it impacts your business will be critical to your success in the coming year. We do not know if the economy is headed for a recession or stagflation! We do know there is quite a bit of economic data that is causing us some concern, other than that we are not going to try assigning predictability to unpredictable events. The best we can do is to advise you to be prepared for the rough air ahead! 

When I was doing research for my first book Rough Air Ahead, one of the entrepreneurs I interviewed told me to never start a business without some existing cash flow. This sounds like pretty simple advice, but getting that revenue stream going is a challenge for any business.

Sometimes when starting a business there is no revenue stream and the entrepreneur is starting at square one! If you have a new business starting at the beginning, how do you get that first customer? Where should you look? What do you need to do to nail down that first sale? I ran across this article from Inc. Magazine which gives some ideas for finding that first customer. Here are some additional thoughts.

• Develop a pitch – Before you talk to anyone make sure you have something to talk about. Create that 30 second “elevator” speech that allows you to pitch your product or service on the spot. If you have the money a pocket brochure will help you back up that pitch.
• Pitch people you know – Create a list of those you have done business with in the past; family, friends, and others may be potential prospects. Many times pitching those you know is all it takes to get that first customer.
• Promote your brand – Whatever that brand is, do whatever you can to get it out there. You want to create the perception in your potential customer’s mind that they have always known you. Don’t let them think they are taking a risk doing business with you.

Getting our first customer was a struggle, in the end that first customer was someone we already knew. Cash flow makes your business go, but don’t let anyone convince you that your business is not real even though revenue is not flowing. You have a business the day you begin working on it, do the right things and you can create a sustainable cash flow machine!

It is the last week before Christmas and Santa is getting ready to deliver gifts to all of the good girls and boys. Since he will be so busy with the holiday he will not be bringing much in the way of economic data this week. The last full business week of the year will be slow! Tuesday we will get data on housing starts, Thursday we will get a revised GDP number for the third quarter, and Friday we will get more consumer sentiment data. All in all a very slow week as we finish up 2007!

The economic data is telling us that energy prices are starting to cause some inflationary pressure on the economy, and the housing downturn is causing economic growth to slow. The equation of higher prices plus slower growth equals “stagflation.” 

Over the past few months we have posted a couple of articles in regards to our concerns about the potential of stagflation. The real issue appears to be consumers getting squeezed from both sides. The American Consumers are seeing the value of their biggest asset (their home) decline, their ability to borrow shrink, and energy prices taking more out of their wallet! This combination of factors is impacting the consumer’s ability to spend, and we expect this will only get worse after the holidays!

For small business owners the realities of our economy present a challenging environment, but not an insurmountable environment. Here are three secrets that will help you manage your business through today’s turmoil of increasing cost and slower growth.

1. Understand what cost will rise – It is important for you to get a handle on which cost in your business may go up. Will you see increases in raw materials, travel, or wages? Make sure you understand the potential impact of rising prices on your financial statement.
2. Understand segment impact – Take the time to review each target market segment for your business. How will your target customers be impacted by slowing growth? How will they be impacted by rising cost? Do you serve any segments that will be immune to the environment? Having a handle on this will give you more direction on how your business will perform.
3. Have a conservative plan – If your sales team is teeing up significant growth in 2008, make sure they can back it up. Don’t get trapped in a spending plan that will create a lot of red ink. Keep your projections conservative for 2008.

These three simple practices can help you manage your business through any tough environment. If you do these and the economy doesn’t slow, and cost don’t go up then you have just structured your business to be more profitable in the coming year. Either way you have taken a tough circumstance and created a long term win-win for your business!

There are estimates that say the majority of the adult working population in the United States would like to own a business. They see examples of successful small business owners all around them. They see the possibility of the financial rewards combined with personal freedom.

Many people who want to own a business don’t fully grasp what it takes to create a successful business. They are witness to the lifestyle of a successful business owner, without the knowledge of what it takes to get there. So many new business owners are disillusioned once the realization of what they must do comes to fore. When they begin to understand the long hours, hard work, and good fortune or help from above that is needed they become less enamored with the idea of entrepreneurship.

There are certain personality characteristics that will serve you well if you want to be a successful business owner. For those of you headed down the path of entrepreneurship, ask yourself if you measure up. Do you have what it takes to be an entrepreneur?

1. Are you driven? – Can you set a goal and push yourself towards that goal without someone pushing you? As a business owner you are on your own, you will be setting the standard. If you are not a driven individual then business ownership is probably not for you.
2. Do you take responsibility? – If you are the type of person who has a hard time accepting blame for your actions, or stepping up to the plate when it is necessary then you may want to consider a different career path. Business ownership requires you to step up and take the blame for your failures, and not blame outside forces. There will be no one (other than your customer) there to remind you to get something done, you just have to do it!
3. Are you financially astute? – Can you look at a financial statement and determine if a company makes money or loses money. Do you know the financial terms? When someone starts talking about assets and liabilities, returns and ratios do your eyes roll back in your head or are you in tune. If you want to be a business owner, you must understand how a business operates and understand the key financial measures that indicate failure or success.
4. Do you have risk awareness? – Many people will tell you that successful entrepreneurs are big risk takers. I would suggest that successful entrepreneurs are risk aware. They are not afraid to take a risk, as long as they fully understand the implications of their actions. People who are huge risk takers can get into business trouble too quickly, and people who are risk averse will get stuck in ”analysis paralysis.”
5. Can you be an optimistic realist? – Great entrepreneurs understand the world around them. They have a feel for economic conditions, and the current fiscal environment. They do not operate with the mindset that everything will be perfect all of the time. They operate under the idea that things may go wrong, but they will be able to see it through. They are realistic about what they face, and optimistic about their ability to handle it.

So how do you measure up? Do you have what it takes to be a successful small business owner? 

Overall demand in the U.S. economy fell again in November. The Rough Air Demand Index dropped for the third month in a row and now stands at a strong negative. This indicates the prospects for short-term economic growth are not promising. Indicators of falling demand include a drop in the number of new jobs created, a further decline in consumer confidence, a slowdown in manufacturing, and a weak forecast for the fourth quarter GDP growth. The only bright spot in November was retail sales.

The ripple effect of a prolonged downturn in housing has begun taking its toll. The tightening of credit markets and higher energy prices are adding pressure to our current economy. The soft demand combined with some inflation are causing economist to worry about growth prospects in 2008.  

Although many analyst (including me) thought that the inflation animal had been kept in its cage, it appears that it is making a break for the door! The Rough Air Cost Index now stands at negative, as the cost environment got worse in November. There does appear to be some inflationary pressure on the economy.

The main culprit is oil. The price of a barrel of oil is up 50 percent in 2007, some of this due to a declining dollar. The price Americans are paying at the pump is up 31 percent this year. It appears the prospect of energy driven inflation is very real. We are now getting the worst of both worlds, hire prices and slower growth, stagflation!

Rough Air Associates is the creation of Dayton, Ohio entrepreneurs Vince and Wendy Lewis. After selling their family business, Hyde Park Electronics, in 2003 to Schneider Electric, and overseeing a successful integration of Hyde Park into Schneider, Vince and Wendy decided to pursue their passion of helping other small business and family business owners achieve success. Their vision was to create a community for small and family business owners, in which business owners can learn from each other to move their business forward. 

Working with another local author Vince had written a book, Rough Air Ahead. Vince wanted to provide small business owners a guide for helping them run their business. It helps small business owners understand where their business is today, where it is headed, and some of the challenges they may face along the way. It is a resource business owners can use to fly their small business and land it successfully.

The book was the beginning of Vince’s and Wendy’s effort to pursue their passion of helping other small and family businesses. That passion has taken shape in the form of Rough Air Associates.

Using their own financial resources and committing their time Vince and Wendy have created Rough Air Associates, a community for small and family business owners. Whether business owners are taking advantage of www.rough-air.com, our small business weblog that helps small business owners make sense of today’s business world, one of our Rough Air educational opportunities, as a tenant in a Rough Air Small Business Center, or through angel investing, small and family business owners can turn to Rough Air Associates to help understand the business world around them and keep their business moving forward, even through the rough air.

PROFILES

Vince Lewis – CEO/Founder
Vince Lewis is the founder and CEO of Rough Air Associates, a business dedicated to the ongoing development of small businesses and start-up companies.Vince is the former CEO of Hyde Park Electronics, the world-leader in ultrasonic sensing. Coming into his family’s business in the mid-1990s, Vince led a turnaround of that business and led Hyde Park’s path to world leadership in its segment. He grew the business, and after seven offers, sold the business to a multi-billion dollar global company. As Vince would say, “We were very fortunate to be in the right place at the right time.” A frequent public speaker on topics such as business planning, succession, and management Vince has a “real-world” style that many small and family business owners can relate to. He relies on his wealth of experience in small business and family business to help business owners move their business forward.   

Vince Lewis also serves as Chairman of 4 Iron Development Group, chairs the advisory board of Vickers-Warnick Ltd, and is on the board of Lorenz Corporation, Carbide Probes, the LCOS Foundation and the Dayton Country Club. A graduate of Western Kentucky University, Vince received his Bachelors Degree in Public Relations. He holds a Masters in Management from Antioch University, and he is a graduate of the Harvard Business School’s Owner/President Management Program.

Wendy Lewis – CFO
Wendy Lewis is the CFO for Rough Air Associates. For more than than 20 years, Wendy has helped manage or run small, family businesses. As an owner of Hyde Park Electronics, Sisbro, Prime Controls, and Rough Air Associates, Wendy has gained experience in some key areas of small business including finance, human resources, and operations. Prior to be being a business owner, Wendy managed a 100+ person call center for CUC International.

Wendy attended both the University of Dayton and the Ohio State University where she studied Business Adminstration.

ADVISORY BOARD

Bill Winger 
Bill Winger was a founder, former Chairman and former CEO of Hyde Park Electronics. Hyde Park, established in 1963, is the world’s leading manufacturer of ultrasonic proximity sensors, and was sold to Schneider Electric in 2003. He serves on the boards of Rough Air Associates, Requarth Lumber—a Dayton, Ohio lumber supplier, and as an advisor to the Crotty Advisory Council for the entrepreneurial program at the University of Dayton. Bill has also served on the boards of the National Association of Manufacturers, Dayton Area Chamber of Commerce, Ohio Chamber of Commerce, Fidelity Health Care, Hipple Cancer Research Center, Wright State University Foundation, and the Small Business Advisory Council for the Federal Reserve Bank of Cleveland. He is a former member of the Dayton Area Progress Council.

He studied electrical engineering at the University of Dayton and is a graduate of the Harvard Business School’s Owner/President Management Program.

Joe Gruenberg
Joe Gruenberg, for more than thirty years, has served business owners, real estate developers and investors, and executives in the areas of business planning, estate planning, and real estate while practicing law with Coolidge Wall Co., L.P.A. He is a graduate of the Wharton School, University of Pennsylvania and Vanderbilt Law School.
Joe has extensive experience in the areas of taxation, business entities, business succession planning and estate planning as well as business, real estate, and financing transactions. He complements this experience with a well-rounded understanding of business operations and markets to work effectively developing creative, positive solutions to business and legal issues such as: succession planning, acquisitions, partnership arrangements, joint ventures, strategic relationships and real estate investment and utilization. Joe has also organized and represented public/private and for profit/not-for-profit ventures.
Joe is a former business-planning instructor at the University of Dayton School of Law, a frequent lecturer on real estate, business planning and estate planning topics and serves on the boards of directors for several business and non-profit organizations. Joe is a graduate of Leadership Dayton, is recognized as an Ohio Super Lawyer by Law & Politics Publishing and in Best Lawyers in America.

Rough Air Value Proposition

Helping Small Business Take Flight

The mission of Rough Air Associates is to create an affordable resource for small business owners/operators and family held concerns. Through training, consulting and investment our effort will be to help guide small business operators through the life cycles of their business and help them maximize their business’ value.

Our Core Values

• Our business is growing small business equity; we will put this into practice through all facets of our business.

• We are committed to the Dayton area; we will invest our time and money in both profit and non-profit concerns. Our effort is to give back to the community.

• We will maintain absolute integrity and honesty in our business.

• We will be committed to small business, using small business vendors whenever available and focusing on small business customers.

• We will be a partner to our suppliers, customers and competitors.

• We will re-invest profit or cash flow into our business to fuel growth.

• We will live the life our customers live by always trying to find the entrepreneurial solution to business problems.

• We will never sacrifice quality in anything we do.

• We will create and nourish great relationships with our bankers, advisors and the community.

• Our reputation is our business.

The Producer Price Index for November was released today and the surge in prices has caught many off guard. The PPI increased 3.2 percent last month, and the core PPI(prices minus energy) increased .4 percent. Both of these were well above consensus forecast. Energy prices were the main driver of the overall spike with an increase last month of 14.1 percent. Higher prices will make it difficult for the U.S. Federal Reserve to rationalize additional rate cuts.

Retails sales for November were also released today. At first glance the news on the retail side was much better. Overall retail sales were up 1.2 percent in November, if automobiles are excluded then sales were up 1.8 percent. The main driver for the increase in retail sales was retail gasoline purchases which were up almost 7 percent last month. Although the news is good, I would caution our clients not to be too myopic about the data. We would like to see a longer term positive trend on retail sales rather than the erratic data we are seeing now.

Both pieces of data released this morning lead me to a major concern I posted about two months ago, stagflation! I have no desire to break out my leisure suit and platform shoes; however, higher prices and slower growth can take us right back to the 1970s.

My concern is that we are going to continue to have energy driven inflation. Oil prices have skyrocketed this year. The price for a barrel of oil has risen 50 percent this year, and at the pump gas prices have risen 31 percent. These increases take money out of the consumer’s pocket, and drive higher cost for all businesses. At the same time we are seeing the economy slow due to the downturn in housing and the credit crunch! These two things combined add up to stagflation!

This becomes a difficult fire for the Fed to fight. They cannot lower interest rates to stimulate growth, because they will drive energy prices higher, and unleash the inflation animal. They cannot raise interest rates because tight credit will get tighter and make an already bad housing market much worse! This will cause many small business owners to reconsider their plans for 2008. Our suggestion is to move forward, but keep that contingency plan close at hand!   

It is that time of year when old plans are shelved and new plans are set in motion. I have always liked the start of a new year. Our business operated on a calendar year, so January 1, represented a new beginning. All of the measures reset to zero and we have a new race to win or lose. 

Some plans will last the entire year, and some will be obsolete immediately. I remember one year, it was the first business day of the year, my Vice President of Marketing came in to my office to let me know a key marketing development person had just resigned. That was the quickest I have had a business plan go obsolete, that plan lasted for 30 minutes!

As business owners assess their effort in 2007, and look forward to 2008, they need to evaluate their direction for the coming year. Here are five questions you should be asking about your 2008 business plan.

1. Do you have a clear objective? – Do you know what you are trying to achieve in the coming year. Is it easy to understand, and easy to communicate to others. Make sure your main objective is not so opaque that it will be difficult to see!
2. Do you have measurable actions? – There should some defined action items that will be critical to hitting your main objective. Are these action items spelled out, and will you know if you are getting them done? Just having it in your head is not the answer, you need to get these actions on paper!
3. Do your actions have accountability? – Is there someone in your organization who has taken the responsibility for getting specific actions done? Does everyone know what they need to do? Having actions is only half the battle, each action needs to be assigned to someone. Without accountability the right things will not get done.
4. Have you told the employees what the plan is? – The people on the team need to know what is expected, and they need to understand how to get there. If you walk out and ask an employee what the main objective for the coming year is, what will he or she say? If the employees do not know where the business headed, how can they help you get it there?
5. Do you have a process? – The main reason I see plans fail is because there is no process for managing the plan. Does the team know when and how things will be reviewed, and that adjustments can be made as the year unfolds? Execution is the key to any business plan, and follow-up is the key to ensuring execution.

If you answered yes to the above questions then you are ready for the coming year. You can sit back and relax through the holidays, and look forward to a new start. If you answered no you have some to work to do so you can be prepared for something great in 2008!

If you own a successful small business and you are nearing retirement, you have likely done some thinking about estate planning. Many entrepreneurs are concerned about what will happen to their business once they are gone. Planning to get that business to the next generation involves planning for management succession in the business, and determining how to get the assets in your estate to the next generation. Both of these will require a great deal of time and resources to be done right. If done wrong both can cost you, and your heirs a significant amount of money!

The objective on the estate planning side is to limit the tax liability your heirs will have to pay upon your death. Currently the Federal Estate Tax Law is a moving target. In 2008 the exemption is $2 million with a top tax rate of 45 percent. In 2009 the exemption goes to $3.5 million with a top rate of 45 percent. In 2010 the Federal Estate Tax Law is repealed for one year! In 2011 the law reverts to a $1 million exemption and a top rate of 55 percent. For business owners who don’t plan this can be an expensive proposition.

Take for example our fictional business owner Bob and his estate tax horror story. Bob started his business and grew it over a 30 year career. He has never given any thought to estate planning. All of Bob’s assets are in his name. His business has a book value of $1 million, he owns a building for the business worth $1 million, he owns a $400,000 house, and has $500,000 saved. In 2011 Bob passes away and his entire estate goes to his spouse, a year later his spouse dies and the estate passes to his only child.

When Bob’s $2.9 million estate passes to his spouse there is no estate tax; however, when the estate passes from his spouse to his child a taxable event occurs. The Federal Estate Tax, with a $1 million exemption, on Bob’s estate would be over $1 million (this does not include any state tax penalties). The bottom line is Bob’s heir would have to sell the house, use the cash from savings, and borrow against the business to cover the taxes. In this case had Bob done the proper planning, he could have created an AB trust, split the assets with his spouse while he was alive, and significantly reduced the tax liability for his estate. A little planning for Bob would have gone a long way!

Hopefully I have just motivated you to do a little research on estate planning. Here are some sites with good resources.

• www.estateplanning.com can help you find local resources
• Nolo has a good estate planning checklist
• The IRS site has an Estate Tax section

For a business owner who has poured his or her heart and soul into growing a venture, don’t put that venture in jeopardy by not planning for what will happen once you are gone!

As was expected the U.S. Federal Reserve cut both the Fed Funds rate and the Discount rate yesterday by one-quarter point. Over the weekend I mentioned that in the wake of the Fed’s cut we would likely see a tidal wave of criticism in regards to its action. If the cut is too low analysts will say the Fed does not understand the problem, if they cut too high other analysts will say the Fed is too aggressive.

The U.S markets dropped precipitously yesterday after the U.S. Federal Reserve’s announcement, and I have run across several stories today ridiculing Bernanke and team for not being aggressive enough. The hindsighters are out in full force!

I do not know if the Fed did the right thing or if it did the wrong thing. I also am not sure how the Fed cut will impact my business and my client’s business. Eventually it may reduce borrowing rates, but that not does not happen overnight! The lesson is that no matter what you do in your business you will always have an assortment of critics ready to pounce on any decision you make. The best thing you can do is ignore the critics, run your business, and smile broadly when everything works out just fine!

In my business I find I typically work with three different types of companies. The first is the start-up. These are businesses that are generally looking for help with direction and money! Next I work quite often with more established, multi-generational firms. In these organizations I am often asked to help get the business to the next level. Finally, I work with family businesses that are trying to move the business from one generation to the next.

The opportunity to work with such a diverse group of companies and entrepreneurs provides me with many business stories and ideas for helping all of my clients. On occasion I work with a business, like this one from an article in The New York Times, that is a combination of several types of business challenges. This business is a second generation start-up that is trying to get to the next level, what an inspiring story!

Growth in any business is exhilarating. When you have latched on to a product or service that is in high demand you have found a prescription for 24×7 adrenaline. Although it is a great feeling, it can also provide business owners with some significant challenges! Always remember, fast growth can kill a business as quickly as it can save a business. Here are some things to watch for when your business is growing quickly.

• Cash – Many times entrepreneurs will not focus on cash in a rapidly growing business. This is because many of us are taught that volume will cover many sins. During periods of high growth, inventory goes up, receivables go up, and investment goes up. This is a time when business owners can get behind the cash eight-ball if they are not careful!
• Expenses – During periods of high growth many entrepreneurs are less stringent about expenses. Don’t relax your due diligence on spending just because revenues are shooting up. Controlling expenses while growing will help keep the momentum moving forward!
• Quality  – If you have a growing manufacturing business, make sure your employees never believe you are more interested in getting things out the door rather than manufacturing a quality product. During periods of high growth mistakes will be made. Ensure everyone is diligent about improving quality so you can keep growing.
• Service – We can all cite examples of growing businesses whose service has deteriorated. It is not unusual for service issues to take a backseat during a great growth stretch. If they do you will soon find your business out of its growth cycle, and headed the other way!
• Mental Health – Although growth can be exhilarating, it can also tax everyone in the organization. Make sure everyone, including the owners, are getting time to recoup and recharge. Shooting stars can flame out quickly, help your team make it for the long haul!

Don’t take your eye off the business ball during periods of high growth. If you focus on the blocking and tackling you can ensure you and your business will keep growing!

There were no surprises today when the U.S. Federal Reserve cut the prime lending rate by one-quarter point to 4.25 percent. Most analyst were expecting at least a quarter point rate cut. Fed officials cited concerns about a slowing economy due to the downturn in housing and the credit crunch. They also indicated that slower growth continues to be their primary concern. They will continue to monitor inflation, although it is not their primary concern. 

In their commercials Southwest Airlines ask a probing question of individuals who obviously need to escape from where they are at that moment, “Do they want to get away?” If you want to get away and you live in Cincinnati, Anchorage, San Francisco, Charleston, or Knoxville, according to the Wall Street Journal, you will have to pay more than most. These are the most expensive U.S. cities to fly from. It cost 35 percent more to fly out of Cincinnati today than it did in 2005!

Travellers are not paying more to leave these cities because of a great need to escape, they are paying more because there is little or no competition from discount airlines. For example in Cincinnati, a Delta Air Lines hub, there are no Southwest Airlines or Airtran flights; therefore, the airlines serving this airport can charge more. This is an excellent thing to remember when you are planning your next business trip. It may require an additional layover, and use more time to fly from a smaller regional airport, but you can save yourself a lot of travel dollars, which may be a necessity in today’s environment!

You can check out this post to get more ideas on dealing with today’s rising travel cost. 

The National Federation of Independent Business announced that their index of small business confidence fell in November to its lowest point since 1993. The NFIB’s economist speculates that the rate cuts announced by the U.S. Federal Reserve this fall caused small business owners to view the economy more negatively. Although small business owners don’t seem to be seeing much impact from the credit crunch, they are worried that tightening credit will impact their ability to raise capital for their business (something we reported on here last week).

The survey indicates business owners will be pulling in the reigns in the coming months by hiring less and spending less on capital. This is another indication of ripple effects of the downturn in housing and the mortgage mess. What started as an isolated problem has become a major challenge for the entire economy. Later today the U.S. Federal Reserve will announce whether or not they will cut interest rates again to address the current economic challenges. Most analyst believe a rate cut is a foregone conclusion, the debate is how big the cut will be. This will likely give small business owners more pause about where the U.S. economy is headed!  

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!

As the political silly season approaches the debate on taxes heats up. There was an editorial in today’s Wall Street Journal about Whoopi Goldberg calling the estate tax wrong. In yesterday’s New York Times, economist Robert Frank says that politicians should be discussing a tax increase rather than additional tax cuts. As with anything in life there is likely some optimum balance between tax rates and government revenues. Creating an imbalance could wreak havoc on the economy!

There were a couple of comments in Frank’s article that peaked my interest. The first is that we need to raise taxes to pay for all of the federal programs we want. He makes the point that most of these programs have strong constituencies making them not suitable for budget cuts! I think Mr. Frank needs to remember that mature people make choices. Business owners learn to live within the financial constraints of their business. Those that don’t put their business in jeopardy. Why should the government be any different?

Mr. Frank also points out that 75 percent of people favor a repeal of the estate tax; however, if that repeal requires raising other taxes, or other unattractive options these same taxpayers are in favor of keeping the estate tax. That has to be the weakest evidence for keeping the estate tax I have seen to date. It goes without saying that if you tell someone we are going to raise your taxes, but cut your neighbors, that individual will likely object! I would ask Mr. Frank if people are so satisfied with the estate tax, then why do so many, spend so much to come up with ways for legally avoiding estate taxes?

I would caution anyone who becomes enamored with the idea of a government that can raise taxes at will with no moral or legal obligation. That strikes me as a government with too much power, and the ability to choose the winners and losers. The thought that politicians cannot run for office on a premise of raising taxes tells me the power ultimately lies in the hands of the people and not the bureaucracy. That thought helps me sleep very well at night! 

The accumulation of data and the prevailing sentiment are pointing towards a slowdown of the U.S. economy. Every day we see more headlines screaming at us from the front page of the nation’s newspapers about the mortgage crisis and the subsequent fallout. We are even seeing evidence of deterioration of other forms of commercial credit including auto loans and credit cards. We have an economy that is encountering significant headwinds such as the housing recession, higher energy prices, and gloomy consumers. Business owners should be preparing themselves for the rough air ahead!

This a point where business owners could fall into a big bear trap. The trap is the belief that as the economy goes so goes their business; therefore, poor performance is a foregone conclusion. Take it from someone who has been there, you can structure your business to perform well in any economy. The key is to have a clear understanding of the environment in which you operate.

If a slowing economy impacts your business, your job is to to steer your organization through the downturn. One of the methods to keep control of your rudder is to manage cash. Cash is always king, during a downturn it becomes Emperor!

Here are five things to focus on when managing cash.

• Accounts Receivable
• Inventory
• Discretionary Expense
• Capital Spending
• Efficiency

For the details and more on cash management during a downturn click here!

If you are considering starting your own business there are many things you will need. Every start-up needs money at some point, whether it is a little or a lot. You will definitely need an idea that is marketable, otherwise your new business is a moot point. Some new businesses need to create an organization up front, this may involve choosing the right partners for your business. Unless it is a home based business, you will also need a location, a place to do business. All of these things are important when starting your business, but there is one that is absolutely necessary, commitment!

A new business encounters challenges every day. Some days you will be struggling to meet payroll and pay the bills, so money will be foremost on your mind. Many days you might come in (if you ever went home) to find a piece of vital equipment broken. Many new entrepreneurs find themselves having to become copier, printer, and computer experts on the fly!

The biggest challenge through all of this will be the fatigue that can plague a new business owner. You will likely be focused on your new business every waking moment. There will be challenge after challenge, and following each challenge there will be mountains to climb. Through it all remember, every successful entrepreneur has been told it can’t be done, be one of those who passes everyone else up by doing it!

Here is a good resource to use when planning your start-up!

There will be big economic news this coming week. We will start on Monday when we get the most recent pending home sales data. This is the last piece of significant data the U.S. Federal Reserve will get before their meeting on Tuesday. The FOMC meeting on Tuesday will be the big news of the week. The Fed is expected to announce Tuesday afternoon whether or not they will cut the prime lending rate. Most analysts believe Bernanke and crew will cut rates, some say one-quarter point, and some say one-half point. No matter what they do we will have plenty of critics opine about the poor decision making process at the U.S. Federal Reserve. Thursday we will get retail sales data and the producer price index. We will round out the business week Friday with data on industrial production and the consumer price index. All in all a week full of economic news!

If you are looking to the financial media this morning to provide you with some analysis of yesterday’s Department of Labor release on November job growth, good luck! It amazes me how three major newspapers can all develop different interpretations of the same single piece of data.

The Financial Times of London reported that the November jobs number helped ease some concerns about the economy. Their belief is that yesterday’s data indicates that the housing crisis has been contained, and the data will keep this week’s expected rate cut by the U.S. Federal Reserve to one-quarter point.

On the other hand, the Wall Street Journal said yesterday’s report “brings little cheer.” The Journal’s view seems to be that U.S. employers hired at a weak pace in November, and the jobs report indicates the economy could be on the brink of a recession. The analyst they interviewed expect the jobs number to weaken as the economy slows.

Finally The New York Times weighed in by saying the jobs data was an ominous sign for the economy; however, the economic expansion is continuing. The Time’s view was that the data provided some comfort indicating that the U.S. was not yet in a recession. Their analyst says “the expansion is intact, but increasingly frayed.”

So yesterday’s labor report was either good news, or it was bad news, or maybe it was O.K. news, take your pick!

The reality is job growth has been trending down since the middle of 2005. The economy has generated 36 percent fewer jobs this year versus last year, that is roughly 700,000 fewer new jobs. Despite a slight uptick in October, the downward trend appears to be holding.

The lesson here is to never become too myopic about any data, whether it is in your business, or in the economy. Reacting strongly to a good number or bad number from one month will likely not serve your business well in the long run. I recall the initial jobs report for August, released in September, which showed a loss of 4,000 jobs for the month. Economist panicked until the report was revised upward the following month.

If you allow one piece of data to immediately shift your view of your business, or the economic climate where you operate, you could make an impulsive decision that could set your business on a path that has no return. Always be careful, the light at the end of the tunnel could be an oncoming train!  

Meetings are an unfortunate, everyday fact of business life. If you are a business owner, or a manager I am sure you have spent many hours caught in a meeting that is going nowhere fast. As the boss, no matter how strong the desire, you just can’t get up and leave. You must see the marathon through to the finish, no matter how painful.

I have held many meetings over my career, so I have made most of the big mistakes a business owner can make when meeting with employees. I have let meetings drag on, go off topic, and become all day sessions that have no purpose or productivity. Having made so many meeting mistakes has led me to develop an internal checklist that helps me make meetings more productive. Here are my main tactics for conducting an effective meeting.

• Have an agenda and an objective – The agenda can help you stay on track, the objective lets you know when you are done. If the meeting has no purpose why have it? The agenda and objective are a reason check for the meeting.
• Start on time – Everyone involved in any meeting has other stuff to do. When you start late you are telling your team time is not important. If you make a habit of starting on time, your managers will learn not to be late.
• Listen – Too many business owners and managers use meetings as their pulpit. The reason you bring your team together is to get information or get their input so you can make a decision. Listen to what they say to you and to each other.
• Be the last to weigh in – It took me sometime to learn, but if you weigh in early, others will just mimic what you say. If you really want to hear what your employees think, let them tell you before you pass along your mighty wisdom!
• Keep side streets brief – Many meetings will wander off Main Street onto a side street. This is one of those topics someone will bring up that is not on the agenda, and may not even be relevant. You need to keep these ventures off course brief. Some may run their course quickly, others may need nudged back on path. Keeping the side street excursions brief will help you control the length of the meeting.
• Learn the polite cut-off – I remember when I became chairman of a local non-profit board. I was warned ahead of time about one board member who would rattle on for several minutes. I had to learn the art of the polite cut-off. This is the process of stopping the long winded person from taking over the meeting discussion.
• End on time – This is just as important, if not more important, than starting on time. Everyone in that meeting has other things they must get to. Many of them have scheduled other activities based on this meeting’s end time. If you didn’t cover everything save it for the next meeting. Don’t let your meetings drag past the scheduled end.

 Business meetings are not rocket science. If you apply some common sense you can learn to manage meetings effectively! 

A major concern for many small business owners is that the fallout from the subprime mortgage mess will spillover and cause a tighter credit environment for small businesses. Many small business owners rely on short-term lines of credit to build inventory, and cover a cash crunch. I was in a meeting with a group of business owners earlier today, and some were reminiscing about the 1970s when credit lines were being cut regardless of the business’s credit history. These business owners, and many others, have expressed a concern that we are headed back to that type of environment.

Although I have no desire to dig out my platform shoes and leisure suit, there is ample evidence that the subprime credit crisis is spilling over into other areas of consumer credit. Delinquencies on auto loans are rising, and charge offs on credit cards and other types of consumer credit have increased in the second half of 2007. This could merely be evidence of a slowing economy, but common sense indicates that this is the subprime fallout spreading.

We have seen some limited evidence that the tightening consumer credit market is impacting business credit,although it is still limited. I have spoken with three different banks in the past few days, and their representatives all indicate that business credit is still flowing pretty well. One of the main reasons they cite for this is that in most cases when a regional lender finances a line of credit or equipment purchase they keep loan. Unlike the mortgage market, where many lenders sell off the loan packaged with other loans to investors. The market pressure on consumer credit and mortgages is due to banks not being to able to bundle and sell these loans to investors because of the perceived risk. This is not an issue for small business credit.

The bottom line is that business credit is still available and flowing. Click here for some ideas I posted last week that you need to keep in mind if you are trying to secure credit in today’s environment! 

The current trend of consumers approaching the holidays feeling like Scrooge rather than St. Nick appears to be holding. The University of Michigan’s consumer sentiment survey released today fell to 74.5 from its previous reading of 76, which was slightly below consensus expectations. Despite what appears to be a relatively healthy job market, American consumers continue to be wary due to higher energy prices, a housing recession, and tough consumer credit conditions. The decline in consumer sentiment correlates to the subprime mortgage mess. The question is will the decline continue, or are we near the bottom? Only time will tell!

The economy created 95,000 new jobs in November, above the expected 65,000. The job growth is good news for an economy that has been toying with a possible recession over the last few months. The increase in new jobs could act as a counterweight to some other issues weighing on the economy. The hope is that continued growth in new job creation will offset the negative influences from higher energy prices, a rough housing market, and tight credit conditions. This is welcome news that is breaking the string of bad economic data we have had for the past few weeks.

I ran across this article in Inc Magazine which outlines six keys to running a successful business. The author makes some great points about what it takes to create a winning venture. Although the points from this article tend to be very people oriented, it is important to remember that the key success factors for your business will vary depending on where you are in the life cycle of your business. What is important to an entrepreneur in a start-up may not be on the radar screen of a business owner planning retirement.

A business in the start-up cycle will be focused on getting the business off the ground. Raising money for the new venture can be a full-time effort, and picking people as partners may make or break the business. Entrepreneurs in the start-up cycle often run into a wall after a period of time. The energy and time requirements of a new business can hinder marital relationships and personal sanity!

Once a business gets through start-up and moves into the growth cycle, the owner tends to focus on innovation. For a business to have a strong growth cycle it has to stretch, try new scary things, and take calculated risk. The growth cycle is the key to creating a long term venture.

The governance cycle is all about managing the business. Many entrepreneurs suffer in the governance cycle because the strengths needed during start-up and growth may not serve you as well during governance. This is a time when the business owner begins to focus on planning, strategy, measurement, and management. I believe this is the life cycle where entrepreneurs create the most value in their business.

A business owner that makes it to the exit cycle is thinking about how to capitalize on years of hard work. These entrepreneurs are thinking about retirement, and the needs of retirement. They may also be dealing with succession and bringing new family blood into the business. Once in the exit cycle the issues facing a business owner are much different than years earlier when the business was starting out.

It is important to understand that business is dynamic. The success factors for any particular business will always vary depending on the life cycle of that business. Business owners need to understand where they are, where they are going, and the best route for getting there.

If you want to learn more about the life cycles of small business you can pick up a copy of my book Rough Air Ahead, The Life Cycles of Small Business. It can help you understand the success factors needed to run your small business. 

At some point in your life you have likely heard the humorous quip, “Hello, I am from the government, and I am here to help!” I can’t help but think about that statement as I listen to President Bush’s news conference on the administration’s solution to the subprime mess. It appears to me that we are only making a bad problem worse!

Yesterday I posted a blog that gave our readers a description of the subprime mortgage issue, and what a subprime loan is. In the past these high risk loans were much rarer. Subprime loans started to grow in the 1990s, and really took off the last few years. In 2001 subprime loans made up six percent of all mortgages written, last year they were 20 percent of mortgages written. The best way to solve a problem is to understand its origin, so the question would be what drove this significant acceleration of lower quality loans.

There were really three main drivers to the subprime boom. The first was that due to competition many lenders relaxed their lending standards. They were able to relax those standards because the second driver was the bundling and sale of these loans to investors. In many cases the loan originator did not keep the loan, they would bundle loans and sell them off as securities. That process made many financial organizations more comfortable with the higher level of risk subprime loans carry. The third driver was the housing boom in the U.S. Until recently demand was outpacing supply in the housing market. That strong demand caused a healthy appreciation of home values. Many lenders felt as though they could take the risk on a subprime loan, because if the loan were to default, they would foreclose on a property that had a strong “loan-to-value” ratio. All of these factors worked to bring us to where we are today.

Our arrival point is where the government steps in to avert the crisis. The administration’s solution to this problem is to have all of the lenders freeze rates on subprime loans that had a low teaser rate, are being paid on-time, but could go into default when the loan resets. One major challenge will be determining the loans where interest rates should not reset. This approach very well could be the right solution to this crisis, although here are four reasons why I believe this may be a step in the wrong direction.

1. Loan resets have yet to spike – The tsunami of adjustable rate mortgage resets does not take place until 2010. These resets have been accelerating over the last few years; however, they will fall in the next two years. The administration’s proposal freezes rates on loans that reset starting January 1, 2008 through July 31, 2010. The irony is that mortgage resets in 2008, and 2009 are fewer than they were in 2005, 2006, and 2007. In other words it appears that we are missing the real meat of the issue.
2. Resets are a small piece of the overall issue – I am not sure why the acceleration of defaults on subprime loans is a big surprise. As a lender if you relax your lending standards, and increase the number of loans to people with suspect credit and no income, then you automatically expose yourself to more risk. Logic would tell us that if we increase the number of risky loans we will increase the number of potential defaults. The source of this issue is not the loan reset, the source of this issue is extending too much credit to folks who can’t pay it back!
3. Someone will have to pay – This program is being sold under the idea that it will help our economy now. I am not sure I buy that. This program will certainly help some borrowers, the lenders, and the investors. The reality is loan defaults will continue to accelerate, this may just push some of those off. At the end of the day someone will have to pay for the program. The institutions who hold these loans are expecting rates to move to a higher level at some point. If they cannot generate their return here, they will generate it somewhere else. The likely result is higher fees and rates on prime loans. As Milton Friedman said, “There is no free lunch.” Someone will have to pay for this “generosity.”
4. The process is not stopping – As an example just swing by the Countrywide web site where they are still promoting some creative loan techniques such as their “Home America” loan. A loan with many “flexible, and innovative special features.” These specials features include other sources of income, such as gifts from family members, to help you qualify. Insanity is doing the same thing over and over again, and expecting a different result!

The subprime problem is quite simply a result of greed and speculation. We have financial institutions, who in an effort to drive profits, extended credit when they shouldn’t have. We have borrowers who took advantage of a hot market, and lax standards, and borrowed more than what they could pay. Finally, we had speculators, who pumped money into risky investments that are now turning on them. The best solution to this problem is likely to let the market resolve it. It will be painful, and it will be difficult, but it will be over a lot quicker, and we can get the economy back on track! 

Overall cost for business travel are expected to increase six percent in 2008. Skyrocketing travel costs have been a significant burden for all businesses over the past several years. As energy prices rise, and the dollar falls, international and domestic travel becomes more expensive. Many business owners and CEOs respond to this crisis by pulling in the reigns on business travel.

I am an “old school” kind of guy. Although technology allows us to do a great deal of business at a distance, I believe shaking someone’s hand, and looking them in the eye is still a key to developing a great business relationship. I have made the mistake of pulling in sales travel in the past to save a few extra bucks. It took months to repair the damage and catch up in the marketplace. Sometimes all you have to do to win, is show up!

I have fought the battle against rising travel cost in many ways, here are the four that I believe are the most successful.

1. Optimize travel – Make sure your folks are optimizing each trip. Set-up full trip agendas for the area or region being visited, don’t just fly across the country for a day, unless it is warranted.  If you are going to pay the cost of getting there, make the most of it!
2. Rent smaller cars – For the business traveller who will be driving from customer to customer alone, rent a smaller, more economical car. It may not be as comfortable as that large sedan, but it will save rental and gas dollars.
3. Choose the economical hotels – Stay away from the big full-service hotels. I know most business travellers are in a different hotel room every night. The amount of time actually spent in the room is limited. There are a tremendous number of low cost hotels, that provide a nice room, a decent bed, and free breakfast. That is about all you really need!
4. Play the airfare game – Avoid direct flights from hubs if you want to save. This may cost the traveller a couple of hours, but those direct flights are typically very expensive. I live 50 miles from a major hub airport, and 20 miles from a regional airport. Without exception I can typically get a ticket to the same destination cheaper from the regional airport rather than the hub. It may cost me some time, but I can work from anywhere!

The travel cost battle is not fun, and many of your employees will not be thrilled with the “thrifty” mode of travel. However, saving a little money on travel is always a better alternative than reducing staff or cutting programs! 

Many entrepreneurs, in their zeal to capitalize on opportunities, find themselves in the position of being drained of cash. Their desire to grow their venture outweighs their inherent good financial sense. The drive for growth motivates them to invest in numerous opportunities in the hopes that one provides a big payoff. The author of a blogpost from Inc Magazine describes how he fell into the cash trap!

The cash trap is where you find yourself when you no longer have the money to invest in that next great thing. You must choose between an opportunity and payroll! This is one of the many challenges every entrepreneur can face. The question is, how do you prevent it? Here are five tactics that can help you avoid getting caught in the cash trap.

1. Understand your commitments – I know this sounds pretty simplistic, but it is important to understand the dollars you have committed and the dollars you can commit. I am sure all of us have heard the same old adage at some point, “Money does not grow on trees.” So unless you have a money tree in your backyard, I would suggest you have a good handle on your commitments.
2. Focus your priorities – New ventures are exciting. The problem is that we want to take advantage of every opportunity that comes our way. The reality is we can’t. Make sure you have a clear understanding of what your business is and how each opportunity contributes to your overall vision. Invest in the ones that matter most to your business.
3. Know how to calculate a return – If you focus your priorities, you will have to choose between opportunities. Develop a method for choosing opportunities. I use a net present value analysis. In other words I look at the cash needed, and the value created by the investment over a fixed period. I discount that value to reflect current dollars and then measure it against other opportunities. This helps me understand where the biggest payoffs are.
4. Have a worst case scenario – When you decide on an opportunity make sure you have an idea of what the worst case scenario is, and how it impacts your overall business. If the worst case scenario is something you cannot live with, then perhaps this is the wrong opportunity.
5. Know your limit – I have seen many entrepreneurs jump into new ventures without understanding the full requirement and their point of “no” return. Make sure you have an idea of your comfort level for investment dollars, and stay within that mark. Understanding the requirements, and what you can live with will help you stay away from those investments which can get you into trouble.

All entrepreneurs don’t have some personality flaw that gets all of them into cash trouble. The ones that avoid the trouble know their limits, focus their priorities, and aim for the best returns. A little planning and analysis will keep your business out of the cash trap!   

The economic data continues to fluctuate, and send confusing signals about the direction we are headed. On Monday, the ISM Manufacturing Survey indicated manufacturing expansion in the U.S. is slowing. Today the ADP jobs report shows job growth is rising. Chief Executive Officer magazine just released their monthly survey which indicates that the nation’s CEOs are not optimistic about the economy; however, the Business Roundtable released a report today which indicates CEOs are optimistic! At this point we are not lacking mixed messages!

Regardless of what direction the economy heads, every CEO and business owner needs to continue to focus on the blocking and tackling. When a business is operating in an uncertain environment, targeting the basics will go a long way. Here are five questions every business owner and CEO should be asking themselves and their teams in today’s challenging economic conditions.

1. How does the current environment impact my business? – The velocity of the impact on your business really depends upon how close you are to the source of the problem. Businesses that depend on new home sales, construction, or some retail segments will be hit harder than some technology companies. You should be working with your teams to determine how this crisis affects your business, and your customer’s business.
2. If I must cut, where will that be? – If your business starts to feel the economic pinch, where can you trim the fat without hitting the bone! Work with your teams to start making those decisions now. Don’t forget about the lag time between making a cost reduction, and that reduction hitting the bottom line. Make sure you have a viable plan for maintaining profitability in this environment.
3. Are there new opportunities created due to the current conditions? – A downturn in the economy can often be Darwinian, the strong will survive! Are there going to be opportunities in your marketplace to buy some attractive assets that would be overvalued during an economic upswing? For those with the means this is a great time to buy.
4. What are the employees thinking about? – If they are reading the paper and watching the nightly news they are probably concerned about their jobs, and the viability of your business. A slowdown is not the time to shutdown your communications with the employees. Make sure your door, your eyes, and your ears are open to the wariness that can impact employee morale during tough times.
5. Are we doing all we can to lead? - CEOs, business owners, and managers get paid to steer their organizations through difficult times, not just bask in the glow of a strong economy. This is a time when you really need to reflect about the leadership in your business, and if you are doing all you can to smooth the rough air!

 Many CEOs fall back on the economy as an excuse for poor business performance. Although economic conditions can impact any business, it is up to the leadership to achieve the best results possible in any environment! Accepting mediocrity in a mediocre economy is a sure path to business failure! 

Over the past few weeks a number of government officials and presidential candidates have made suggestions on how we should resolve the subprime mortgage crisis. The real question is not how to solve it, but is this something to be solved by the government or the markets?

A subprime loan is a mortgage given to a borrower who generally, but not always, cannot qualify for a conventional mortgage. In most cases the borrower has either a poor credit history, too much debt, or insufficient income to pay the loan back. The lender hedges its risk by charging higher loan fees, higher interest rates, and prepayment penalties to subprime borrowers. Many of these loans are adjustable rate mortgages (ARMs), which have a low introductory interest rate, and after a specified period the loan resets to a new interest rate resulting in higher loan payments. In a booming housing market the lender’s risk is lowered, because in the event of a default the lender forecloses on a property that is worth more than the original loan. A booming market also helps borrowers because when interest rates reset they can either borrow on the new equity in the home to cover other expenses, or refinance. The housing market bubble served both lenders and borrowers.

Many lenders package and sell mortgage loans to investors or other financial institutions. When it became apparent that defaults were rising on subprime loans, lenders started having trouble finding investors for their loans. This has caused the overall credit cycle to slowdown, and because of supply and demand, forced further deterioration in an already soft housing market. The financial institutions and investors who purchased the bundled loans now have a huge potential loss hanging over their heads. This loss potential has caused banks to be wary about lending to other banks, because they do not know each other’s total subprime exposure.

The quick summary, some businesses (mortgage brokers/lenders) took big risk by forcefully loaning money to people whose ability to pay was questionable, some borrowers took big risk by borrowing more than they could pay back, and some investors took big risk by putting their money in these shaky investments. Now all these people, who made bad decisions, are looking for someone to bail them out!

I am not unsympathetic to the plight of homeowners about to lose their home because they borrowed more than they could afford, or because they will not be able to cover their mortgages once these loans reset at higher rates. I understand this is a major crisis that impacts many realms of our society, borrowers, lenders, and investors. That said, I agree with this Op-Ed in the Wall Street Journal that it is not the responsibility of other taxpayers or other homeowners to cover the cost of these bad decisions.

This is a slippery slope that may not have a bottom! Where do we stop? Should we extend this to people who might lose their car because they cannot make the payments, or people who can’t make the payments on their credit cards? We should not of course, but most times good politics does not equal common sense!

There is no doubt the subprime problem is a major challenge, and will be the cause of some significant financial losses. Is it fair to expect the American taxpayer to carry the burden of those losses?         

I am not a seer, or a fortune teller. I cannot predict where the economy is headed in the next week, much less the next year. The only thing I can do is give you an unfiltered view of the economic data available, and my thoughts on how you can position your business for the current environment. I use the same methods I used in our family business, this practice helped us maintain double digit growth in both revenue and profits in good times and bad times. The success we had growing our business led to its sale for an EBIT multiple only seen in the dot com world at its peak. If you invest a few minutes of your time every day with a visit to our blog, I can help you position your business for the same level of success.

Here are five other key reasons you should visit our blog:

1. I can help you be prepared - Last spring I was warning other executives and business owners to be prepared for an economic slowdown in the coming quarters. At that time our measures were indicating that growth trends were headed down. In August when this blog went live I suggested Rough Air clients take the time to be prepared for a slow down and a possible recession. I simply paid attention to all of the signs.
2. I have an unfiltered view – Too much of the financial media focuses on the same 500 companies every day, how the current economy impacts those companies, and why you should continue to buy their stock. I am not trying to sell stocks or bonds. I get no benefit from pushing for an economic downturn or an economic upswing. I believe if I can develop a better understanding of the world around me I can improve my business and my client’s business.
3. I have experience  – My specialty is running small companies. I have been there, so I understand the challenges of running a small business. I am not a lifelong consultant, nor am I an academic. I have had to meet payroll, raise cash, hire, fire, and everything in between. I am a big believer in a humanistic approach to management and that the blocking and tackling will carry your business most of the way. A lot of what I have learned is not because I read it in a book somewhere, it is because I have lived it!
4. I understand your issues - Because I have spent my career in small business or small divisions of other businesses I can empathize with and understand the small business owner. I understand the impact of taxes on small business owners and the challenges of business succession. I have seen how small regulations can have a major impact, and how small companies are often overlooked. I have a pretty good idea of what you are going through every day in your business, and how that can sometimes be unique and sometimes common.
5. I believe in small business – Businesses with less than 500 employees are the engine of the U.S. economy. There are 5.6 million of these businesses in the U.S., they account for half of the private sector workforce, and more than half of our Gross Domestic Product. These businesses are the key ingredients for innovation and new job creation. I believe without small business and entrepreneurship, the U.S. would be a marginal player in the global economy. We are the high-octane gasoline for the U.S. economic engine!

At rough-air.com our goal is to create a community for small business. We are an organization that understands the challenges all small business owners face from the early stage start-up to the fifth-generation family business. Business owners that invest a few minutes of their time, and read our blog or view our In-Flight Videos, will not be disappointed with their return on that investment!   

Alan Greenspan, the former chairman of the U.S. Federal Reserve, has said we are entering an Age of Turbulence. Looking around today we see a housing bubble bursting, a credit crunch looming, and consumers acting like the Grinch. It appears the former chairman may be right!

Many economic analysts are suggesting that the U.S. economy is headed for a recession. Investors and CEOs alike have demonstrated their concerns about the current economy. Even the U.S. Federal Reserve has indicated they believe the economy is slowing.

The mainstream media would have us believe an economic slowdown is an economic shutdown. Although any downturn can be a challenge, entrepreneurs who position their business correctly can take advantage of today’s rough air!

Tune in to the latest Rough Air In-Flight Video, where entrepreneur, author, and business blogger Vince Lewis explains five things you can do to capitalize on a tough environment. Click here, and invest five minutes to help yourself create a better business in turbulent times.

Although some automotive manufacturers are making progress by introducing exciting new models, the overall automotive industry is feeling the impact of higher energy cost, and slower consumer spending. Auto sales in the U.S. fell in November in another sign that manufacturing in the U.S. is struggling to expand. Manufacturers may be looking at more aggressive incentives in the coming months to keep customers coming to their showrooms!

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Many business owners fall into the trap that Michael Gerber describes in his book The E-Myth, they work in their business and not on their business. These business owners spend their days fighting fires and getting daily task done, and the end result is they lose sight of the big picture. They don’t take the time to focus on big picture issues such as brand positioning, strategy, and long term planning. This is the point where many businesses stall, and don’t move to the next level.

Forming an advisory board for your business can help you address these issues and keep your business moving forward. An advisory board can provide business owners with the additional perspective they need to help them have a better overall understanding of their business, and opportunities. Here are five test questions that may tell you if you need to create an advisory board for your business?

1. Are you constantly missing objectives? – An advisory board provides the business owner with another layer of oversight. This is a group that can help keep the business owner and the managers focused on their stated commitments. If you find your business or your managers are constantly missing their objectives, an advisory board may be the answer to keeping everyone on track.
2. Do you feel you are being told what you want to hear? – On occasion business owners can find themselves in the spot of The Emperor, in The Emperor’s New Clothes. Everyone in the business always agrees with the owner’s decisions regardless of their true feelings. Having only one view of the world is not healthy for any business.
3. Do you lack business evaluation tools? – Some business owners are in the position of not being able to understand whether their organization is operating effectively or not. When a business owner creates an advisory board, he or she is forced to create measurement tools to help the board understand how the business is doing. There are few things that can help a business owner understand his business better than having to explain the results to someone else.
4. Do you feel you are knowledge deficient? – Working in a business 70 hours or more a week can sometimes prevent a business owner from gaining additional business knowledge. I have always found my best management lessons have come from other business owners, people who have been there, and already made the mistakes I am about to make. An advisory board can be a great resource for business knowledge.
5. Do you need to broaden your business contacts? – Not only can the advisory board bring experience to the table, the board members also can be conduits to potential customers, vendors, and other business contacts. If you select the right board members you can create a new network of potential business partners.

If you believe it is time to create an advisory board for your business, you can check out our post on advisory board creation, or pick up a copy of my book Rough Air Ahead, to learn about how an advisory board can help you!

The Institute For Supply Management today released its manufacturing survey for November, and the data shows that U.S. manufacturing is continuing to slow. The ISM survey has been trending down since mid-summer as the downturn in housing, and the credit crisis have spilled over into the industrial sector. We expect these factors, as well as higher energy prices and slower consumer spending, to weigh on U.S. manufacturers through the first half of 2008. Today’s news confirms that manufacturing is continuing to expand, but at a slower rate!

It is a new month, and we all know what that means, another round of economic data that I am sure will confound and confuse us all! Beginning Monday we will add to our database of economic information that will help guide us on our financial journey. The first thing Monday morning we will get the Institute for Supply Management’s Manufacturing Survey release. Expectations are that manufacturing slightly expanded in November. We will also get motor vehicle sales data Monday. Both of these pieces of information help us understand the current manufacturing environment in the U.S. On Wednesday we will get the ISM Non-Manufacturing Survey release and information on Factory Orders. We will round out the week with a piece of critical data, the employment numbers for November. The consensus is that job growth continued its slow expansion last month!

All of this data will come to fore on December 11 when the U.S. Federal Reserve meets to announce their next move on interest rates. Most analyst believe the Fed will reduce rates at the December meeting, and comments from Fed officials indicate they are leaning that direction. All in all we will have a lot of raw economic meat to chew on this week, although I doubt there will be any significant shift in our overall view of the current economy.

As an entrepreneur I have a tendency to maintain a pretty high level of optimism. I try to be realistic about the world around me, and understand the investment risk given economic conditions. Although I always believe that for the most part we can overcome any problem thrown at us.

Given my “rosy” view of the world I am always amused by those who seem to be quick to eulogize the decline of the United States. Today’s Financial Times took the time to editorialize about how the U.S. is now the world’s bargain basement, and that our system of democracy is outdated and flawed. Perhaps so, but from a small business owner’s perspective in the Midwest it still seems to be working pretty well.

In the interest of time, I will skip the commentary and make a few quick points:

1. In the global scheme of things the U.S. still has the largest economy of any country in the world.
2. Five of the top ten corporations in the world are U.S. based, and 10 of the top 25.
3. We still have more people trying to get in, than trying to leave the this country
4. Our democracy is not perfect, but the outcome of elections are not foregone conclusions, unlike Putin’s Russia or Chavez’s Venezuela
5. There will always be emerging markets, fluctuating currencies, and changing economies.

When viewing this great country from the outside many can only see our flaws. They believe that because we don’t agree on everything that means the system does not work. They seem to always be ready to write the epitaph of the U.S. economy and system of government, although we are still in our infancy!

I would suggest that the commentators and experts be careful about shutting out the lights on the United States while we still have so many people in the room!

I am sure many of you will be shocked to learn that estate planning is an issue small business owners are concerned about! Warren Buffett and others would have us believe that estate taxes and estate planning is not something small business owners concern themselves with. This article on estate planning from the New York Times simply reinforces that estate planning is a major issue for small business owners.

The article discusses some excellent planning tools, and reminds small business owners that the estate tax comes back in full force in 2011. Entrepreneurs need to begin planning now to ensure they have a good estate plan that minimizes taxes, and gets the business to the next generation!

Given the recent spate of product safety issues from Chinese imports, it is fair to ask if China is suffering from a public relations issue. As a strong supporter of manufacturing in the U.S., I would say yes they are, and I hope they can’t fix it. However, it strikes me that China’s issue is not just a public relations issue, it is a process issue. The image problem is an outgrowth of a monumental system malfunction.

China’s competitive advantage in the global manufacturing arena is price. They have an industrial infrastructure designed to be the low cost producer. The challenge is Chinese manufacturers need to keep reducing costs to stay competitive, even as their labor rates slowly rise due to a burgeoning middle class. This forces manufacturers to look for other cost reduction opportunities, and production short cuts are generally the result.

Great public relations may be able to disguise the product safety issues China has, but it does not fix the overall process issue. Unlike the public relations expert in this Fast Company article, I will be checking labels this Christmas. The safety of my children is important!

The U.S. Federal Reserve Chairman Ben Bernanke telegraphed his openness to further interest rate cuts in comments he made yesterday in regards to a slowing economy. The downturn debate is now whether the glass is half-full or half-empty. Is this slowdown a long-term “bear” economy, or is it simply the sign of a new cycle of economic growth?

The Fed believes the economy will slow in the coming months due to a slowdown in consumer spending, and continued turmoil in the credit markets. The challenges of a tighter credit market, lower asset prices (houses and stocks), and higher energy prices are weighing on consumer sentiment. The concern is that a slowdown in consumer spending is the weight that will tip the economic scale into recession.

None of us are hoping for a recession, or a slowdown; however, keep in mind a slowing economy is a natural occurrence in the economic cycle. Once the economy has slowed and completed the cycle, we are in for another period of solid economic growth. It appears to me that the glass is certainly half-full!

One major concern of many analyst is that the credit issues that originated in the housing market will spill over to other types of consumer and commercial credit. The New York Times has a front page article today about how credit flowing to American businesses is “drying up at a pace not seen in decades.”

Small business owners that are going into 2008 with big expansion plans and large borrowing needs will need to make sure their business is positioned to get the credit required. I was meeting with some local bank officials recently and they mentioned three things they look at when meeting with business owners who need to borrow in today’s environment.

1. Cash Flow – The bank wants cash flow, and proof of cash flow. If you are buying a business or investing in capital bankers will need to see evidence that your business has the cash flow necessary to cover the debt. The bank’s comfort with cash flow will be directly reflected in the borrowing terms.
2. Collateral – In today’s environment the bank wants collateral. They need to see other assets that can be used to guarantee the new debt. They will look at receivables, inventory, and equipment. The lenders are thinking about options if the borrower defaults on the loan. Collateral is a great option.
3. Reputation - If you have a positive reputation with your bankers and a strong relationship, then borrowing in today’s environment will be much easier. If you lack a track record with the lender or in the community then borrowing will be difficult.

I have been told that you can be missing one of these three keys and you still be able to borrow. If you are missing two then your chances of finding a lender will be limited!

The U.S. Department of Commerce released their revised third quarter Gross Domestic Product (GDP) numbers this morning. Economic growth was 4.9 percent in the U.S. in the quarter ended in September, this is one percent higher than the original GDP release and right on consensus forecast. The downside is that most analysts are expecting fourth quarter GDP to come in around one percent!

Jobless claims for the week were released by the U.S. Department of Labor. New unemployment claims jumped to over 350,000 last week. The overall trend on jobless claims has been moving up slightly, this is concerning news for economic watchers who believe unemployment needs to stay low to keep consumer spending robust.

Home foreclosures surged in October. New foreclosures were up two percent from September, and a whopping 94 percent from October of last year. The spike in foreclosures is just more pain for an already suffering housing market, most do not expect a turnaround in housing for some time.

The bottom line is that going into next weeks U.S. Federal Reserve meeting, it appears that Fed officials are leaning towards another rate cut to attempt to keep the U.S. economy out of recession!

When starting their business, most entrepreneurs start their business where they live as opposed to trying to find the most “small business friendly” environment for their new venture. If you had a choice, where would you start your business? The Small Business and Entrepreneurship Council has come up with a list which may help you decide.

The SBE recently announced the best and worst states for small business in the U.S. South Dakota came out on top for their low taxes and limited regulatory environment. Washington D.C. (the shocker of all shockers) was the worst! I would have to agree that the further outside the beltway you are, the better the chances for the success of your small business!

One comment in the article from a critic of the SBE got my attention, “And many of the tax rates that the SBE index measures, such as estate taxes, have little impact on small business owners because they only affect the wealthiest taxpayers.” The individual who said this has obviously never worked in family business that is in or approaching the Exit Cycle.

During the last business life cycle, many business owners become preoccupied with estate and succession planning issues. The question of how to get the business to the next generation with minimal tax impact becomes an all consuming problem. Many attorneys and accountants have made a good living by advising small business owners on estate planning issues. This is a big issue for many business owners, and it is no surprise that the SBE considers it pertinent to their measure!

What is the best business advice you have ever gotten? I have always believed the best advice in business comes from those who have been there. Other business owners and executives who have more experience and have fought many battles are usually my most effective sources, rather than consultants, business books, or workshops.

The best advice I have received in my career came from mentor. He always encouraged me to treat people well. Be good to your employees, pay your vendors quickly, and go above and beyond for every customer. If you treat everyone well, the return on your investment will be exponential. Ignore one of those groups, and you will damage your business over the long term.

Just this past weekend I was having a business discussion with a friend who shared a story about a small business in Michigan. They had an employee who had gotten injured on the job, falling from the back of a truck. He had broken his arm, and after he had recovered, he suffered another injury at a local chiropractors office. The owners eventually fired this employee, and then protested when the employee applied for unemployment benefits. The owner’s reasoning was that it would increase their unemployment insurance. The employer spent a great deal of time and energy fighting unemployment benefits for this employee, only to eventually lose. They probably lost more money and credibility fighting this issue than they would have if they had just moved on. Treating people well always goes a long way.

The best advice I give other entrepreneurs is to pursue their passion, if they do success will follow. If you are starting your own business, and the business is something you are passionate about, then your chances for success will be much better. Here is some more great advice from other entrepreneurs!  

The U.S. Federal Reserve released its beige book data today, and the results show a slowing economy. Consumers and businesses alike are operating more cautiously and holding onto cash as they prepare for an economic slowdown (no doubt many of these folks have been reading our advice). The bottom line is that so far this quarter the Fed sees slower growth as housing woes and tight credit continue to squeeze spending!  

Existing home sales fell in October to their lowest level in more than 8 years. Inventories grew to almost 11 months, the highest point since 1999. The bloated supply of homes on the market is forcing prices down, third quarter data showed average home prices were down 5.1 percent. The downturn in housing continues to weigh on the economy, although it appears the market has not yet hit the bottom!

Durable goods orders fell .4 percent in October, which was more than expected.. Except for a spike in July durable goods have been trending down the second half of this year, this correlates with other data which indicates manufacturing has been slowing over the last few months. Some analyst were expecting the weak dollar to help bolster exports and keep manufacturing robust. It appears that stronger exports have not been able to offset the ripple effects of a downturn in housing and the credit crisis.

It is rare that I get the same slant on the economy from multiple media sources. Many times one newspaper will indicate the economy is up, one will say it is down, and one will say it is neutral. You can therefore imagine my surprise this morning at the negative economic view that is permeating the entire media. Here is a potpourri of bad economic news:

• The Financial Times is reporting that the woes from the subprime crisis are spreading. The data is starting to point to problems with consumer credit and car loans. The ripples from the crisis are growing larger!
• The Wall Street Journal and the New York Times reported on the correction in the stock markets. A correction is a 10 percent drop in the Dow, which we officially hit yesterday. The markets are nervous about the same issues as consumers, rising energy prices, the credit crunch, and the housing slump.

The bottom line is that more analyst and experts are predicting the U.S. economy is headed for a recession. Just two months ago many of these same analyst were telling us the credit crisis was over and the housing market had bottomed. After that was proved wrong they said consumer spending would keep us going. Now that consumer confidence is tanking, they say the real issue is the job market! If job growth stalls then the economy will fall into recession.

There is no doubt the U.S. economy has slowed. Whether it heads into a recession or not remains to be seen. The best you can do is position your business for success in the current environment and keep moving the ball forward!

Consumer confidence fell again in November to 87.3, well below consensus forecast. This was the lowest level for consumer confidence since October 2005. The Conference Board also reported that expectations fell to their lowest level since the eve of the Iraq War in 2003. Consumers are heading into the holiday season in a decidedly foul mood. Concerns about the downturn in housing, the credit crunch, and rising energy prices are pinning consumers in a corner and they don’t appear to want to spend their way free! The economy is paving the way for a rocky road in 2008! 

In today’s world we seem to be working hard to teach the next generation the wrong principles of success while burdening them with even greater life and social challenges. The lessons of success being learned in the reality television classroom teach younger generations that 30 days is a “long time” to work to earn $1,000,000, that lying and disloyalty are key success factors, and that not much is off limits! These are not lessons for success, they are the basis of a workbook for achieving mediocrity!

We often referred to our family business  as a 40-year-overnight success. The successful people I know all put in the time to move their venture or their career forward. They made sacrifices, whether personal or financial, over an extended period of their lives to get to where they are today. Many of these people were just pursuing something they were passionate about, they had no time-line!

I have come across many people in my career in business who expect to get to the top, but not put in the time. These are the folks who want to put in 40 hours every week, and believe that is all they need to do to move up the ladder or create a successful business. To be successful you will have to put in the time. The people that move ahead are the ones who are committed, whether it is in sports, business, or any other venture, those that put in the time will achieve some measure of success.

On occasion you will fall short of your goals, the most successful people know have learned to cope with these challenges and keep moving forward. They do not allow a set-back to be a take-down. They learn to deal with adversity, pick themselves up and keep moving. They understand that the road to success is a long journey with many twists and turns, failure is just one of the stops along the way.

Here are five things to remember as you chart your course for career or business success:

1. Set a goal – Without a goal or a direction there is no telling where you will end up. Make sure you start by knowing where you want to finish.
2. Craft a plan – This does not mean the plan won’t change, it just means you will have a general idea of how you plan to achieve your goal.
3. Commit – Be prepared to put in the time and a long term effort. Overnight successes in business are rare. Make sure you have a long term view of success, and enjoy the ride.
4. Prepare for adversity – Most successful people will tell you that their journey was not smooth. Creating true business or career success is more about how you deal with set-backs rather than victories.
5. Update your goals – You should constantly be revisiting your goals and your plans and make sure it all still makes sense. The business world is dynamic, therefore, our plans need to be dynamic as well.

If you want to move your business or career forward, be prepared to do the hard work. Those that do will reap the rewards, those that don’t will reap what they sow!

Much of today’s financial news was dominated by talk of recession fears. Several weeks ago I posted an article suggesting our clients begin preparing for a possible recession. Last month I posted an article about some recession indicators. The bottom line is the U.S. economy is slowing. Consumers are getting hit from all sides, the value of their homes are declining, their access to credit is diminishing, and oil prices are rising. The root causes have been turmoil in the housing market, rising mortgage defaults, and a declining dollar.

The lesson to learn here is to follow the data. Do not become myopic and let one piece of data dictate your view of the economy. Look at multiple pieces of information over an extended period of time to determine what direction you believe the economy is headed. As I have said, I do not know whether we are in store for a slowdown or a recession. I do believe the economy is slowing and now is the time to make sure your business is positioned to capitalize on the current conditions!

I have been spending the day trying to understand California Governor Arnold Schwarzenegger’s policy effort to slow the rate of home mortgage defaults. If I default on my mortgage I can work a deal to keep my payments low, if I pay on-time my payments will go up when my mortgage resets at a higher interest rate! Now that makes sense, punish those who keep their commitments and reward those who don’t!

This is what happens when politicians try to insert themselves in market issues. While Governor Schwarzenegger’s proposal may hold off some loan defaults, and he will come out a hero, it will not solve the overall problem. There will still be thousands of mortgages in the state of California in which the borrower’s ability to pay the loan is at best suspect. The bottom line is we can take our medicine now and move on, or we can take it later. Either way eventually the lenders and the borrowers will both share the pain.

We got into this mess by supplying easy credit to folks who probably can’t afford it. Extending that credit is not likely going to resolve the problem (see my earlier post for our suggestion). It strikes me that the behavior a proposal such as this reinforces is to not pay your mortgage, because the government will force the lender to bail you out, so the people in power don’t get a black eye!  

Politicians play this game when they are tearing down their opponents. Many executives have played this game on their way up the corporate ladder. Analyst and experts often play this game because they are afraid to propose realistic solutions. The game I am talking about is the blame game, and this weekend The New York Times was playing the subprime blame game.

An article in The Times was focused on finding someone to blame for the subprime crisis. The writer’s conclusion was that the “subprime evil-doers” were the lending companies themselves. These tyrannical organizations set out to create loans for borrowers that they knew would never be paid backed. The executives at these organizations reached into their grab bag of mortgage tools and created the perfect device for placing unsuspecting borrowers in a tenuous position.

I find it difficult to blame one entity or organization for the subprime crisis, and I believe none of the parties involved were aiming towards the outcome they have gotten. The job of a lender is to find financing for buyers. I know this sounds elementary, but that is what they do. Lenders used the tools available to find creative ways to help folks buy a home. Were they overzealous in their lending practices? The answer is probably yes! Were they creating loans that they knew would not be paid back? The answer is probably not! A default is not in the lenders best interest, their goal when lending money is to get the borrower to pay it back, not end up owning the collateral.

The borrowers just wanted to own their home. Keep in mind 99 percent of the mortgages out there are not in default, it is the other one to two percent that are creating the problem. The borrower took advantage of a climate of easy credit. Did borrowers take out loans with a plan to default on the loan in the future? I doubt it. Some probably were not thinking that far ahead, and some were probably banking on interest rates staying low or their income going up!

The investors who purchased these bundles of loans or speculated on real estate did not do so with the hope of losing money. They took a risk based on their short term experience, which told them there was an investment opportunity here. Now many of them are paying the price for their speculative risk taking! Precisely like many dot com investors did in the 1990s.

The question is not who should we blame, but where do we go from here? One solution is to do nothing. Once everyone understands the risk posed in the subprime market they can position themselves for that risk. As time passes this problem will work through the system like most, and the economy will move on. Human nature being what it is will not let us do nothing, we will all feel compelled to do something.

One solution floated is to create a workout program for subprime borrowers. Perhaps we should prevent their loans from resetting, or we should restructure the loan so they can keep their home. This sounds noble, and very humane; however, what do you do for all the other borrowers who are not defaulting on their loans? It seems to me the lenders would be required to offer the same terms to everyone. Someone would have to pay for this generosity! This appears to be a recipe for cooking up another disaster for the financial markets!

The likely solutions include tighter lending standards, which will be required in order to find investors for these loans once they are given. A different process for ARMs (adjustable rate mortgages), where the borrower would need to prove they can make the loan payments when the loan resets, appears to also be needed, and fuller disclosure to investors about what they are buying.

The subprime crisis is like any business problem we run into. We could spend all day spinning our wheels while we searched for someone to blame, and the problem would still exist. We need to allow the problem to run its course, and search for solutions! Although playing the blame game may be fun, it is not what we need to get back on track and keep moving forward! 

I am guessing by Tuesday the euphoria from Friday’s retail sales performance will have passed as we start getting more information about current economic conditions. On Tuesday we will get more consumer confidence numbers. The expectations are for a continued declining trend for the American Consumer’s optimism. Wednesday we will get existing home sales data and durable goods data. I expect we will get more gloom and doom about the credit crunch and the housing market. This gloom and doom will be amplified on Thursday as we get more data on new home sales, and revised GDP numbers for the third quarter. On Friday we will finish the week with some new data on consumer spending. I do not expect any of this week’s data will change the overall question before us, ”Are we headed for recession, or just a slowdown?”  

The question we have been grappling with is whether or not the American consumer will keep spending and prevent the economy from teetering into recession, or if they will stay home and keep their money in their pockets. After yesterday’s retail sales performance, on the busiest shopping day of the year, many analyst seem to believe our consumer spending woes are now in the past!

Although I hope the analyst are right, I am concerned they are being too myopic about one day’s experience. I am a big believer in trends, although the consumer spent yesterday which is a good sign, the spending trends and confidence numbers continue to be weak. Given that I would expect we are not quite out of the woods just yet, although we are getting closer every day.

Yesterday’s retail experience could be the signs of an economic turnaround, or it could be just a blip. Regardless, for the economy to keep moving forward the consumer needs to spend, that is the medicine we need to maintain growth!

Have you ever run across a co-worker or manager that seems to spend all of their time tearing others down? Perhaps this individual is so insecure in his abilities that he must pull others down to his level rather than pulling himself up to their level.

This is the person that spends all of his time jockeying for position. He is always working to make his co-workers look bad, although he wants to make himself look good. He is quick to point out all of the problems or issues someone else has in their realm of responsibility, but he is agonizingly slow to accept there are any issues within his domain. He will always back up his critique with a statement like, “I am just trying to help you get better.” If you disagree with his critique he will even tell the boss you are being “defensive”  and not willing to change.

Many bosses will develop a strong relationship with this individual. They will see this person as a source of information about what is going on in the business, and their view about the individuals true performance will become clouded. The risk for any business owner with a “hit man” on their staff is that is that this person tends to target those who are threats to his career rather than true threats to the organization. As a business owner the question is how do you prevent the “hit man” problem?

Here are four tips that may help you control and limit the “hit man” problem:

1. Set expectations - Setting clear expectations of your managers will help them and you understand exactly what you need them to do. This prevents any other managers from trying to tear down a co-worker because the expectations are already there. You have a subjective way of knowing whether your managers are helping you get where you need to go.
2. Focus on results – Once expectations are set, manage by the results not by rumours. The “hit man” likes to spread rumours about others on the team. He doesn’t like working for folks that set expectations and then focus on results. This makes it difficult for him to tear someone down based on what he believes.
3. Don’t play the gossip game – Don’t let the “hit man” drag you into the gossip game. Gossip is the “hit man’s” number one tool. He will spread rumours about the lack of a co-workers performance and then pass this along to the boss, because it is his responsibility. The reality is he usually positioning himself for the next step.
4. Don’t positively reinforce “hit” tactics – When someone comes to you with “hit man” tactics, turn them away. Make sure you don’t reinforce the behavior by elevating his status in the organization and allowing him to use his tactics to move up in the organization.

Business owners that accept and reinforce “hit man” tactics are destined to end up chasing away top performers and creating teams focused on career advancement rather than organizational success!   

The financial news today will be inundated with stories about Black Friday. The day after Thanksgiving is generally the busiest shopping day of the year, and all of the analyst are holding their breath to find out if the American consumer keeps spending, or if they stay home. The U.S. economy has been buoyed by continued consumer spending. Declining home prices, tighter credit, and higher energy prices are predicted to eat away at the consumer’s ability to spend. The question is will consumers keep the economy moving forward or will they slow their spending and push an already teetering economy into recession?

As an entrepreneur life can sometimes be a blur. You can spend days and nights driving toward a goal with no external force pushing you, just your own desire to see it through. Your hours are consumed with finding and caring for new customers, finding and caring for new employees, and constantly trying to take your business to the next level. With all of the activity, pressure, and challenges it is easy to lose sight of those other things in life that truly matter.

As entrepreneurs it is important to take the time  to reflect on those things and remind yourself what you have to be thankful for. I am thankful for a family that supports my entrepreneurial efforts. Whether it is my wife doing the books, my dad personalizing his license plate with the company name, my father-in-law making sure I am covering the details, or my kids offering to help whenever needed. Entrepreneurial ventures are never undertaken alone, there is always a network of people supporting the effort directly or indirectly.

In my entrepreneurial venture I am thankful I don’t have a boss. When I decide to spend capital I only need to answer my own questions, not everyone else’s. I decide where I want to go, and when I want to go there. I get the benefit of the wins, and the pain of the losses. At the end of the day, like many entrepreneurs, I am living the life many American adults strive for, but never get the opportunity to embrace.

On this Thanksgiving I am very thankful for the hand I have been dealt, because I get to act as the dealer!

Happy Thanksgiving!

Hank Paulson expects more mortgages will go into default in 2008, oil prices are nearing $100 per barrel, and 40 percent of Americans believe the economy is headed for a recession. In the legendary words from the sage of feathered fowl, “The sky is falling, the sky is falling!”

Given the news of the day, the coming U.S. Presidential election, and the hysteria surrounding both, one could not be blamed if they elected to be cryogenically frozen for the next 12 months so they could skip the coming storm and come out when the sun rises again! Since this is not really an option we all might as well sit back and enjoy the ride! Many are painting this as an economic doomsday scenario, remember this is only done to sell newspapers and advertising on web sites.

I remember the recessions of the early 1980s, the early 1990s, and early this century. Before each recession there was a great deal of hand wringing, and people painting a picture of gloom and doom. I don’t doubt that we are headed for a slowing economy, and that recession may be possible. This does not mean our economy stops, and we will all be tossed out on the street. Every recession I can remember was followed by a period of great economic expansion. I would prefer that we get it out of the way and get our economy back on track as quickly as possible!

For business owners who are pacing the floor in expectation of a coming slowdown, don’t worry! If you position your business for success, regardless of the environment, you can continue to strive for growth and profitability. A recession is a temporary event, like all things this too shall pass. The quicker, the better!

In the Spring of 1974 “Hammerin” Hank Aaron tied Babe Ruth’s home run record at Riverfront Stadium in Cincinnati, Ohio. A few days later in Atlanta, Georgia, he broke the Babe’s long-standing record. This was a record that was thought to be unbreakable, it stood for 40 years. After the record was broken, players did not stop hitting home runs, baseball teams did not stop playing, and eventually even Hank’s record fell. Like most milestones, as time passes, they become less significant.

Oil prices are likely to top $100 soon. The price for a barrel of oil may surpass this milestone today, or someday in the near future. I suspect, as times goes by, this number will become less significant as we see it in our rear-view mirror rather than in our windshield. Oil prices closed in on $100 this morning before falling back to just over $98 per barrel. Prices are being driven higher by several factors. The U.S. Federal Reserve said yesterday in their comments from last month’s meeting that they expect growth in the U.S. will slow in the coming months. The Fed’s comments caused the dollar to drop further against most currencies as expectations for a December rate cut increased. This combined with OPEC’s decision not to increase output has put continued pressure on oil futures.

The holidays are approaching fast and the American consumer is getting squeezed. The average consumer is now faced with rising oil prices, slower growth, and tighter credit. This combination of factors may be the weight that tips the economic scale into recession. This is the bad news!

The good news is that rising energy prices will continue to motivate entrepreneurs to search for alternative energy sources, and energy companies to search for new sources of existing oil. As oil prices go up, sources that were previously considered too expensive to exploit become more reasonable.

Like Hank Aaron’s record, $100 per barrel oil is just another milestone, and as time passes it will become less significant in everyone’s eyes. Although, perhaps this milestone is the catalyst we need today to drive our entrepreneurial zeal and move us away from dependence on foreign oil. As I have said before, never underestimate the power of free markets!    

There is little doubt we are seeing a significant amount of turmoil in leadership positions at the major U.S. financial institutions. Citigroup fired its Prince, and Merrill pulled O’Neal from his throne! In the coming months there will likely be more high profile victims, and more high profile searches! If you find yourself in the position of foraging for the next leader in your business, here are four keys to look for when plunging into your search process.

1. Honesty – Great leaders are honest, they understand the need to establish a strong reputation. The first time a CEO falls into the trap of telling that little white lie to his shareholders or employees, he begins to stoke the fires of mistrust. The CEO in your organization must be someone everyone can believe in. If people believe the only time the CEO is not lying is when his mouth is closed, then he is not cut out for leadership!
2. Setting the Tone – Great leaders lead by example. Whether it is getting out in front of the troops on the battlefield or paving the way to success in the boardroom, leadership is about creating an example for others to follow. The folks who are being led will learn to mimic the actions of their leader, leaders who understand they must set the tone can be held up as an example to follow!
3. Responsibility – Great leaders take responsibility and give credit. When things in the business don’t go well they stand up and take the heat for the problems in the organization. When things are going great they give credit where credit is due, to all of the people who make the great things happen. Leaders who look for scapegoats when times are tough, and self-praise when times are good, will not get people to willingly follow!
4. Approachable - People at the top of the organization can become so separated from the day-to-day that they don’t understand what is going on in the business. Leaders who are approachable and easy to talk to will always have a better feel for what is happening across the board. Their teams feel comfortable bringing up the issues and helping create solutions. Great leaders don’t talk at people, they listen to people!

The news is permeated every day with examples of good leaders, and examples of bad leaders. We can see those who must use force to gain positions of leadership and we can see those who seem to fall seamlessly into leadership roles. When you are searching for leaders in your organization, if you focus on these four characteristics, you will find true leaders! 

I ran across this article in the Financial Times about how rising U.S. car loan defaults are creating another worry for financial markets. This is something we have mentioned here before. The concern about the spillover of the subprime crisis into other credit vehicles!

Our belief is that the credit crisis has not yet revealed all there is to see. The pertinent information will continue to filter out slowly as we learn more about how deep this issue really goes. This is not unlike the accounting scandals that started with Arthur Anderson and Enron. This process of trickling information continues to create a fair amount of uncertainty about the economy.

The good news is that while the economy does appear to be slowing, it does not appear to be stopping. More analyst are now speculating that the economy will slow, but not fall into recession. Regardless, we have been through economic downturns before, and we will go through them again. There is nothing to fear about a slowing economy, business owners just need to position their business to capitalize on the current environment. Also keep in mind, each day that passes brings us one day closer to the next economic boom!

Overall housing starts improved slightly in October driven by an increase in starts of multi-family dwellings. The key number of single family home starts declined to a level not seen since 1991. Housing permits also declined which is an indicator of future activity. The bottom line is that the housing market continues to be soft across the board. The problems created from the credit crisis continue to weigh on housing demand indicating the downturn in housing has not reached the bottom just yet!

Don’t let the economic turbulence in the current environment prevent you from hitting your big payday. Invest five minutes of your time and you can learn how to manage the rough air of selling your business. In the latest Rough Air In-Flight Video, Vince Lewis gives business owners three tips that can help them position their business to achieve maximum value. You will not be disappointed with your return on investment!

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Venezuelan President Hugo Chavez is in dire need of a large and regular dose of political Viagra. On the world stage he suffers from a severe inferiority complex and he is scared because he is influentially impotent. His bellicose diatribe, and constant philosophizing are great lessons for all small business owners on how you should not lead your organization.

Most small business owners, executives, or managers have seen this type of individual many times before. The people who talk a big game and can’t execute. Mr. Chavez is one of those that constantly seems to be able to point to the weaknesses of others, but is so insecure he cannot confront the real problems facing his organization. I know this is pretty far afield from our normal discussion here, and the rhetoric from this small minded person deserves little or no attention. That said I believe his hi-jinks provide a great example of really poor, ineffective leadership!

Mr. Chavez seems to be one of those leaders that does not try very hard to understand the other players in his marketplace. He spends a great deal of time tearing down our system of government and our political leaders (something we do as well), without a true understanding of the American people, and what we are all about. It strikes me that he is one of those leaders who can’t seem to raise themselves to the level of their perceived competition; therefore, they must spend all of their energy pulling those competitors down. Leaders who fall into this trap do so to serve their own egos, and do so at their own organizational peril!

I am not an influential world leader. I don’t pretend to be able to speak for the masses, nor is my opinion the only one that matters or counts (another leadership lesson). I am just the ”person in the middle.” A small business owner from the Midwest who believes in being independent minded, and self-reliant! I spend time trying to help other business owners with their business, I do not have all the answers, but on occasion I can actually help. As a small business adviser I have some business advice for Mr. Chavez.

So Hugo, let’s start with your brand. What you smell is not sulphur, you are smelling the burning embers of your deteriorating brand! You own a declining brand, with a someday extinct business. I expect you probably realize that, which would explain your bizarre behavior. The business you operate (Venezuela) depends on exports, and 90 percent of your exports are oil. As an adviser I have some bad news for you, its running out. The shift to alternative energy sources will be slow, but it is not hard to observe here in the U.S. People are becoming more energy aware, and over time they are striving to be more energy efficient. It won’t happen overnight, but it will happen. Don’t underestimate the power of free markets!

The main source of cash for your business is Citgo, your government backed oil company. As you suck cash out this business you will kill it. Any business owner can tell you, the easiest way to the poor house is to not reinvest. You must always play the game with a shrewd balance for the short term and the long term. Not reinvesting provides some great gains in the short term, but always kills long term growth.

I have seen many business owners constantly complain about their top customer, just as you do. These are the business owners who don’t like supporting that customer, and get tired of dealing with them. They even muse about that customer going away! Be careful what you wish for, you just might get it! The data indicates your top customer is the United States (not something you talk about much)! The U.S. accounts for roughly 60 percent of your exports, and you account for less than two percent of U.S. trade! I guess I would advise you to not be so quick to chase your largest customer away!

The per-capita income for your business (a measure of internal success) is less than the world’s average, Iran, Libya, Kazakhstan, Botswana, and Belarus to name a few. No matter how much you spin it, this does not appear to be characteristic of a top player! In fact your GDP is about 100 times less than the U.S. and last year more people left your country than came to it. That is likely the ultimate indicator of whether you have a good brand or not. Are more people flocking to it, or flocking away from it?

Some contrarian business people might say you are creating a very savvy model. That savvy model appears to be, have one key product that supplies all of your cash, don’t invest in new technology or development, spend all of your money frivolously, and alienate your top customer. That sounds to me like a great formula for killing your business!

On second thought, forget about the King’s advice, don’t shut up!   

Despite all of the challenges in the economy this year the Dow Jones Industrial Average is up almost 8 percent since January, although it is down from its peak over 14,000 in October. The economic and market bulls will point out the growth in the stock markets and say this is an indication of the strength of the U.S. economy. They could not be further off base!

This week the New York Times has raised a question about the current implosion of private equity buyout deals. The pace of new deals being announced has drastically fallen in the second half of the year, and many private equity firms have been renegotiating deals they had previously announced.

We raised this same question in September. Our concern was that the stock market was not being driven by economic fundamentals, it was beng driven by speculation. It appeared that many investors were gambling on where the next big buyout would be, as opposed to investing based on economic fundamentals.

This is a great example of why small business needs to follow Main Street, and not Wall Street. The bulls on Wall Street will ignore any economic data that does support their already established view. Their objective is to drive more people to buy stocks, rather than helping people understand the true economic environment around them.

We cannot guess as to whether the economy is headed for a recession or not, but we are recommending to all of our clients that they continue to follow our guidance on conserving cash. If you pay attention to the fundamentals and position your business to capitalize on the environment around you will be positioned for long term growth.

If you use Wall Street as your guide, there is no telling where you might end up!

Due to the Thanksgiving Holiday this week’s economic meal will be limited. On Tuesday we will get the most recent data on Housing Starts. Wednesday we will get the Index of Leading Indicators and more data on consumer sentiment. The data will likely reinforce what we already know, the housing market is still slowing, and consumer confidence has fallen. The picture that has been painted is one of a slowing economy; however, things always get better after they have gotten worse!

Industrial production fell in October, and was weaker than expected. There was weakness in consumer goods, construction supplies, and business supplies. Consumer goods were down .7 percent. The data indicates that the slowdown in housing and the credit crunch have had some broader impact on the overall economy.

I am the type of customer who does not generally complain about service. I don’t jump and down and scream at the top of my lungs when I get poor service. I am more likely to silently take my business elsewhere making the assumption that this business did not want my patronage.

Recently I have had an issue getting my newspapers on time in the morning. I read three newspapers, as well as reviewing online resources, before I begin blogging every day. When the papers don’t arrive before I leave for the office, my entire day is thrown off track. I was dealing with a customer service representative from the local paper to resolve this issue when I thought about why companies fail at the service game. I came up with the five “I’s” for customer service failure.

1. Information – Many companies fail at customer service because the people on the front-lines don’t have the right information. When an issue crops up these customer service people follow the company line and deliver a message to the customer that is unbelievable. These front-line folks are not given the right information.
2. Insight – Customer service people are trained to follow company policy, and many times don’t seem to believe a problem exists. There are times when customers may not be spot on, but customers generally have a much better unobstructed view of how a business is performing.
3. Investigation – Some organizations do not compel their customer service people to carry out a full investigation. They teach them to give a canned company response, and the end result is a bewildered customer. Companies need to let service reps dig into issues and investigate until they fully understand the cause of the issue.
4. Independence - Customer service people are often locked in to company policy, and are not given the autonomy to resolve a customer issue on the spot. Customers don’t want to hear that you will get back with them, they want their problem solved. Employees need to have the authority to resolve customer issues.
5. Initiative – Rarely are customer service organizations trained to follow the problem all the way through. They pass a quick answer (excuse) as to why the problem has occurred and they move on to the next customer. Nothing frustrates a customer more than having to complain continuously about the same problem. Surprise your customer and follow up to ensure their problem was resolved.

Customer service is not rocket science. If you allow your customer service teams to attack the five “I’s” you will separate yourself from the competition. People will pay for a great product, they will pay more for a great product backed up with world class service!

The Chinese government is now saying a slowdown in the U.S. economy will have a major impact on the Chinese economy and Chinese exports. To us here at Rough Air this is not a surprise. We have been saying for some time that we believe a slowdown in U.S. economic growth will have a broad global impact.

Many analyst (economic bulls) have touted the theory that a slowdown in the U.S. economy will be limited due to continued international growth. This idea strikes me as the tail wagging the dog. The U.S. is a major economic force and a major consumer of other country’s exports. A slowdown in growth here, will have an impact everywhere!

The Rough Air Demand Index for October showed a slight pick-up in demand from September, although overall economic activity still appears to be soft. Manufacturing in the U.S. continues to expand, but that expansion is slowing. Job growth is stable, however it is below the new job creation rate for 2006. Consumer confidence is trending down, and the housing market remains soft. The data paints a picture of economic growth that is slowing, but not stopped. The question is will the economy slip into recession or has the U.S. Federal Reserve engineered a soft landing?

The Rough Air Cost Index improved slightly in October as inflationary pressures remained in check. Higher energy prices are still a primary concern. Although inflation remains in check today there is concern that rising oil prices are a precursor to energy driven inflation!

I cannot pretend to have .1 percent of the business savvy of Warren Buffett. His sense for business opportunity and smart investing is unmatched. However, when Mr. Buffett, testifying before Congress yesterday, says in regards to estate taxes, “A business large enough could readily borrow against the estate, use operating revenues to pay off the debt, and still generate plenty of income,” I am left scratching my head. Although Mr. Buffett likely has people standing in line to give him money, most small business owners do not. Over leveraging a small business is an excellent strategy for killing the business! 

Family business owners, and advisers are all paying close attention to the estate tax debate, because of the impact on planning and their business. In 2011 the estate tax laws revert back to 2001 levels. This means that on any estate valued more than $1 million the estate tax would be 55 percent. Most Americans are likely not directly impacted by this law (hence the reason we have an estate tax), and are probably thinking ”poor sad millionaires, the government is taking their money.” The reality is this law impacts more than just the heirs to the estate.

Let’s look at the real impact on a small family business. For a family business owner, the business is typically the largest portion of their estate. Let’s assume a business owner has built a successful business over 40 years. This entrepreneur has a business worth $3 million, a building for the business worth $.5 million, a house worth $.25 million, and $.25 million in cash. This is a total estate worth $4 million. If the owner dies and the estate the passes to his child, after the $1 million exemption, the heir would have a tax liability of $1.65 million. When the heir sells the house and takes the cash, he or she will have $.5 million. Unless the heir has access to credit by leveraging the business, he or she will have to sell the business to pay the estate taxes. If the business is leveraged, there will be less cash in the business to invest for long-term growth. There is also the risk of employment reductions to cover the new cash burden. If the business is sold, no matter what others try to tell you, things will not be the same. This scenario does not apply to every family business, but it is certainly one that can happen without proper planning.

The question becomes who are the winners and losers in this debate. Estate tax law losers are the heirs, the employees, customers, vendors, and the community where the business is located. The winners are the government, accountants, estate attorneys, insurance companies, and people trying to buy small businesses at a discount.

In his testimony, Warren Buffett suggests we give a $1,000 tax credit to all low income families. I think that is a tremendous idea, it would be even better if that tax incentive was tied to helping those families invest for their future. Perhaps help them invest in education, entrepreneurship, or training. Something to help propel them out of the cycle. Why should the cost of that initiative be carried by small business owners? Why wouldn’t the cost of such an initiative be paid for out of government savings or increases in taxes on large corporations?

I know enough about family business to realize that when business owners arrive at the Exit Cycle (Rough Air Ahead) of their business, their number one concern is usually estate taxes and succession. They worry about how they can get their business to the next generation, without killing the business! It is a shame some policy makers and Mr. Buffett believe the best way to handle this challenge is through higher taxes and debt! That does not strike me as a great formula for success!   

The economic news continues to come in and provide a clearer picture of where we are headed. The debate on the economy was, “Are we poised for growth or poised for a recession?” The debate on the economy now is, “Are we poised for a recession or just a slowdown?” Most analyst now believe the economy is slowing or has slowed, the question now is how much will the economy slow? Some of the current highlights are:

• The credit crisis continues to linger. It seems that every day we hear about another financial institution announcing large write-downs to cover losses from subprime issues. The question that seems to go unanswered is how big is this issue? Until we get a clearer picture of the entirety of the credit crisis we will operate with some uncertainty.
• Inflation appears to be relatively tame. Other than energy and food prices the CPI and PPI numbers for October were relatively tame. The core numbers look good; however, the year-over-year numbers are somewhat concerning. The problem is rising energy prices. If gas prices continue to rise there may be an inflationary effect on prices across the board.
• Overall retail sales are still soft. September retail sales and October retail sales were soft, and the overall trend has been down. Clothing, furniture, and home furnishings have been slow, although sales for retail gasoline are rising quickly.
• The housing market is still searching for a bottom, although last months pending home sales data was good. This is a classic supply and demand issue. The demand for homes has been declining, this has driven the inventory levels to multi-year highs. Once the market bottoms there will be some lag as we burn off inventory then things will turn.

The bad news is that economy is slowing, and fourth quarter growth is not expected to be great. The good news is that every day we are one day closer to another period of strong growth in the broader economy!

I ran across this article which relates to our discussion this week about U.S. manufacturers taking advantage of the current quality and safety issues in regards to products from China. This is a great example of an industry capitalizing on an opportunity while that opportunity is apparent. I have mentioned that every competitor has a weakness. If you can determine that weakness and then position your business to capitalize on it, you can capture those unhappy customers on their way out the competitor’s door.

Never believe someone who tries to convince you it is impossible to compete. Always remember, the person who says it can’t be done, is usually passed up by someone doing it! 

The retail sales data released this morning showed a slight gain in October of .2 percent, the gain excluding energy was .1 percent. Sales of home furnishings, furniture and other retail goods continue to be soft. Sales of gasoline at retail outlets showed the sharpest increase for the month, just ahead of building materials. The numbers indicate the consumer is still spending, just not that much. This follows the view that the current economy has slowed, but not stopped!

The Producer Price Index released this morning shows that inflation was relatively tame in October with an overall increase of .1 percent, while core inflation was unchanged. This is good news for those that want the U.S. Federal Reserve to focus on growth rather than inflation. However, the data shows energy prices were down in October, which was primarily due to seasonal factors. The sharp rise in oil prices in October will likely start showing up in the PPI numbers in the coming months. The primary concern is that rising energy prices and rising food prices will drive inflation in the near future.

I use to believe that people, like Warren Buffet, who supported an estate tax just did not understand the impact of that tax on small business owners. Today I realize that the bulk of these people are not concerned about fairness, and they are not concerned about small business. The policy makers and business people who support an estate tax do so because it is in their best interest. The policy makers don’t want to give up the revenue stream for the federal government and folks like Buffet make a great deal of money by helping wealthy families minimize the impact of estate taxes. It is disingenuous for them to say they support the estate tax for some altruistic reason, that is a load of manure. They support the estate tax because it supports them!

Let’s start by understanding what the estate tax really is. This is a tax that is paid, based on the value of the assets in an estate, when that estate moves from one generation to the next. The rate for the estate tax is 55 percent, although a certain portion, based on a dollar amount, is exempt. Under the Bush Tax Proposal passed in 2002, the exemption has steadily increased. When the law was passed the exemption was about $600,00, this grows every year to a full exemption in 2010. After 2010 the law reverts to an exemption of $1,000,000 and the remaining estate is taxed at 55 percent. To put it into perspective, you work your whole life and build the value of your estate. Along the way you pay taxes on the money you earn to buy the assets that make up your estate. If you liquidate an asset you pay taxes on the gain of that asset. When you try to move that estate to your heirs those assets get taxed again. This is once again a classic case of the government aiming at a group because the voting power, and lobbying of that group is relatively limited. That group is the entrepreneurial class!

Many estate tax proponents say the purpose of the estate tax is fairness. They say it is unfair for one generation to benefit from the prior generation’s efforts. They will even say that we are an entrepreneurial society and it is up to that second generation to make it on their own! Of course, in the same breath, they will then tell us about all the poor people that will suffer if the estate tax goes away. So their point seems to be, it is perfectly legitimate for the government to take the money you have earned and give it away to others, but if you give that money to your heirs that goes against the values of our entrepreneurial society. This seems to be a pretty significant double standard!

If fairness is the issue, shouldn’t we just create a fairness tax. Many parents are great at planning and they begin saving for their child’s education the day that child is born. They use smart tax planning and smart saving so they can see their child go to a good university, get a good education, and have a better start in life. Under the fairness tax we could tax these children because they are getting an unfair advantage over those kids whose parents don’t plan for their future. What about those kids whose parents move to an area of town because that area has the best public schools? They do so because they want their kids to get a better education. I think this gives them an unfair advantage over others, the fairness tax could apply here as well. How about those people who are naturally great athletes? It seems to me they get quite a few advantages that us non-athletes don’t get. Shouldn’t they be taxed for that advantage?

The answer, of course, on all of these is no they should not be taxed for these type of advantages, it would be quite ridiculous. The same is true for an estate tax. It is quite ridiculous to claim to be an entrepreneurial society and then find as many ways as possible to penalize successful entrepreneurs. If you continually create obstacles to entrepreneurship, fewer and fewer people will take the risk of starting their own business. If we create fewer entrepreneurs we will most certainly become a less dynamic, and less innovative society, and we will take away the most significant wealth and job creation engine in the U.S.

As I mentioned, Buffet supports an estate tax because some of the major pieces of his business portfolio, insurance and annuities, sell products that help wealthy individuals shield themselves from estate taxes. It is pretty disingenuous for him to talk about the poor while tooling around on his private jet. An estate tax helps his business generate revenue. If he is so committed to ensuring his wealth does not pass to his heirs that his choice. Why should his choice be forced on others?    

According to Webster’s, one definition of a politician is “A seeker or holder of public office, who is more concerned about winning favor or retaining power than about maintaining principles.” I know I am stating the obvious, but politicians win elections by appealing to the largest voting block possible. Unlike a small business where we need to aim at niches, a politician needs to take a shotgun approach. Therefore when it comes to tax policy, much effort is spent on creating the perception of mass appeal. You can raise taxes on a small segment of the population without risking re-election, if you raise taxes on everyone you will suffer the fate of the first President Bush.

Perhaps I am being too cynical, but this is the Rangel tax proposal in a nutshell. The selling point of the Rangel proposal is that it is a tax cut. The proposal does eliminate the Alternative Minimum Tax. This tax was created in 1969 to prevent the wealthy from taking advantage of tax deductions; however, it was never indexed for inflation. Since it was not indexed for inflation, every year more and more middle class tax payers are affected by the AMT. The number affected balloons next year!

This proposal does not stop with the elimination of the AMT. Other aspects are to assess a “penalty” rate on couples earning more than $250,000 per year of more than 4 percent. Most of the taxpayers that get hit with this penalty are successful small business owners. Many of them have structured their businesses as S-Corporations or Limited Liability Companies. Under these types of corporations the income from the corporation flows through directly to the owners. The advantage is that under C-Corporation earnings are retained and paid out as dividends, which means these payouts are subject to a dividend tax. Under an S or LLC cash can be distributed to the shareholders without the dividend tax. The bottom line is that many small business owners will get hit with the Rangel penalty.

Depending on the outcome of next year’s elections this could end up being a double hit on many tax payers. The Bush tax cuts are set to expire in 2010. This means marginal rates go back up, capital gains go back to 20 percent, and dividends will get taxed at your marginal rate versus 15 percent. If a business owner has $250,000 in income, $50,000 in capital gains, and $10,000 in dividend income under current tax law this entrepreneur would pay $96,500. Under the Rangel proposal this tax bill jumps 29 percent to $124,000. It takes an additional 12 percent bite out of our sample taxpayers income, but since this taxpayer is in the minority, without the power of a Washington lobbyist, they can be a tax target!

Under this same proposal by Mr Rangel, corporate tax rates would drop from 35 percent to 30 percent. So major corporations like Wal Mart, GM, GE, Exxon, and Chevron would get a tax break. These multi-billion dollar corporations would be paying lower marginal rates than many small business owners. I have no issue with a progressive tax system. A system like ours where those who make more, pay more, both proportionally and in real dollars, seems to make some sense. However, if we are going to have a truly progressive system, then why would large multi-nationals, which are the main culprits of moving jobs overseas, be taxed at lower rates than small family businesses who are trying to make a go of it here?

The reality that many do not want to face is that the Rangel proposal will hurt small business. It reduces the business owners ability to re-invest in their business, and position their business for growth. Trying to spin it any other way is simply avoiding the truth!

Building and growing a small business can be extremely challenging, doing this during a recession requires some serious business savvy. Given all of the discussion about the turmoil in the economy and questions about where the economy is headed, I thought this would be a good time to discuss how to recession proof your business.

There are many ways you can hurt your business during a downturn. The first is by panicking and making bad decisions quickly. Your best bet to making your business recession proof is great planning! If you are prepared for a downturn in your business, you will stand a much greater chance of building a stronger business for the long haul. Here are five keys that will help you create a recession proof business.

1. Watch your cost and your cash – Now is the time to reign in discretionary spending. There are many expenses inside the business that are “nice to haves,” but not necessary for the long term. This is a great time for businesses to perform some serious due diligence on all of the expenses in the business.
2. Help your customer manage their cost – Put yourself in your customer’s shoes. They have many of the same challenges you do in the current environment. If you can help your customers find ways of saving money while using your product or service you can be a great resource during a slowdown.
3. Don’t be viewed as a discretionary item by your customer – You can expect your customers will be digging through their discretionary expenses, even if you are not. Make sure your customer does not perceive your product or service as something they don’t need.
4. Invest in selling – Many companies make the mistake of reigning in their selling effort during a slowdown. Take it from someone who has been there, sales expenses are not discretionary. If you reign in your selling effort your recovery will take twice as long. If you keep your sales team on the road during a slowdown you may be the only one in front of the customer.
5. Create the perception you are doing great – Customers want to do business with people who are successful. Doing great during a downturn shows the customer you know how to run your business. Not doing well during a downturn says you manage your business just like everyone else does.

A business can make money in good times and in bad times. The ones that get hurt during downturns are the businesses that don’t prepare up front, don’t pay attention to the signs, and get blindsided by economic turmoil! 

Too many business owners don’t take the time to understand their business and their market until late in the lifecyle of their business.  Many entrepreneurs get the itch to start their business, they press ahead, and then find themselves scrambling with all of the issues of running a growing business day to day. Many of us fall in to the E-Myth trap. We work in the business, and not on the business. We spend our days getting “stuff” done, but not really making our business better. When I am working with start-up clients there are three simple things I suggest they do before getting started.

1. Aim at a niche – Even if you are planning a broader market play, remember if you start small, you will miss small. If you can get your business moving forward, start generating some cash flow, and stay under the competitive radar you will be able to re-invest for growth. If you try to go head to head with the established players in your market immediately you very well may get handed your hat! Execute on that small bet, and grow from there.
2. Understand your differentiation – Make sure you can clearly articulate what makes your business different from your competitors. All business owners need to understand what value they bring to the table for the customers, and what will motivate the customers to buy from them. This means you need to understand your customer’s needs and your competitor’s offer.
3. Communicate your value proposition – Once you know your differentiation, you can work on developing a clear value proposition. This is a statement which tells the customer why they want to buy from you. It sounds like a slogan, but a value proposition is more. It is what you deliver to the customer that no one else can stated in way they can clearly understand. A clear value proposition up front will carry any business a long way.

Working on these three key things will help you establish and position your brand. Once you have your brand properly positioned never forget the power that brand can carry. A properly positioned and supported brand will drive new customer opportunities and long term customer loyalty.

Here is an article on the emotional aspects of branding! 

An article from today’s New York Sun says we are in for the worst recession since the 1930s. Although I am not a big proponent of taking the “nothing to worry about” approach, I also do not believe the sky is falling! The truth, as always, is likely somewhere in between.

As I have pointed out in the past the economic picture is mixed. We have some solid economic data, and we have some scary economic data. A reasonable person could come to the conclusion that our economy is headed for a slowdown. Given the fact that the housing market is still searching for the bottom, and financial institutions appear to be poised for some big hits, I would assume that this slowdown might be somewhat protracted. The idea that all of this happens going into a presidential election year will not make it any easier for anybody to manage.

The bottom line is that as more negative economic news comes to light we will get more quotes from reactionaries who will tell us the sky is falling, the end is near, and we need to head for the hills. Although everything is not rosy, everything is not gloom and doom either. Regardless of where we are headed the best you can do is prepare your business for a potential slowdown, but keep pressing for long term growth.

This too, shall pass! 

Business confidence in the Euro Zone is falling, and investors are beginning to fear global growth will not be able to hold off a U.S. economic downturn. This is not good news for the economic bulls who have been grasping at every available straw to make investors feel good about buying stocks. They have been telling us that the subprime crisis will be contained (not true), the housing downturn will have limited impact (also not true), and global growth will keep the U.S. economy afloat (the hope strategy).

We have been saying for some time that global growth will not be the panacea everyone believes it will be. The U.S. is still the number one consumer in the world, and the world’s largest economy. If we slow, the rest of world feels the impact. Just like a NASCAR race, things just keep going round and round until you are finished or you crash. The current economic outlook is not great; however, that won’t be the case forever. Sooner or later, the problem will work its way through the system, and everyone will be back on track. Until then, fasten your seat-belts, and watch out for the rough air!    

Bloomberg is reporting this morning that Deutsche Bank analyst are estimating writedowns from the subprime crisis could reach $400 billion globally! That is an enormous amount of global shareholder wealth that will just evaporate over the next few years! When I see numbers like this it becomes difficult for me to be bullish about the U.S. economy in the coming months.

A loss of wealth of this magnitude will most certainly have an impact on the global economy. The subprime crisis, and subsequent credit crunch seems to be the gift that keeps on giving. Just when everyone is about to exhale a sigh of relief that the problem has passed, we get more data that indicates the problem is much bigger than we originally suspected! The question is when and where does it end?

I can see impact from the credit crunch in the number of private-equity deals being announced today, versus the number being announced earlier this year. The buyout boom had been driving up stock prices all year long. Now that credit is getting harder to come by these deals seem to be coming at a much slower pace. This has an impact on equity prices which becomes another hit to the American consumer.

The average American is now getting pummeled on several economic fronts. Higher energy prices are taking more of what they make. The downturn in housing is eating away at the value of their largest asset, their home. Tighter credit is making it harder to borrow on that asset, and maintain their standard of living. The Dow Jones Industrial Average has dropped more than 1000 points (7.1 percent) since its peak in October further eroding the American consumer’s assets, and spending power!

It appears to me that the U.S. economy is setting itself up for a long, hard winter! Bundle up, it is going to get cold out there.

The Chinese government confirmed that toy beads shipped around the world do in fact contain a toxic glue. Well, I am sure glad we cleared that up! To demonstrate their new found toughness on manufacturers who ship unsafe goods the Chinese government immediately closed the factory responsible! Boy those guys are tough!

At least it appears our suppliers across the Pacific are learning the art of “spin.” When a problem arises, acknowledge it, and take tough action. The question I have is why tough action was not taken earlier? How is it that a manufacturing business can produce a toy for children that contains a poisonous chemical? It strikes me that this is indicative of a system run amok.

Manufacturing in China has grown so fast because regulatory control was never a concern. The Chinese government seems content to turn a blind eye to potential manufacturing issues, unless a problem surfaces that potentially makes them look bad! As long as they are getting their cut they are happy to allow manufacturers to produce unsafe goods, just don’t get caught!

As we have advised our clients in the past, if you are forced to compete with goods coming from low cost markets, emphasize your “made in the U.S.A” credentials! The problems we are seeing today with goods coming from China are not going to go away any time soon. They have created a system that will take years to fix, it is time for U.S. manufacturers to capitalize on their mistakes!  

Fasten your seat-belt, because this coming week is going to be a wild ride! We have some significant financial data out this week that will guide the markets and give more clues as to what is going on in this economy.

On Monday we will get the current pending home sales data. The expectation is for pending home sales to fall again as the housing market continues its descent. Wednesday retail sales and the producer price index for October will be released. The expectation is that higher gas prices caused a slight increase in retail sales in October, but sales excluding retail gasoline likely fell. The PPI was also likely impacted by higher energy prices in October. On Thursday we will see the consumer price index which will help complete the current inflation picture. The CPI was also likely affected by higher energy prices in October. We will round out the week with industrial production data on Friday.

Given the mix of data this week we will likely get the usual suspects warning us on inflation and others warning us on growth. Pay close attention to the impact of higher oil prices on the key data this week, and you should develop a better feel for the strength of the current economy.

Several large U.S. financial institutions said Friday that they expect the credit crisis to worsen. Capital One reported that more of its customers were having trouble paying their bills, and Wachovia announced it suffered a $1.1 billion (that’s billion with a “b”) loss in October on subprime related issues.

Since the credit crisis broke this past summer analyst after analyst has been paraded before the cameras telling us all that the credit crisis and housing downturn would not affect the broader economy, and many said that after September’s run-up in the equity markets that the crisis was over. Many of these same analyst are coming to the conclusion that this problem is far from over and things will likely get worse before they get better.

As we have been telling our clients for months, the U.S. economy has reached a difficult period. Consumers are getting squeezed by higher energy prices, declining assets, and tight credit. The best thing a business owner can do is to be prepared. Make sure that contingency plan is ready to implement so that your business will be a better, stronger business once this crisis has passed.

The University of Michigan’s consumer sentiment survey fell again last month to its lowest point in two years. Rising oil prices and a slowing economy are putting the squeeze on the American consumer. As we have mentioned before, if consumer spending slows, then keeping the U.S. economy out of recession becomes very challenging!

As I was watching the U.S Federal Reserve Chairman Ben Bernanke testify before Congress yesterday I could not help but think he may have the most thankless job in the world. He carries all of the responsibility for the world’s largest economy, and very little control. The current economic data is not making his job any easier!

There are two major issues facing the Fed. The first issue is rising energy prices. This is causing many to worry about energy driven inflation. The second issue is a slowing economy. The downturn in housing and the credit crunch seem to be taking their toll on the American consumer. Retail sales do not appear to be holding up, and rising energy prices are beginning to squeeze personal spending.

A slowing economy and rising prices sounds suspiciously like stagflation to me. We first mentioned stagflation here several weeks ago, and I would suspect given the mix of data we are seeing you will start hearing it kicked around more in economic circles in the coming weeks.

For business owners the current economic environment seems to indicate the balance beam you are walking is getting a bit narrower. We are telling our clients to be prepared, manage their cost, and continue to drive revenues. We all need to fasten our seat-belts, and watch out for the coming rough air! 

I was recently holding a small business class with a group of start-up companies when the discussion of entrepreneurial risk came up. Each of these entrepreneurs had a story to share about how someone close had advised them against their entrepreneurial venture. This advice caused these business owners to doubt their ability to be successful. I reminded them that through the process of starting and growing a business you will have many people try to dissuade you, because of the risk you are taking. It strikes me that there is risk in every investment opportunity, in fact the only people I know who have been able to eliminate their investment risk, are “six feet under.” Here are some common risk perceptions:

• Perception – Working for a large publicly traded company is less risky than owning your own business, or working for a small company.
  • Reality – Let’s look at the example of Countrywide Mortgage. If you were a Countrywide employee with some discretionary cash and you purchased 1000 shares of Countrywide stock every year since 2003, you would have lost $88,000 on a $153,000 “safe” investment. You might also be facing the prospect today of being laid off from your job!
• Perception – The stock market is less risky than investing in a small business.
  • Reality – Although you can easily make a bad investment in starting your business, you can also easily make a bad investment in the stock market. Remember, the last market peak was around 2000, the Dow Jones Industrials (DJI) peaked near 12,000. The DJI closed yesterday at roughly 13,300. This is a gain of 1.5 percent a year. If you started investing in stocks in a big way in 2002 or 2003, your portfolio would have grown tremendously. You cannot assign predictability to an unpredictable event.
• Municipal Bonds – These are generally perceived to be a relatively safe investment vehicle. They provide a fixed income and do not have the volatility of stocks.
  • While bonds will guarantee you a return, they don’t guarantee a value. They are an investment vehicle that increases or decreases in value. Municipal Bonds are not a volatile investment, but they are not risk free!
• Real Estate – Home prices always go up.
  • Reality – Home prices are going down!

I sat with a group of entrepreneurship students recently. There were nine students at the table, two of the nine indicated they would be interested in owning their own business someday. The others were planning to go to work for someone else. We have all been programmed to be good corporate citizens, get a job, work, follow the rules, and retire. We have been taught the easiest way to lose your shirt is to be an entrepreneur.

Every investment vehicle carries a level of risk, some carry greater risk than others. I had an advisor remind me yesterday that the best entrepreneurs do not take risk blindly, they know how to manage their risk. I believe that is absolutely correct. We advise our clients to make sure they have a clear understanding of their opportunity, a clear understanding of their downside risk, and a vision for what they must do to move their opportunity forward. That is entrepreneurship!

Yesterday’s big economic news was another precipitous decline in the financial markets. The Dow Jones Industrial average fell more than 300 points for the second time in five trading days. There are quite a few issues weighing on the financial markets, and yesterday’s heaviest was the ballooning write downs from financial companies due to the subprime crisis. Here are what we believe are the five biggest issues facing the U.S. economy in the coming months.

1. Housing – The downturn in housing is impacting home values nationwide. The average home price has fallen between 4 percent and 5 percent nationwide in 2007. This is an average loss of $10,000 in equity per homeowner, a tremendous amount of wealth that has simply evaporated. When prices fall homeowners have less equity in their home, which translates into less spending power. Many homeowners take advantage of current tax laws by funding other purchases through borrowing on the equity in their home and deducting the interest paid on their income taxes.
2. Credit – As if falling home prices were not enough to hit consumers, they are also faced with tightening credit. Not only do they have the challenge of less equity in their home, they also have the challenge of not being able to borrow on the equity they do have. Not only is this a major source of consumer spending, it is also a major source of capital for small, entrepreneurial businesses.
3. Oil – Oil prices are pushing towards $100 for each barrel. Gasoline prices nationwide are averaging just over $3 for each gallon, this is a 37 percent increase in the last 12 months. While rising gas prices help to boost certain sectors of the economy, they consume more of each American’s discretionary income. This translates into less spending on other consumer goods.
4. The Dollar – The falling dollar is great for exports, but it gives each American less spending power outside our borders. Some have speculated that the falling dollar will result in a boom in locally produced and locally consumed goods in the U.S. We look at the dollar as the per share price of the U.S. As the dollar falls that is an indication that investors are not bullish about our prospects.
5. Demand – All of the above translates to less demand. Consumers are getting squeezed by all of these factors. Their net worth is falling, they have less access to credit, and they are spending more of their discretionary dollars to fill their gas tank. Perhaps I am being too logical, but to me the sum of these factors is a drop in demand. For the U.S. economy to grow the consumer has to spend. If the consumer cannot spend we will go into a recession!

Keep in mind, although these are the big issues facing the economy today, these types of issues are always temporary. Once the broader economy works through these problems, we will once again be headed in a bullish direction!

The confusion about what direction our economy is headed seems to continue to grow. Some data indicates the economy is slowing, some data indicates the economy is growing, and some data shows things are just plain slow already. If you watch or read the financial news you can get an entire array of opinions about the economy and where it is headed. There does not seem to be a consensus view on the economy, although we believe at the very least we are in for a slowdown.

Given all of the confusion in the economy and oil prices which seem destined to break through $100 each barrel, it is not surprising that more people are expecting a recession in the short term. If the economy were to move towards a recession, are you recession proof? Here is an article with some good tips on how you can recession proof your life. These tips can even apply to your business. The bottom line, as we have been recommending to our clients, now is a good time to make sure your business is prepared in the event of an economic slowdown. A little planning today will save you a big heartache tomorrow.

During my morning surf I ran across this article on why bad employees don’t get fired. I thought back on my experiences as a CEO of my own business, and as an advisor to other businesses, and determined there are five key reasons why managers don’t pull the trigger when they need to fire an employee.

1. Head In The Sand – This is the manager who has no idea the problem employee is a problem. This manager has become so disconnected from his operation that he cannot provide a clear assessment of an employee’s behavior, whether that behavior is good or bad. The lesson for all of us is to pay attention. As a manager you are getting compensated to lead. Part of leadership is having a clue as to what is going on in your realm of responsibility. Just pay attention!
2. The Buddy Problem – In the buddy scenario, the manager won’t pull the trigger because the employee is his friend. They value the friendship more than the success of the business. As managers most of us (the good ones) want to be liked. We don’t want to be perceived as jerks. Trying to be buddies with your employees is a step too far. When you cross the line between a personal relationship and a business relationship, you put yourself in a tenuous leadership position.
3. Credibility – Many managers won’t admit they have a problem employee because they believe it reflects on them, and not the employee. Many times they will have a vested interest in that employee, because they hired them. As a manager you must ensure that everyone meets your expectations. If you worry about your credibility and defend an employee that does not perform, you only damage your credibility further.
4. Guilt – This is not guilt over having to fire someone, although on occasion that does come into play. This is guilt due to the fact that the employee is only mimicking the manager’s behavior. A manager that slacks off teaches his employees to slack off. All managers must lead by example. Many times that poor behavior begins with ourselves. We need to ensure we are setting the standard for our employees through our actions.
5. The Hope Strategy – I have often said hope is not strategy. Many managers that don’t want to go through the challenge of terminating a bad employee will employ a strategy of hope. They will convince themselves that it is just a matter of time before this employee turns around and is a star. Don’t keep investing your time where there is no payoff. The chances of getting a poor performer to become a star are not great. I have managed a lot of people over the years, I can only recall one or two problem employees who became stars after some hard work on my part. Always remember, hope is not a strategy!

Firing is one of the most difficult task a manager undertakes. It is unpleasant, uncomfortable, and many times necessary! As a manager your responsibility is to care for the entire organization. Allowing one person to jeopardize that concern can have serious negative repercussions for your business!

The world is full of examples of entrepreneurs who lost their way and could not manage the rough air. The world is also full of examples of entrepreneurs who faced tough circumstances and managed through the crisis to create a better, stronger, and more competitive business.

In our latest Rough Air In-Flight Video we help business owners deal with an uncertain economic environment by getting them to face the ups and downs of entrepreneurship, and not fold their tent at the first sign of adversity.  Invest five minutes of you time and you will believe you can overcome any obstacle in your business. 

When a company’s executives are trying to take some of the “sting” out of the weak share price for their employees with stock options, I wonder who takes the sting out of the drop in share price for the shareholders. When you invest in a stock you are playing the game of risk/reward. If the stock goes up you make money, if the stock goes down you lose money. Why should that be any different for executives and managers who own stock in their business? It strikes me that the folks responsible for the downturn in share price should share the pain with the folks who invested in their business. The Countrywide case looks to me like another scenario of the “foxes guarding the hen house.” The executives will take care of themselves first, and worry about the shareholders later!

Some mornings when I review the financial news of the day, I am amazed at some of the stories which are reported. I often wonder if the writers or their sources were actually able to do the story with a straight face. Today those stories are all about the new concerns that the credit crunch may be with us for awhile.

As Gomer Pyle use to say. “Surprise, surprise, surprise!” It strikes me that the only folks who believed the credit crunch was over, and the housing downturn was not a big economic issue, were the Wall Street bulls who wanted us all to continue buying stocks, and government policy makers who don’t want the economy to be perceived in a negative light. I have pointed out on several occasions the signs of a slowing economy, and I have suggested to our clients they be prepared for sluggish growth in the near term. Some view this as me being too pessimistic. I believe we all need to understand what we face, because once we do we will be able to effectively address the issue before us.

Today we are facing turmoil in our major financial institutions, and difficult times for our country’s home builders. A hit to our nation’s financial institutions and housing market will not be isolated to those segments. Anyone that is depending on these events to be isolated is crafting a strategy of hope. Anyone surprised that these problems will be around for awhile is afraid to face the truth. Avoiding the problem does not fix the problem. Let’s all face the reality and do something about it!

During my evening surf I ran across this article in the New York Times in regards to Charlie Rangel’s current tax overhaul proposal. It strikes me that this author is writing about tax fantasy versus tax reality. The simple folks down here on Main Street prefer to stick with reality!

Let’s begin with reality. According to 2005 figures, small business, those firms with less than 500 employees, account for 49 percent of the private sector workforce in the United States. Those same small firms also account for 52 percent of the Gross Domestic Product. Small Business is the engine driving the U.S. economy and is the force behind the job creation wave. I hate to be the bearer of bad news, but if you raise their costs, you will negatively impact a primary force of economic growth.

The author claims the Rangel proposal will barely affect small business. The four percent surcharge on incomes above $200,000 will only affect a small percentage of small business owners, and they can simply change to C-Corporations and take advantage of the tax deduction being given to large multi-nationals, just like that! The proposal would make the $125,000 section 179 deduction for plant and equipment permanent. Perhaps I should pause here since my heart is all a flutter!

How about we get back to reality. This bill is a boondoggle for large multi-national corporations. That’s right, the folks who can afford to lobby congress! Changing your corporation status is neither cheap nor easy. It does take time and it does soak up resources. Someone should let this author and Mr. Rangel know that most small businesses don’t have a legal team hanging around waiting for their next assignment! I am also curious as to what the motivation to change to a C-Corporation is. Assume you have $200,000 in income. Although a C-Corp would only get hit with $30,000 in taxes, an S-Corp or an LLC would get hit with $39,000. Perhaps I should change, but there is that small 19.6 percent dividend tax I would have to pay when I took cash out of the business. All of sudden my $39,000 is $44,000, what a deal, but not for the business owner. I suspect the author of the bill understands their subtle nuance, and realizes most business owners will pick up on it. This is what we call a rock and a hard place.

For large multi-nationals an increase in dividend taxes is not a tax on the company, it is a tax on the shareholders. That is all of the shareholders, not just the wealthy ones. Therefore, large multi-national corporations making billions of dollars like Exxon, Wal Mart, GM, Microsoft, and GE will pay a lower tax rate than the small family owned manufacturing or service business. If our objective is to create a truly progressive tax system then that is what we should create, not one the favors the big corporations. 

Making the section 179 deduction permanent sounds good, but that is about it. Small businesses are generally not capital intensive. I suspect the authors of the bill recognize this as well.

There is only one reality. The bill proposed by Congressman Rangel is a tax increase on small business owners. If this tax bill is so damn good then I suggest the authors attempt to sell it on its merits (if it has any), and not try to spin it to give the appearance of being friendly to small business. Fantasy is trying to paint a tax increase as a tax deduction. If it makes so much sense, then why aren’t you trying to convince small business owners why you need to increase their taxes! 

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I remember several weeks ago when the stock market started another upward march, many analysts were telling us “the subprime crisis is over.” There seemed to be a list of talking points out there from “Bulls-R-Us” which said, if we convince investors the crisis had passed, then the crisis would pass. These are the same people who tell us we can prevent a recession just by thinking rosy, economic thoughts!

Now some experts are saying the crisis is far from over. This is not breaking news! If you are homeowner that is faced with a rising mortgage payment, a declining home value, and limited access to credit you are at the start of the crisis not the end. Regardless of where the responsibility for this problem should fall, the lender, the borrower, or the government, the reality is we will all feel the impact. We are all feeling the impact today!

Our economy is sending us mixed signals. We see data that points to an economy which is healthy. We also see data which points to an economy that is not so healthy. I believe the economy is giving us a strong signal, “Fix this problem or it will get much worse.” Fixing this problem means further interest rate cuts to ensure when loans reset fewer homeowners are faced with mortgage defaults. Our policy makers at the U.S. Federal Reserve have two major problems at hand, growth and inflation. At some point in the near future they will likely find themselves having to pick between the lesser of two evils. Which would you prefer?

I ran across this article which has some tips on how to beat the competition and drive them crazy. Although there is nothing earth shattering here, the tips represent some solid basics. If more small businesses just focused on the basics, we would have less small businesses with problems.

It is important for all business owners to understand their competition. They need to understand what attracts customers to their competitor’s business, and how they can differentiate themselves from the competition. Although understanding your competition is a key for any business, if you focus on exceeding your customer’s expectations you will be successful!

There will be some limited economic data this week. It will start Monday with the release of the Institute for Supply Management’s Non-Manufacturing Survey. We will get the reports on consumer credit and productivity Wednesday, Thursday we will get a precursor to the retail sales number with chain store sales, and Friday we will get trade data as well as another measure on consumer sentiment. Although some of this data may help us support our economic intuition, it will not significantly clarify the environment going forward. 

“Citigroup CEO Prince to Offer to Resign,” “U.S. Banks Face $10 Billion More Writedowns,” “Credit Crunch May Hit Consumers Well Into 2008,” “Foreclosures Could Remain High For 18 Months.” It is safe to say that today’s financial news headlines are just plain gloomy. This is quite ironic considering that new job growth in October was the best we have seen in five months, and preliminary GDP numbers for the third quarter were the best we had seen in seven quarters.

The problem with all of this data is that it is telling us what happened in the past, and not what to expect for the future. There is considerable confusion in most business circles about what direction this economy is headed. Many have come to the same conclusion we came to several months ago, the downturn in housing and the credit crunch will have an impact on the overall economy. Combine these issues with rising oil prices and there is little doubt that the American consumer is getting squeezed. Common sense tells us that at the end of the day this will cause the U.S. economy to slow, how much it slows is still the overarching question.

I would remind all of our clients. Whether your business makes money or not is more a factor of how you position your business for current conditions rather than the current conditions themselves. Manage for the rough air!

The U.S. Department of Labor reported this morning that the economy added 166,000 new jobs in October. New job growth has remained stable for the last few months, indicating that the downturn in housing and the credit crunch have had some limited economic impact. The job growth data combined with the strong GDP growth from the third quarter will make it difficult for the U.S. Federal Reserve to lower interest rates again in 2007. Today’s data comes on the heels of record oil prices that are rising as the U.S. dollar continues to fall. The Fed will likely continue to walk a fine line between controlling inflation and driving growth!

I know many people that view working in a small business as risky. They believe there is greater security working in a large Fortune 500 company. They will tell me that are more opportunities for advancement, and less concerns about the long term viability of the business.

I have worked in big companies, and I have worked in small companies, and over time I have realized which of these entities suits me better. There are many reasons I enjoy small business, here are just a few.

• Concern for the customer is more than a slogan. Most small business owners know that in today’s competitive environment to move their business forward they must exceed the customer’s expectations. One customer means a lot!
• Small businesses get things done quickly. When change is implemented it happens today. There is no extended lag time to push a new initiative through the business, it must get done now! 
• In a small business you can see the impact of your efforts. The success of a small business depends on everyone, no matter what their position is. When you succeed in a small company, the results are not hidden in a monolithic financial report!
• People who won’t perform can’t hide in a small firm. The people who don’t pull their weight are easy to spot. You cannot hide among the masses.
• Most small business owners I know understand the art of survival. They know how to manage cash and balance the priorities to keep things moving forward. When you are that close to the front lines, what choice do you have?
• Smaller firms are action oriented. The best entrepreneurs are not waiting around for the right time. When opportunities arise they take action.
• Success in small business is all about the basics. Most small business owners don’t have time for a new state of the art management theory. They are worried about growing sales and controlling cost. They attack the basics with abandon.

Some people like the anonymity that a large corporation provides. I have never been enthralled with the idea of being in an organization where my efforts, while important, did not really matter. If you are in the same camp, then small business ownership may be the destination for you!

Sales of domestically produced cars and light trucks continue to be soft. The downturn in housing, the credit crunch, and rising energy prices have put consumers in a difficult spot. They appear to be holding off on major purchase decisions until the economic unease passes.

The Institute for Supply Management’s survey of manufacturers slipped again in October. Although manufacturing continues to expand, it is doing so at a progressively slower rate. The downturn in housing, and the slowdown in consumer spending in late September and October is dampening overall manufacturing growth. The fall in the value of the dollar is helping to propel exports which is giving U.S. manufacturers a much needed boost.

I ran across this article from www.thestreet.com about how family businesses smother returns and are a bad investment for shareholders. This strikes me as someone who has not spent much time around family owned and operated enterprises.

Granted, every family business will have issues. Just last week we posted an article about Viacom and a conflict between Sumner Redstone and his daughter. The author of this article misses some key points about the businesses he uses as examples, as well as other family concerns.

One point is that perhaps family business is about more than just business. The firms he discusses, although not providing great returns today, have certainly been quite successful in the long run. These are family firms with venerable brands like The Wall Street Journal, The New York Times, and Ford. These businesses may not provide great shareholder returns today, but they have certainly all been successful, and many shareholders have made a significant amount of money from these family firms.

Any professional who has been around family business understands that the more diluted the family interest becomes the more difficult it becomes to keep the family on the same page. Parents can generally guide the next generation in a family business, siblings have a more difficult time, but they can make it work. When the business gets into the third, fourth, and fifth generations and stock is split between direct descendants and second and third cousins, it becomes difficult to keep everyone marching to the same tune. Although in some of these organizations many of the shareholders will have the same last name, they don’t know each other any better than the shareholders of any major Fortune 500 company. At some point in the process the familiarity of family goes away.

For the family businesses I know the legacy and heritage of the business, and the concern for employees, is generally higher than a typical business. They are not playing the Wall Street game of the “90 day cycle.” They are concerned about the long term legacy of their business. Many times concern for that legacy translates into better returns. Investors who purchased shares of the Dow Jones Company in the early nineties were likely not disappointed if they sold at the peak of the market bubble in 2000. They would have increased their investment four-fold in ten years.

The bottom line is, it is what it is! If it is a family businesses, whether it is publicly traded or closely held, it will have the same issues of any business as well as maintaining harmony in the family. As an investor, would I invest in family firms? The answer is absolutely. The world is full of examples of family firms who have done well for their shareholders and those who have not. The world is also full of examples of non-family firms that have not done well for their investors and those that have. Making generalizations about either is probably not the best way to structure your investment portfolio!

The U.S. Federal Reserve reduced borrowing rates by one-quarter percent today as policy makers continue to focus on economic growth rather than inflation. The Fed’s decision comes on the heals of several pieces of mixed economic data. Preliminary Gross Domestic Product (GDP) numbers indicate the U.S. economy grew at a rate of 3.9 percent in the third quarter. Job growth has slowed from 2006, but the economy is still adding jobs. Consumer confidence is trending down, manufacturing growth has slowed, and the housing market is in the tank. All of this economic data paints a portrait of uncertainty.

As we have said before, the best thing a business owner can do is prepare for a slowdown, but keep pressing forward with long term growth plans! Savvy business owners can have profitable and growing businesses in good times and in bad.

The preliminary Gross Domestic Product (GDP) numbers just released came in above economist expectations for the third quarter. Consensus expectations were for GDP growth in the 3.2 percent range, preliminary estimates show GDP growth in the 3.9 percent range for the recently finished quarter. Despite a significant slowdown in private residential and non-residential structures growth stayed strong in the third quarter. The GDP numbers will have a significant influence on the U.S. Federal Reserve’s interest rate decision due to come later today. The real issue for the U.S. Federal Reserve is the series of mixed economic data they have received. GDP in the third quarter was strong, and employment growth may be stabilizing. However, consumers are weary and the housing market is plummeting.

The ADP Employment report released today shows that job growth strengthened in October, despite signs that the economy is feeling the effects of the downturn in housing and the credit crunch. A strengthening job market would be good news for the economy. According to the U.S. Department of Labor, the U.S. economy has created about 40 percent fewer jobs in 2007 than it did in 2006. A reversal of this trend would be great news for consumer spending.

Discover’s small business confidence index fell in October, apparently small business owners are concerned about the economy. Sometimes I believe the difference between Wall Street and Main Street is that we on Main have real businesses to run. We are worried about finding new customers and growing our business. When economic conditions begin to look suspect we face reality and figure out what we must do to keep our businesses moving forward. There is no spin to keep the stock price up, and there is no false optimism to reassure investors. At the end of the day it is what it is. Your best bet is to have the confidence to lead your business to success, regardless of the challenging environment,

Oil prices keep going up, home prices keep going down, credit is harder to get, and the weather is turning cold. It is no wonder consumers are in a bad mood, the only surprise is that their mood is not worse. The Conference Board reported today that consumer confidence fell steeply in October. Consumers have been less rosy about the economy six of the past seven months, and consumer confidence is how hovering near two year lows (remember Hurricane Katrina). Concerns about the housing market, higher energy prices, and a slower economy have the consumer less enthusiastic about their prospects in the coming months. This is just one more piece of data for the U.S. Federal Reserve to mull over before they announce their decision in regards to interest rates on Wednesday.

I am not in the Forbes 400 so I cannot take Warren Buffet up on his offer to prove I committ a lower percentage of my income for taxes than my secretary, come to think of it I don’t have a secretary. In an interview with NBC’s Tom Brokaw Warren Buffett discusses the unfairness of our current tax code and how the rich do not pay their fare share. I am sure this will get a great deal of attention as new tax proposals are being floated in Washington and the tax cuts from 2001 are set to expire.

I cannot give you Wall Street’s view on taxes I can only provide a view from Main Street. As a small business owner our tax system is not designed to reinforce entrepreneurship or risk taking. Currently the federal tax rate for an individual in the highest bracket is the same as the tax rate for a corporation. What many don’t know is that several years ago this was not the case. A new type of corporation was created called the S-Corp. This allowed the entrepreneur to start a new business and any income from that business flowed through directly to him or her. The advantage was that an individual could avoid higher corporate income rates, and any dividend taxes on cash disbursements from their business.

Proposals currently in Congress call for cutting the corporate rate to 30 percent and taxing any couple making more than $200,000 per year an additional 4 percent surcharge. Under this proposal if you own a small business that generates $1,000,000 per year in revenues, and with salary and profits from the business you make more than $200,000 per year, your tax rate will be higher than Wal Mart, Exxon, and any other multi-billion dollar Fortune 500 company. You will also be paying the same marginal rate as someone making $200,000,000 per year. That does not seem to make much sense to me.

Our tax code seems to ignore the small family farm and the entrepreneurship class. If we are going to have a progressive tax system where lower incomes have a lower tax rate, then why stop at $200,000 per year? Why would a billion dollar per year corporation have a lower rate than a small family business? Why would a billionaire investor have the same tax rate as an entrepreneur trying to get his or her business started?

It seems to me that the last thing we want to do in this country is stifle entrepreneurship and innovation. More than half of the private sector workforce works in small business in the United States. More than half of our Gross Domestic Product comes from small business. More than 70 percent of new jobs created come from small companies. I guess I don’t grasp the logic of throwing water on the entrepreneurial spark that ignites our economy!     

I ran across this article in Fast Company on habits of bad managers. Some of these habits hit the nail precisely on the head. There are many causes of bad managers. Some are promoted too early and are not ready for the job. Some are promoted too late and have become bitter about a company they believe did not recognize them. All of them have one thing in common. They don’t get results. They don’t have the ability to motivate teams to get to the next level.

I agree with all the habits this author describes except for one. She indicates that incompetent managers work long hours. I think she missed this one. In my experience people that put in the time usually do so because of a high-level of commitment to get the job done. I have heard the “long hours” theory many times, it is usually given to me by someone who does not want to get up early and stay until the job is done. It strikes me that the one thing highly successful people never do is work 40 hours per week. They press themselves to get everything done today that they can, because they understand they cannot predict what will happen tomorrow.

Shai Agassi, A Silicon Valley entrepreneur, is a great example of getting the word out about a business. I ran across two articles on Shai’s unnamed business, one in the Wall Street Journal, and one in the New York Times. He has raised $200 million for his effort to develop a battery-powered, all electric car. At Harvard we use to call this “other people’s money.”

Publicity is the name of the game for any business. Whether you are generating that publicity through public relations, promotions, word-of-mouth, or advertising. It is up to you to get the word out about your business. Too many business owners open their doors and expect the world to come calling. If you want the world at your doorstep, you must let them know you are there!

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.

The New York Times business section has an article today about the upcoming U.S. Federal Reserve meeting and whether or not they should cut interest rates. The article points out that some are saying, except for the problems in housing and credit, the U.S. economy is in relatively good shape. They cite many of the numbers that are in our rear-view mirror, Gross Domestic Product, consumer spending, business investment, and job growth. I would provide a word of caution, if you spend too much time looking back, you cannot avoid obstacles in your path!

It strikes me that it would be risky to assume that the continued free fall in the housing market and home prices will have little or no impact on the economy. The reality is our economy is interconnected. If there is a major issue in one segment of the economy, it can easily spill over into other areas. This is already showing up in slower growth rates in many of the positives the economic bulls stress. At the end of the day the macro-economy is going to do what it is going to do, our job is to position our businesses to take advantage of the rough air just ahead. 

I ran across this article in the NY Times this morning in regards to concerns about fallout from the downturn in housing. The columnist points out that there is still quite a bit of turbulence “bubbling beneath the surface” of our economic stream. We were warning our clients about the ripple effects of the housing downturn and credit crunch this past summer. The bottom line is that we have still not reached the bottom, that is the bad news. The good news is that we will reach a bottom and then begin the exciting climb back to the top! 

We will most certainly have a blockbuster week this week when it comes to data on the current state of the U.S. economy. The big news will start on Tuesday when the Conference Board releases their survey of consumer confidence. Expectations are the Conference Board’s numbers will decline.

Wednesday will be a huge day for economic news. The government will release their estimates for Gross Domestic Product (GDP) for the third quarter, consumer spending, and construction spending. All of this data will continue to help us further understand the economic portrait that is being painted, and how far the ripple effects from the downturn in housing have spread. We will also see the ADP employment report on Wednesday which will give us a preview of Friday’s jobs report.

We will round out the week with the Institute of Supply Management’s manufacturing survey on Thursday, and on Friday the Labor Department’s Employment report for October as well as factory orders. Although we still may have a somewhat muddled economic picture at the end of week, and we will certainly have heard every possible interpretation of the data, we may be a bit clearer on where the current economy is headed by the time business closes on Friday.

It is typically impossible to assign predictability to unpredictable events. Take yesterday’s weather for instance. The weather forecast I had for our area indicated rain. At about 4 p.m. in the afternoon, when I was on the number 17 tee, squinting due to the bright sunshine, I realized the forecasters had missed it. The weather forecast is minor compared to how far off many financial experts have been when forecasting the effects of the downturn in housing.

It is good to be reminded  on occasion that the analyst do get it wrong. There is an article in the NY Times today which discussed the downturn in housing and how this time it is pulling down the stock prices for retailers. Early in the article the writer points out that the experts were predicating a “soft-landing” for housing in 2006. Early this year they believed the worst was behind us. There are still many Wall Streeters telling us not to worry that the downturn in housing will not have a major impact on the economy.

As I have said before, none of us really knows. We can look at all of the data, we can speculate about where we believe things are headed, but at the end of the day it is just a guessing game. I am sure there were some who were predicting the housing downturn would lead to a slowdown in our economy. At the end of the day the best you can do is structure your business to succeed, work hard to get there, and keep your business moving forward.

Have your secretary tell the experts you are out of the office, and won’t be back until the crisis passes!

Oil prices, which are already up 50 percent this year, continue to climb. Prices hit another record yesterday over $92 a barrel, before settling just under the new record. Some are speculating that we will see oil at $100 a barrel before the end of 2007. Business owners and executives need to take the time to understand the impact of higher energy prices on their business, and on their customer’s business.

It does not matter what size your business is. Your business can be a small closely held firm, or a large multi-national. Family is always family, regardless of the family business. Therefore, sometimes family business becomes family feud!

In this video clip from CNBC we learn about the trials and tribulations of Sumner Redstone, Chairman of Viacom, and his daughter. It seems that as part of his divorce settlement he had to commit to allowing his daughter to take over the business someday. He created an irrevocable trust that would make this happen. Now he has decided he does not like this idea, and he wants to run the business from his grave.

I have some bad news for Mr. Redstone, no matter what he does, he will not be able to run the business from the grave. At some point we all have to let go. Perhaps he should watch our video on common mistakes family business owners make when trying to transition their business, he is making several!

If his daughter is not capable of running the business he should discuss that with her. But, if he has already made a commitment to her, then he better follow through on his plan. If she was not capable then why did he commit to it in the first place?

This is an excellent case study. You can have a great succession plan, but if you don’t execute, and you make some of the common mistakes, your plan will fail! 

The University of Michigan’s survey of consumer sentiment fell to 80.9 in October, its lowest point in 17 months, on continued concern about the fallout from higher gas prices and a downturn in housing. The survey correlates with the LA Times/Bloomberg survey released earlier this week which indicates more than two-thirds of Americans believe the economy is headed for a recession. I have heard many pundits say they don’t understand why consumers are so concerned, they blame it on the media for highlighting the current economic challenges.

It seems to me that if gas prices are rising, and people are paying more to fill up their tank, then they may be spending less on something else. If people feel a bit less liquid due to declining home values, or they do not have access to easy credit, they may have less money to spend. The end result would be a consumer who does not feel quite as comfortable as they did a few months ago. The question all of the experts are debating is if the economy is slowing. The question they should be debating is what can we do to drive growth in the current economy. 

Over the past few weeks I have posted several articles in regards to the slowing U.S. economy. I have tried to take a realistic, objective view of the economic data I review, and give you a clearer picture of what may lie ahead. I have alerted our clients to the possibility that you may have some experts who will talk the economy down, and some who will talk it up. The question through it all is, How bad is it, really?”

I do not believe the stock market is a good indicator for future business conditions, investors tend to react emotionally to the news of the day. However, if you want to gauge how bad the economy is, look at the behavior of the equities markets. On Wednesday the stock market was down most of the day. Existing home sales were worse than forecasted and Merrill Lynch had to take huge write-offs due to the credit crisis. The result of the news was a stock market that had one direction, down!

Late in the day news broke that a U.S. Federal Reserve interest rate cut was imminent. The rumor was that the Fed was going to jump in and cut the discount rate before its next meeting. Rate cuts are used to spur economic growth during downturns. Rate increases are used to dampen growth to control inflation during periods of economic strength. The idea that the markets reacted so quickly to a rumor is a pretty good indication of how most investors view today’s economy. They see rate cuts as something that will drive economic growth.

Despite the data it still seems that many “experts” don’t agree with the notion that the economy is slowing, although two-thirds of Americans believe the economy will fall into recession within the next year. Main street is aware of a problem that many on Wall Street are still refusing to acknowledge.

A well run business will find opportunities whether the economy is good or bad. A poorly run business can get into as much trouble during a period of economic expansion as it can during contraction. If you make an effort to understand the true condition of the economy, and structure your business to capitalize on current conditions, you will a have a business that can navigate both the smooth and the rough air!

New home sales rebounded in September 4.8%, but only because August’s numbers were revised significantly downward. Inventories stabilized, although it is difficult to say the market has bottomed. At current rates it will take several months to bleed off the excess inventory and get the housing market to reverse its declines. Combined with today’s durable goods report, and yesterday’s existing home sales report, this information will lead the U.S. Federal Reserve’s thinking next week when they make their next rate cut decision.  

Analyst who were hoping for a sharp rise in September’s Durable Goods Orders, following a sharp decline in August, were disappointed this morning. In September Durable Goods Orders fell 1.7% leaving more to speculate that the economy is suffering the ripple effects from the credit crisis and downturn in housing. This will give the U.S Federal Reserve more ammunition to reduce interest rates at their meeting next week. This is also another indication that the U.S. economy is in the process of slowing!

There are few things I can think of that a customer could say to a toy manufacturer worse than, “You have endangered my child.” Since the spate of recent recalls of toys made in China, I have watched the news in regards to Chinese made products, and I have made recommendations to our customers about how they might leverage this opportunity. The lack of stringent safety standards in Chinese manufacturing, and poor inspection by some importers, has  created a rash of lead filled toys being pulled from store shelves in the U.S.

I read a story in the New York Times recently which is a great example of how one company is making a bad problem worse. If any of us were importing a product that needed to be recalled due to safety issues, I am sure we would take the time to ensure our resolution would not make the problem worse.  RC2 made its problem worse with its Thomas the Tank Engine when they botched the recall process, and sent a free gift as an apology to customers. The free gift was another toy laden with lead.

I have dealt with product recalls in the past. I know in our scenario, although the volumes were small, we went to great lengths to ensure every customer was taken care of, and more. It appears to me that the executives at RC2 were employing the “ignore it and it will go away” strategy.

You cannot ignore the problems your business faces, if you want your business to be a success. Whether that problem results from a product issue, a process issues, or an economic issue, the only way to resolve it is to confront head-on, with the confidence that you can conquer the challenge. Perhaps these executives were in over their heads, or they didn’t care, but the long-term damage they have done to their business is irreparable.

Ignoring a problem does not give you the opportunity to succeed. Face whatever headwinds come your way, and carve your path to success!

The housing market continued its decline in September as existing home sales dropped eight percent, this is 19 percent below September 2006. As if they are trying to get us into the Halloween spirit, the downturn in housing and the credit crisis both continue to spook the current economy. As housing continues to decline, and inventories rise, more people are holding off on any major purchases due to lingering unease about the current economy.

Builders are sweetening deals to move their stock of unsold homes and lenders are creating special programs to help borrowers. These actions tell me that the concerns about the market are not diminishing, rather they are growing. We are even seeing reports that the housing and credit problems are not isolated to the U.S.

As we have been saying since the credit crisis erupted this past summer, there will be economic ripple effects from the downturn in housing. As business owners we can accept that challenge and determine how to manage through it, or we can ignore the challenge, and hope it does not impact our business. Hope is not a strategy, and I would not hang the success of my business on hope. Tackle your business challenges head-on, and you will build a stronger business for the long term!   

An article I read today in Fast Company reminded me never to judge a book by its cover. The point of the article is that we all have our status symbols that are designed to create the perception of success. Perhaps your emblem is the right car, the right house, or the right clothes. These emblems tell the outside world we have made it to the top of the food chain.

I would warn you however, do not judge a book by its cover.

I was recently in a watch shop near Bond Street in London picking my latest emblem of success. While I was there a middle-aged man walked into the shop. He was unshaven, and wore blue jeans with a blazer. He had on boat shoes without socks. He was certainly not part of the ultra-chic London fashion scene, or the very staid London financial district. He looked like any guy you would like to have a pint with in the pub.

This gent wore no significant jewelry, and if you saw him on a street you may not even notice him. I could not help but overhear the clerk as they were ringing up his purchase, a 19,000 pound (almost 40,000 dollar) watch. He of course paid with his black American Express card.

In today’s world, you just never know! Make sure you don’t miss a big opportunity by judging a book by its cover. 

Moving from one generation of leadership to the next in any business can be challenging. Moving from generation to generation in a family business can be a minefield. If you add to that an uncertain economic environment, you have the formula for a turbulent business scenario.

In our most recent Rough Air In-Flight Video we outline some of the common mistakes family business owners make they begin the process of moving their business from one generation to the next. Click here to view this week’s video-cast on Family Business Succession, and click here to view the In-Flight Video Archive.

Always remember to fasten your seatbelts, and watch out for your rough air!

Rarely does the economy put up a flashing neon sign that says “economic slowdown ahead!” We are almost always left reading the tea leaves on our own to determine what lies just around the corner. This forces each of us to pay attention to the signs in our market and the broader economy, so we can position our business for maximum advantage in difficult conditions.

There are signs that I look at and I have discussed here. The slowdown in new job creation, a decline in manufacturing, and a downward trend in consumer confidence all have painted a portrait of a slowing economy. I always look for more data that will either contradict my conclusion or support my “gut feeling” in regards to the overall economy. Here are some additional signs, although more subtle, that still indicate we are in for some rough air ahead!

1. More homeowners filing for bankruptcy - Bankruptcy filings by homeowners are up 44% this year. It is believed that the rash of filings is due to consumers making an effort to keep their homes. A bankruptcy filing allows them to halt the foreclosure process. While the numbers seem small, over 70,000 this year, it still has some economic impact.
2. Lenders are getting tougher - More lenders are tightening their standards in difficult markets. Lenders are trying to protect themselves in more volatile markets from declining home prices. Tougher lending standards applies more pressure on an already suffering housing market.
3. American Express increased their loss provision – Many will see this as somewhat obscure. The loss provision is created by finance companies for expected losses. When a loss provision is increased there is an expectation they will see more credit defaults. Amex attributes their increase to stronger than expected growth, and fallout from the problems in credit markets.
4. Target cuts their outlook - For the most part Target has done pretty well in the retail wars. They lowered their fourth quarter expectation sighting warming weather and tough economic conditions. They are setting the expectation for a slower holiday spending season.

I started my day searching for some positive economic news. There were some strong overnight earnings reports from Apple, American Express, and UPS, but most of the signs I see continue to paint a portrait of a slowing economy. What are the signs for your business?

Some businesses are models for great customer service. They seem to know how to get it done, so they always deliver! Some businesses never seem to get it right. In these short-lived businesses they don’t seem to develop the ability to take care of the customer.

Those small businesses that never seem to get it right have some things in common. If you are trying to guarantee failure in your business then follow these easy steps to losing a customer.

1. Focus Inward – One common characteristic of businesses that fail is they lose their focus on the customer. These companies deliberate all of their actions based on the internal impact versus the customer impact. Processes are designed to improve efficiency internally, but the impact on the customer is not considered.
2. Ignore The Customer – Many unsuccessful entities not only focus internally, but they ignore the customer all together. They don’t take the time to understand the customer’s needs. They assume that whatever they have to offer is exactly what the customer wants, they don’t listen.
3. Be Difficult to Deal With – This is another guarantee for chasing away customers. If your sales and support people are hard to find, if it is hard to do business with you, then I can guarantee you will lose customers. Create a warranty that is not clear, be inflexible, and customers will flock to your competitors.
4. Don’t Keep Your Promises – Promise to deliver, and then be late. Promise to show up, and then cancel. Promise to answer a question, and then forget. These are all great ways to chase customers away. If the customer believes you are not reliable then the customer will reliably leave!
5. Believe Your Own Public Relations – Too many companies begin to believe their own sales pitch. They determine they are the best, their quality is perfect, and they never make mistakes. This way the customer is never right. If you act as though you don’t need your customer’s business they will oblige!

Winning new business is a major investment for every firm. Why waste that time, energy, and effort only to lose it later in the process. If you stay away from these five deadly business sins, you will retain those hard-earned customers and develop a long-lasting relationship!

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I have been told that a person addicted to something cannot cure the problem without acknowledging the addiction. Using that logic I advise many business owners that they will never be able to fix a problem in their business, if they don’t believe the problem exists. This strikes me as pretty simple logic, it is common sense. So why is it too many decision makers and experts refuse to recognize the challenges we have in our economy?

This morning I was having a conversation with two business owners about the economy. They were asking if I thought the economy had bottomed and where it was headed. I mentioned in the last few weeks I have seen more than one expert describe our economy as robust. I even heard one expert say he could not understand why so many people were anxious about the current economic environment. I think the average American’s unease about the economy stems from the fact that what they are told about the current environment, and what they see, rarely agree!

Most of us have noticed homes staying on the market much longer. Some have experienced firsthand the challenge of falling home prices and tightening credit. Those who follow the financial news on a daily basis see the differences in what is reported and what is said.

For example, many experts have told us that while the U.S. economy may slow, that slowdown will be offset by global growth. Yet I continue to see stories like this that indicate other economies are beginning to feel the pinch, and many are expecting a slowdown. The U.S. is the number one consumer in the world, it will be difficult for a slowdown in our economy to be isolated to just the United States.

Another common theory I hear tossed about is that the problems with subprime loans and housing are limited to a select few. The argument goes that the majority of consumers will not be impacted, therefore, they will keep on spending. But there is evidence that indicates the credit problems may be spilling over to car loans and credit cards. It appears to me that this is an issue that will touch more than just a small portion of the population.

There are also folks out there telling us the worst is yet to come, that we should brace for more, but they seem to be few and far between.

One common tactic used by many is to not talk about an economic downturn for fear, if they say the environment is not great, then it will be a self-fulfilling prophecy. If the economy is headed into a recession, not talking about it will not change that fact. If we believe the economy is slowing, and we face up to that fact, then we can structure our businesses to do well in a slower economy. Hope is not a strategy. Turning a blind eye to reality and ignoring the environment around you will not move your business forward. Asking the tough questions about what your business faces today will do more for your business in the long run.

The most common question I get whenever I speak to a group of business owners is, “How were we able to grow our business so successfully?” Our family business, founded by my father-in-law in 1963, was a manufacturer of custom machine controls. In the mid 1990s we began developing a line of ultrasonic sensors.

At that time ultrasonic sensors were not even a recognized segment of the broader $2 billion global, sensor market. Through a tremendous amount of effort during my tenure we were able to grow our sensor business 18 percent annually, develop a recognized market segment in sensing, and become the world’s leading manufacturer of ultrasonic sensors.

Many business owners want to know the secrets of our growth story. I always tell them the secrets to our success are not secrets at all. Most business owners and executives know what they must do to grow their business, but many just can’t seem to get these things done. As a business owner, if you can execute on these seven items, you will grow your business.

1. Find a Niche – The biggest mistake many small companies make is aiming at huge markets. Most successful small businesses started by aiming at a niche they could develop. Many times it will not pay a larger corporation to do the hard work to develop a small market niche. What may be a huge market opportunity to one, may be insignificant to another.
2. Have a Clear Value Proposition – Make sure you clearly understand what value you add for your customer. If you cannot articulate this to yourself how will you be able to convince prospects to do business with you? You must be able to clearly articulate what you bring to the table.
3. Target Your Communications – Once you have a clear value proposition, make sure that message is getting to the right people. One of the mistakes we made was trying to outshout the competition. Know who your customer is and figure out your best method for delivering your value proposition to them.
4. Provide World-Class Service – I despise poor customer service. Many large companies, because of mass, have a difficult time providing great, consistent customer service. All successful small businesses I know provide their customers with unparalled service. If you take care of the customer, many other things will fall into place.
5. Treat Your Vendors Well – You may not be your vendors number one customer. Your volumes may be small, but if you treat those vendors well you will get better attention than their largest customers. Pay your vendors quickly, have them involved in your business, and spend the time to cultivate relationships with them. You never know when you will need a vendor to save your “hide.”
6. Treat Your Employees Well – One key to growing a small business is finding great people and keeping them. There is always more perceived risk working for a small company than a large company. If you provide your employees a great place to work, and give them the autonomy to do their jobs, you will create a workforce committed to making your business a success.
7. Keep Feeding the Fire – Too many businesses develop one product or service offer and stop there. Don’t let innovation die. One of the most important aspects of our growth story was our effort to always have something new that would bring additional value to our customer. Never be afraid to cannibalize you own product, if you don’t someone else will.

It does not matter what your business is, or what your growth goals are. You must remember, this stuff isn’t easy. If it was, everyone would do it!

The most common question I get whenever I speak to a group of business owners is, “How were we able to grow our business so successfully?” Our family business, founded by my father-in-law in 1963, was a manufacturer of custom machine controls. In the mid 1990s we began developing a line of ultrasonic sensors.

At that time ultrasonic sensors were not even a recognized segment of the broader $2 billion global sensor market. Through a tremendous amount of effort during my tenure we were able to grow our sensor business 18 percent annually, develop a recognized market segment in sensing, and become the world’s leading manufacturer of ultrasonic sensors.

Many business owners want to know the secrets to our growth story. What I always tell them is the secrets to our success are not secrets at all. Most business owners and executives know what they must do to grow their business, but many just can’t seem to get these things done. As a business owners, if you can execute on these seven items, you will grow your business.

1. Find a Niche – The biggest mistake many small companies make is aiming at huge markets. Most successful small businesses started by aiming at a niche they could develop. Many times it will not pay a larger corporation to do the hard work to develop a small market niche. What may be a huge market opportunity to one, may be a insignificant to another.
2. Have a Clear Value Proposition – Make sure you clearly understand what value you add for your customer. If you cannot articulate this to yourself how will you be able to convince prospects to do business with you? You must be able to clearly articulate what you bring to the table.
3. Target Your Communications – Once you have a clear value proposition, make sure that message is getting to the right people. One of the mistakes we made was trying to outshout the competition. Know who your customer is and figure out how the your best method for delivering your value proposition to them.
4. Provide World-Class Service – I despise poor customer service. Many large companies, because of mass, have a difficult providing great, consistent customer service. All successful small businesses I know provide their customers with unparrelled service. If you take care of the customer, many other things will fall into place.
5. Treat Your Vendors Well – You may not be your vendors number one customer. Your volumes may be small, but if you treat those vendors well you will get better attention than their largest customers. Pay your vendors quickly, have them involved in your business, and spend the time to cultivate relationships with them. You never know when you will need a vendor to save your “hide.”
6. Treat Your Employees Well – One key to growing a small business is finding great people and keeping them. There is always more perceived risk working for a small company than a large company. If you provide your employees a great place to work, and give them the autonomy to do their jobs, you will create a workforce committed to making your business a success.
7. Keep Feeding the Fire – Too many businesses develop one product or service offer and stop there. Don’t let innovation die. One of the most important of our growth story was our effort to always have something new that would bring additional value to our customer. Never be afraid to cannibalize you own product, if you don’t someone else will.

It does not matter what your business is, or what your growth goals are. You must remember, this stuff isn’t easy, if it was everyone would do it!

The bulls and bears will be at again this week, as we get a new batch of data that will provide more grist for our economic mill. The experts will be picking apart the economic data and earnings reports looking for any small pieces that will support their predetermined conclusions.

We will get two more important pieces of data that will help complete the picture we have seen develop in the U.S. housing market. On Wednesday we will get existing home sales data and on Thursday we will get new home sales data. Both are expected to drop, so pay close attention to the inventory numbers and prices. Home sales directly impact sales of appliances and home furnishings. If people are not buying new homes then they are not furnishing new homes.

Durable goods orders for September will be released on Thursday. The consensus is for a slight pick up after a sharp drop in August. I will caution everyone now, if the durable goods numbers come in stronger than expected the economic bulls will jump up and down and claim the economy is stronger than ever! If the data comes in worse than expected the economic bears will claim the sky is falling, and you should run for cover.

We will get consumer sentiment on Friday. The expectation is for consumer sentiment to fall again. The consumer is getting hit with higher oil prices and concerns about the downturn in housing. To keep the current economy out of recession the consumer will need to keep on spending. The continued deterioration of  consumer confidence is making this seem less likely.

I read an article in the New York Times this morning where another economic bull was laying out the case why our economy is in good shape. He said airplanes are full of passengers, most mortgages are not in default, and people are still lining up to buy Bentleys in Beverly Hills, so buy more stocks. In an effort to be balanced there was another article from an economic bear pointing all of the challenges the subprime crisis and housing downturn have thrust upon us. It reminded me of a special I watched on CNBC recently about the twentieth anniversary of the famous October 1987 stock market crash. The Friday before the crash the stock market fell 100 points. A reporter was interviewing a trader in a bar that evening about what investors should expect the following Monday when the market opened. He opined that everything would be fine, the market would be back up on Monday. The stock market fell 500 points that following Monday.

Let us assume this week’s data indicates the economy has slowed further and that we are destined to face some stiff economic headwinds. Does that mean we should all close our doors, sell of our assets, and put our money in the mattress? Obviously not! I have said before I am an optimistic realist. I believe we can overcome any economic challenges we are confronted with. Our economy made it through the crash of 1929, the great depression, the 1973 oil embargo, the dot-com bubble, and September 11. It strikes me that each time we run into economic trouble, when we face up to it and accept our reality, we overcome the adversity we face!

At Rough Air Associates we have been advising our clients over the last several weeks that the economy is in the process of slowing. After yesterday’s earnings reports from Caterpillar, 3M, and Honeywell many economic analyst are now speculating that the economy is in fact slowing. Some market watchers have even said we are headed for a recession.

As I have said before, none of us know whether or not the economy is headed for a recession. The best we can do is look at the empirical evidence and draw a conclusion based on the data. Here are seven indicators that show the economy is at least headed for a slowdown, and possibly a recession.

1. Declining Job Growth - In the first three quarters of 2005 the economy created 1.8 million new jobs, in the same time frame in 2006 the economy generated 1.7 million new jobs. Through September of this year the economy has generated one million new jobs. This is 41% fewer new jobs than 2006. Fewer new jobs equals fewer new consumers, which equals a slowing of growth in consumer spending. Most analyst agree, for the U.S. to avoid recession we need the consumer to keep spending.
2. Confidence Is Down - Consumer confidence has been trending down this year. According to the Conference Board, consumer confidence was over 110 to start the year, it is now below 100. If the consumer is hesitiant, and the consumer slows spending, it will be hard to maintain any growth in the overall economy.
3. Retail Sales are Soft - You would not realize this unless you paid attention to the details in September’s retail sales numbers. Overall retail sales were up .6 percent; however, that increase was driven by higher gas prices. Things like home furnishings, appliances, and clothing were all down in September.
4. Manufacturing Is Slowing - This is another piece of demand data that has been declining for the last few months. A slowdown in manufacturing indicates that demand may be softening, and that the economy will be creating fewer manufacturing jobs.
5. Oil Prices Are Up - If consumer confidence is slowing, and fewer new consumers are being added to the economy, a rise in pump prices increases the problem. Higher gas prices means more of the average consumer’s income will go towards filling up their SUV, rather than buying that new IPOD. This is just another negative impact on consumer spending.
6. Home Values Are Falling - One driver of consumer spending has been the ability of consumers to borrow on the equity in their homes to buy other stuff. As home prices fall, consumers have less equity to leverage, which gives them less spending power.
7. Credit Is Tight - This makes the problem of falling home prices worse. In the past, easy credit combined with the appreciation of home values helped drive the consumer’s spending habits. Now the average consumer is faced with less equity in their home, and a tougher time borrowing on that home.

No one can assign predictability to unpredictable events. A recession is an unpredictable event. The best we can do is look at the signs and draw a conclusion about where we are headed. The data tells us the economy has slowed. As a business owner you need to ask yourself some tough questions and determine what you can do to protect your business! 

Stocks fell sharply today  primarily due to earnings reports from three industrial companies, Caterpillar, 3M, and Honeywell. All three reported poor economic conditions in North America attributed to poor third quarter results. Executives at Caterpillar even commented that some parts of the U.S. economy are in a recession. Wall Street, of course, was shocked and dismayed!

For weeks we have been discussing the slowing U.S. economy. Just last week we commented that too many analysts were creating an expectation that is difficult to meet. They believed their own spin. We do not want to fall into the trap of being too myopic, and interpreting one bad day on Wall Street as “the” sign of a slowing economy. The reality is the economy has been slowing for several months, and many of the experts came to that realization today. It looks like we are going to need a new batch of experts!

Running any business, whether a small retail shop or a large manufacturer, is always challenging. Business owners invest their time in growth opportunities, employee issues, cash crunches, and myriad other tactical problems. When you add in an uncertain economic environment you create a full meal of issues for any business owner to chew on.

The most effective business owners and CEOs I know spend more time asking questions and listening rather than talking. These business leaders take the time to listen to their customers, employees, and strategic partners. They invest their time learning, so when necessary they can effectively teach!

As a business owner, in today’s challenging environment, what questions should you be asking? Here are the ones we believe are the most important:

1. What new opportunities are created for your business in a recessionary environment? – If the economy slips into recession are there opportunities you can capitalize on? Will there be competitors you can buy or customers looking for help? Many times challenges are opportunities in disguise.
2. How will $100 oil impact your business? – As energy cost rise where will it impact your business? If you and your customers are spending more due to rising oil prices what will happen to your business downstream?
3. If consumer spending slows will you feel it? – If the American consumer stops buying cars, beer, and clothes will it impact your business? Make sure you understand who your customer’s customers are.
4. Are tight credit markets an issue for your business? – If you rely on a line of credit from the bank, and your business is going to grow in 2008, will you be able to increase your line of credit? Do you have all of the banking relationships you will need in a difficult credit environment?
5. Does U.S. trade policy impact your business? - Are you an importer? If the U.S. takes a less friendly stance on international trade will your business be impacted? If you export, are you going to fall victim to another country’s trade policies?
6. In your market, who will win and who will lose? – When you look across the spectrum of your competitors, which will excel in a difficult environment and which will fail? Position yourself to win!
7. Is your business nimble? – Can you position your business to conserve cash, but push for growth? Being nimble in uncertain conditions is an absolute necessity.
8. As a business leader, what will you need to do different in challenging times? - Strong business conditions and growth require one type of leadership. Poor business conditions require another type. Can you be both? 

There is no doubt running your business today can be challenging. Are you asking the right questions to keep your business moving forward!

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The Rough Air Demand Index for September fell to a strong negative as the weight from declines in consumer confidence and manufacturing activity offset other gains. This is the second month in a row the index has declined and it now stands at its lowest level. The index has fallen the last two months due to pressure from the downturn in housing and the subprime issues. 

The Rough Air Cost Index fell to positive in September indicating there are still some lingering inflation issues in the economy. The cost environment became less favorable in September primarily due to energy cost. Oil prices have been rising consistently over the last few weeks and have recently hit several records. The increases in the Consumer Price Index and the Producer Price Index have many analyst questioning whether the current fight is with growth or inflation. 

As the portrait of a difficult economic environment continues to take shape, many of the “experts” appear to be shocked at the revelation of a slowing economy. We are still hearing some muse that we are headed for a recession (although the musings seem to be on the decline), and we hear others ruminate about the prospect of inflation. There is certainly a little of both with a housing downturn, tightening credit, rising gas prices, and rising food prices. The question being debated now is when and how will this hit consumer spending.

Our expectation is that consumer spending will be impacted over the next few months. Consumer’s wallets will be getting pinched from both sides. People will be spending more of their pay on food and energy and will have less access to credit. Pay attention to retail sales reports in the coming months, we will likely see continued declines in home furnishing and appliances, and increases in retail gasoline purchases. When Capital One releases their third quarter results today we will get some feel for what the consumer credit market is going to look like going forward.

This is an economic portrait that has been underway for months, it certainly paints a picture of impending challenges, so fasten your seat-belts and watch out for your rough air! 

The Index for Leading Indicators grew a scant .3% in September after a drop in August. The downturn in housing was offset by gains in the stock market and employment growth. The index has been relatively flat the entire year, and is indicating economic headwinds generated by credit issues and a bad housing market will slow growth as we go forward.

For the business owner that just sold their business, the challenges rarely end the day the deal is closed. Many times part of the sale includes an agreement for the owner to help with the transition process. This means many entrepreneurs, after selling their business, find themselves working for someone else for a period of time. Business owners and small business managers working in a business that gets sold must be sensitive to the emotional difficulties involved with the transition, and proactive in helping the new owners move the business forward.

When we sold our family business we had been operating as a closely held business for 40 years. The average tenure for an employee was over ten years. Our employees were emotionally committed to the success of our business. Our objective was to carry this commitment over to the new organization and take the business to the next level. At the time of the sale I did not fully recognize the complexity of the challenge. After we sold we were having a meeting with the employees about the sale of the business and one of our long term employees made the comment that she felt as though she was sending a child off to be married. Like a child, over the years the business had grown and developed, and now we were letting go and sending it off to explore the world. It was at that point I realized how big the mountain we had to climb really was.

As we worked through the business transition, I followed some simple guidelines to help us along the way.

• Continuous Communication – The sale of any business creates a tremendous amount of uncertainty for the employees. They have all heard about businesses that have been sold, operations moved, and employees let go in the aftermath of an acquisition. Most of the employees are assuming the sale of the business is only the first shoe to drop, the next shoe will have a more direct impact on them. Once you can talk to the employees about the transition of the business, it is important to keep them informed along the way. As a business owner or manager, it is critical to make yourself available so you can listen to their concerns. If you are not talking to the employees they will assume the worst!
• Lay Out the Future – Where possible, tell the employees where the business is headed. Talk about the logic for selling the business and what you believe is next for the company. For us, we were trying to get the business to the next level through expanded distribution and product depth. We had many discussions with the employees about what we intended to do to move the business forward.
• Introduce Them to The New Company – If you are leading the transition you need to lead the way in getting the employees engaged with the new business. Don’t overwhelm them, but don’t let them sit back and wait for integration to happen. If you don’t start to push some of the inevitable changes immediately, then it will be much harder to implement them down the road. Make sure they understand the new organization and drive the employees to grab synergy opportunities quickly.
• Don’t Make Promises – Your title may be the same, but your span of control has changed. If you do not know, you do not know, don’t make promises that you are not sure will be kept. The one promise you can make employees after an acquisition is that there will be some changes, that is inevitable. You can lay out what the strategy is, and what you have been told, but that does mean the strategy won’t change.
• Don’t Discredit the New Owners – As a business owner or a manager it will be tempting to point out all of the bad characteristics of the new owner. You may feel compelled to tell the employees that the new owners won’t be as nice, as compassionate, or as concerned. If you are a leader in the organization, it is your responsibility to sell the employees on the new owners. The last thing you want to do is cultivate a basket of bad attitudes. You need to help people adjust to the new organization, and talk about the new owners in a positive light.

These are some of the principles I followed when we sold our family business to Schneider Electric. We were selling to a multi-billion dollar global business. Our management was one of a small minority of management teams that executed a successful integration of a small acquisition into Schneider. When I retired four years later, we had doubled the size of the local operation, increased our employee base, and assumed responsibility for one of  Schneider’s product groups. We had also become the model for integration of small acquisitions. Our success was due to following the key principles outlined here. If you are a business owner or manager, and you have just sold your business, follow these simple guidelines and you can help take the business to the next level!

The largest U.S home-builder (by revenues) disclosed that half of its home orders were cancelled in the third quarter. Housing starts fell to 1.1 million units in September, the lowest since March 1993. Retailers are soft, job growth has slowed, and oil prices keep setting new records with no end in sight. There is ample data pointing to an economy that is not as robust as it was a year ago. There is also ample data that energy and food prices are going up, which could help feed the flames of inflation. At the same time, U.S. based companies with a broad global presence are seeing tremendous growth in emerging markets, and they are also seeing some hefty gains on currency, due to the weak U.S. dollar.

We have data that indicates the economy is slowing, we have data that indicates prices are rising, and we have data that indicates there are segments of the economy running along at a very healthy clip. If you are confused you are not alone. On any given day, you can hear one expert proclaim the economy is robust, one expert proclaim we are headed towards recession, and one proclaim we should worry about stagflation.

While all of this information is good fodder for speculation it does not help you run your business. Regardless of the economy, running your business is exactly what you must focus on. As we have suggested in the past, you should be prepared in the event the current economic challenges land at your door, and have an idea of what issues you may face.

• Tighter Credit – You may find it more challenging to borrow money. Our customers have indicated they have seen some tightening of business credit, and they are expecting more. You may also find vendors who are less amenable to extended payment terms. Everyone will be working to minimize their risk exposure! Watch your cash like a hawk!
• Customer Turmoil – Some of your customers may have direct exposure to the subprime problems, or the downturn in housing. If they do, there is a good chance you will see these customers tighten spending and possibly layoff employees. Be empathetic to these challenges, and broaden your contact base at each of your customers.
• Employee Stress – You may have employees that are carrying mortgages they may soon not be able to afford. Some of these folks may be facing foreclosure, so they will certainly be feeling some additional pressures. As energy cost increase they will feel pinched even more. Be prepared to help your employees work through some of these challenges.
• Tighter Competition – Whenever markets get tough, the competition gets intense. Many competitors develop a no holds barred mentality in tough conditions. You could be facing price pressure while at the same time getting cost pressure. Make sure you never stop selling!
• Shareholder Unrest – If you own or operate a business with multiple shareholders, especially if some of those shareholders do not work in the business, you may find yourself with investors who are looking for an escape route.  To prevent shareholders from getting uneasy, communicate with them about economic conditions, and what your plans for recovery are.

None of us have any clue where this economy is headed, but the best we can do is prepare our businesses for any of these potential dangers!

To add to the overall economic confusion the Consumer Price Index (CPI) increased .3 percent in September. Although the  increase was fueled by rising energy and food prices, it will still cause the U.S. Federal Reserve to pause and ponder the current economic climate. Rising prices and slowing economic activity will have many experts wondering if we are headed for stagflation! Remember, you heard it here first!

New home construction fell 10.2% in September to its lowest point in several years. The real question is not if new home starts will continue to fall, but when will it hit bottom. The challenge for builders is not only falling demand, but increasing inventories. The steep decline in new home starts in September will give the Fed more grist for the mill when it comes to its decision about interest rates later this month. 

I have known some really good salespeople, and some really poor salespeople. There have been times when I knew in my heart that a person was going to be great in sales and they flopped, and there are times when I was absolutely certain an individual would flop and they succeeded. It is not unusual for people who speak well to be considered good salespeople. Although being able to articulate the value your business brings to the equation is important, it is not the only characteristic a great salesperson needs.

As I developed in my career I learned what worked for me in selling and what didn’t. My best lessons came from watching other salespeople in action, whether they were good or whether they were bad. There are certain mannerisms the great ones all seem to share.

• Listening Skills – Being a great communicator is as much about listening as it is talking. The best salesperson that ever worked for me was great at listening. He would start every call by probing the customer to find out the customer’s knowledge of our particular technology, what competitive products the customer used, and what major issues the customer was having in his plant. He would never get product out for a “show and tell” until he felt he knew what his customer needed.
• Goal Driven – To succeed in sales you must be goal oriented. All salespeople are measured on how much they sell in some way. That measure may take different forms, but in most cases the salesperson is given a target, then measured on how he or she  is doing at hitting the target, and beating the prior period. If you are in sales and you are not driven to hit goals, then you will likely not succeed at it.
• Competitive – The great ones want to compete at everything. Sales is all about competition. You are competing against other salespeople, company targets, and personal goals. The most successful salespeople thrive on competition.
• Tenacious – If you are in sales then you better be able to handle rejection without blinking. The best salespeople know that rejection is part of the game, and they try to learn something every time they lose a selling opportunity. This is not a profession for people who are overly sensitive, or can’t handle losing on occasion. To succeed in sales you must never give up. It isn’t that every no is a yes in disguise, rather it is that every no motivates you to find the next yes!
• Attitude – I have never met a successful salesperson that does not have a great attitude. One does not happen without the other.

There are a plethora of books, articles, websites, and magazines that specialize in helping you sell better. There are myriad experts that are dedicated to helping you improve sales performance. Many times they will tout some new method or theory, but in most cases it is all about the basics. If your salespeople understand the company, its products, and its value proposition they can talk to the customer. If they have the skills I outlined here, they can sell!

Here is an article with some additional selling tips.

The current economic environment continues to perplex both business owners and “smart” analysts. Credit market issues and housing problems are expected to continue for some time. The growing amount of disparaging data does not mean you should stop moving your business forward. As a business owner you should continue to focus on the future!

For many baby-booming, business owners this future needs to include a plan for retirement. As if to reinforce the coming wave, yesterday the first baby-boomer applied for social security benefits. As our population ages a wave of retiring baby-boomers, that are living longer, will spill onto our shores. Many of these future retirees are one of the millions of small and family business owners that need to create a strategy for exiting their business.

In Rough Air Ahead I discuss various exit strategies for business owners in detail. If you are a business owner and you are planning to retire in the next few years you have three basic options for exiting your business.

1. Sell It – Your first option is to sell your business. This could be a sale to employees, investors, or competitors. The catch is you must have something to sell. If your plan is to exit your business via a sale, don’t make the same mistake many other business owners have made. They do not understand the true value of what they have to sell. Many business owners assume the value of their business is equivalent to an amount based on their income and lifestyle needs. The value of a business is based on what someone is willing to pay. Currently manufacturing businesses are averaging a price of four to six times earnings, a consultant (if you can get someone interested) can expect a price equal to about 60 percent of their total revenues. Make sure you clearly understand the value before you charge down the path of a sale.
2. Succession – This is a common way for family business owners to exit their business (pass it on to someone in the next generation). Depending on the needs of the owner, they could paid out of the cash flow of the business, or they may gift a portion of stock and keep a portion as a way of generating income. There are two keys to a succession strategy, one is setting a date for retirement, and the other is making sure each generation knows what they are responsible for. Succession strategies can be challenging; however, for the business owner trying to preserve a family legacy, they can be emotionally rewarding.
3. Harvest – Some businesses, like small law and accounting firms, or consultants may have nothing to sell. If you have a business with no potential successors, and no opportunity to sell the business, we recommend you pursue a harvest strategy. This is a strategy where the business owner will focus on maximising cash flows over an extended period to build a nest-egg for retirement. The harvest strategy requires the business to operate very lean, but if there is nothing to sell and no successor, it may be the best option to get something out of your years of hard work.

Keep in mind, there is no right way or wrong way to exit your business, there is only the method that works best for you. We recommend you start planning early and develop your exit strategy, so you can capitalize on the business you built!

Crude oil hit another record overnight, closing in on $88 for each barrel of oil. Some analyst are now projecting oil will reach $100 a barrel before the end of 2007. Oil prices have risen 47 percent since the beginning of 2007, retail gasoline prices have increased 27 percent since January. The increases in energy cost were reflected in last week’s Producer Price Index and retail sales numbers. Both of these measures were up in September due to energy prices.

As oil prices rise due to international tensions and supply issues, the problems caused by subprime mortgages appear to be far from over. U.S Federal Reserve Chairman Ben Bernanke commented yesterday that the current problems in the housing market will continue to act as a drag on the economy for some time. This problem appears to be spreading as home prices in England fall, and an Asian bank reports a loss due to investments in mortgage backed securities in the U.S. These issues are showing up in the earnings of major financial institutions and regional financial institutions. Both Citibank and Keycorp had disappointing results in the third quarter and expect the subprime problems to continue. All of this is spilling over into other segments of the economy as consumer demand and industrial production slow.

The evidence continues to build that we have an economy that is slowing or has slowed. Employment growth has slowed, and energy cost are rising to record levels just before we hit the high demand winter months. The challenge will be record energy prices combined with a slowing economy. The combination of these two factors can have a significant impact on short-term economic growth. We are telling our clients to review those contingency plans in the event the economic turmoil ends up at their door!  

The Index of Industrial Production had a slight pick up of .1 percent in September. The manufacturing sector which fell .3 percent in August rose a scant .1 percent last month. Overall the index has been trending down since the fourth quarter of last year. The continued softness in the manufacturing sector will give the U.S. Federal Reserve more ammunition for a possible rate cut at this month’s meeting.

I was having a brainstorming session with one of our Small Business Center clients yesterday, who had approached me with a question about creating a new domain name. This client has already registered a domain name and has a web site up and running. The question was in regards to securing a new domain that was more appropriate for this business. As we were researching potential domain names I thought about the challenges I had encountered in the past whenever I tried to create a new web presence.

If you are in the process of starting a business and creating your web site here are some tips for setting up your domain name.

1. Don’t Wait - Make a list of potential addresses that work for your business, and then go after those addresses quickly. Don’t let that great domain name get away. I am not a big fan of using alternative extension like .net, I think they indicate you got into the game late.
2. Be Creative – The name of your web address does not necessarily need to mirror the name of your business. A name that describes your business will work as well or better. A colleague of mine that sold electronic sensors registered the name sensorsite.com. It was not the name of his business, but it reflected what his business did.
3. Keep it Simple – Some companies will create extremely complex domain names and email addresses. Try to keep things simple, if it looks too long it probably is. I have established a “one dot and one dash rule,” if it requires more than that then it is too long.
4. Be Memorable – Not only should your domain be simple, it should be memorable. The last thing you want is to force a client to search the web to find you because they cannot remember your web address. Think in terms of toll free numbers. The ones you remember are the ones that spell the company name or product. Make sure people can remember your web address.
5. Use it Everywhere – You plaster your phone number on everything, why not your web address. As society evolves more people are utilizing the Internet for the initial introduction to your business. Make sure you are telling them where to find information about your business. The more you force the customer to search for you, the more likely it is he or she will find an alternative solution.

Here are some additional resources for creating and registering a domain name for your business.

There are hundreds of self-help authors and personalities who will claim they can make you a millionaire. They will lure you in by promising to disclose the true secrets of success. They will tell you through years of research and analysis they have discovered how the “super-secret” mind of a millionaire actually works! The cold-hard truth is that most of us know what we must do to build a successful business, or have a great career. The problem is that we would rather find a shortcut for getting there.

I cannot help you with that shortcut! I cannot make you a millionaire, in the end it is all up to you. I can give you some simple tips that will help you get started down a path towards success.

1.  Define a Destination – Before you start have an idea of where you would like to finish. If you don’t set a goal or a target, then how will you know when you get there? We have all seen people who have no direction. They move from job to job, and opportunity to opportunity. Each time they move hoping to find greener grass over the next hill. When you write down your long term vision, and create a mental picture of where you want to go, many other unknowns fall into place.
2. Define Your Measure of Success – Too many people are allowing the world around them to define their measure of success. In today’s world, many times this becomes financial wealth and material possessions. That definition of success works for some, but not all. If you are a teacher, success may be seeing the development of your students. If you are a writer, success may be seeing your work on a bookstore shelf. If you are an entrepreneur, success may be proving the long term viability of your business idea. Make sure you measure yourself by your interpretation of success, not someone else’s.
3. Work Hard – I hate to be the bearer of bad news, but if you want to be successful and reach your goals, you will have to work at it. This means putting in the time it takes to get things done.   Somewhere along the way the idea of working hard has fallen out of favor, as if people who work hard are not good role models. The world is full of examples of people who worked hard, committed to their goals, and achieved success. Don’t let anyone convince you that you can get there without a lot of effort!
4. Stay the Course – There will be many times, as you move down your path, that you will question your abilities. There may be some sleepless nights when you ponder whether or not you have what it takes to achieve your goals. At one time or another most successful people have hit a wall, and felt like giving up. The ones who eventually get to their destination are the ones who find a way over that wall!
5. Be Patient – We use to call our family business a 40-year overnight success. Perhaps it is a sign of the times, but it seems too many of us expect success to happen immediately. It will take time to get to your destination. If you don’t get there as quickly as you would have liked, don’t worry. Keep plugging away and you will get there eventually. Lasting success rarely happens in the blink of an eye, it is usually the result of years of hard work and patience, so enjoy the ride!

I realize these principles are basic and forthright. Maybe what we need today is fewer people providing false promises, and more people promoting the truths of achieving success!  

In the fall of 1984 I took my first journalism class at Western Kentucky University. On the first day of class the professor conducted an informal survey of the students. The professor wanted to know if the students believed we had objectivity in our media. By a show of hands the majority of the students indicated they believed our mainstream media was objective. The professor did not have to go far to point out how wrong we were.

I was reminded of that class this morning when I was going through my daily review of the financial news. The first thing that struck me was a report on one of the major financial news channels about retail sales. A giddy analyst was touting the .6 percent increase in retail sales that was announced last Friday, and the .1 percent increase in the core Producer Price Index (this is the PPI minus energy and food). The pitch, once again, was the economy is great, there is no fallout from the downturn in housing, so buy more stocks! The problem is the story ignores the fact that retail sales increased due to energy prices. Retail gasoline sales were up 9 percent in September, therefore, if energy is excluded from the retail number, the retail sales increase was only .2 percent.

A little while later when I was driving into the office I heard a report on CNBC about a new wealth survey. The synopsis of the survey was that Americans are not worried about the housing downturn. They said the majority surveyed believe the value of their home will increase in the next year, and that they are having no problem finding new sources of credit. The survey indicates that consumers will be spending more over the holidays, so buy more stocks!

Then I picked up my Wall Street Journal and I read an article about how the turmoil in the housing and credit markets could hurt republicans in the 2008 elections. The article points out that more home foreclosures are happening in key states like Ohio and Florida. The article goes on to say that while this may not be a major campaign issue now, it could be an issue later. 

I guess our interpretation should be, the economy is not bad enough to stop buying stocks, but it is bad enough to change votes! I cannot encourage our clients enough to always get a clear picture of the current economy. Keep in mind, when you listen to all the interpretations of economic activity, that most of it is is given through the prism of the interpreter’s experience (including mine). Look at all of the data, and come to your own conclusion. Don’t allow one piece of good news or one piece of bad news to affect how you operate your business. Look at the long term trends, and keep moving forward through the rough air! 

In what could be a precursor to tomorrow’s Index of Industrial Production, the Empire State Manufacturing Survey jumped in October. This survey, conducted by the Federal Reserve Bank of New York, is a measure of manufacturing activity in the state. The survey rebounded to a level of 28.8 this month from a significant drop to 14.7 in September.

We will get more ingredients for our simmering economic stew this week, these ingredients will most likely indicate whether the U.S. Federal Reserve will turn the heat up or turn the heat down on the current economy.

We will start the week with some new data on how manufacturing in the U.S. is weathering the housing storm. The Empire State Survey will be released on Monday and the Index of Industrial Production will be released on Tuesday. The consensus forecast is that both will decline slightly. Continued softening in the manufacturing sector will likely lead the Fed down the path of another rate cut at the end of October.

On Wednesday housing starts for September will be released, and the consensus forecast is for another drop. The biggest question many economist are asking is, “How far will new home construction fall, and when will it hit bottom?” This will be another highly watched number. If housing starts decline more than expected there will be continued speculation on how this is impacting the broader economy. The Consumer Price Index will also be released on Wednesday. There is some expectation that the CPI will increase due to rising energy cost. Pay attention to the core rate, if this comes in low, then a Halloween rate cut is likely.

The final ingredient for this week’s stew will be the Index of Leading Economic Indicators, which will be released by the Conference Board on Thursday. The expectation is for a slight increase. A surprise here could cause the fed to hold rates until their next meeting later this year.

Our expectation is that we will have a week full of myopic trinkets as analyst will react to single pieces of data expecting the stew to be ready. However, everyone knows you must always allow a good stew to simmer before you are ready to digest it!

Seventy-Two percent of American workers would rather work for themselves. The only thing I find surprising about that statistic is that it is not 100 percent. Who does not want to have control over their own destiny, and not have to submit to a boss’ every whim on a daily basis? The freedom entrepreneurship provides an individual is something most of us yearn for, but few achieve. The reality is that anyone can be a successful entrepreneur, all you need is a great idea, and the passion to move it forward.

When you are starting your business you will have quite a few people recite all of the statistics that indicate how unlikely it is you will be successful. They will tell you there is a 50 percent chance your business will not make it, I will tell there is at least a 50 percent chance it will, I’ll take those odds! There will also be those who feel it is their responsibility to keep you grounded, that your idea is o.k., but you need to take your time and think about it before getting too excited. I say get as excited as you want, you are going to need that passion!

I spend time helping start-up companies and would be entrepreneurs, whether it is through angel investing, our small business centers, or informal coaching, I dedicate some of my time every day working with part of the 72 percent that want to be in business for themselves. The successful start-ups I know have all avoided these five common mistakes:

1. No passion for the venture – It is not just enough to want to own your own business, you need to pursue something you are passionate about. Keep in mind, you will be living with this business every day for many years (because you will be successful). The most successful entrepreneurs I know pursued their passion and made it reality.
2. Not developing a vision for the venture –  Before you start, have an idea of where you want to end up. Don’t just jump in and slog through every day, you might as well get a “real” job. Take the time to “fast-forward” your thoughts and create a mental picture of where your business will end up. Creating that image gives you something to aim at.
3. Not knowing how much capital is needed –  No matter what your start-up is you will need money. How much money you need depends on the business you are starting. Some business can be started with a computer, some business cards, and a cell phone. Other businesses may need large influxes of capital. Make sure you understand how much money you need to get your business moving forward.
4. Not getting organized – This is one that will hamper many new businesses. There are myriad software packages available today that can help you create financial statements. Take advantage of one them and get the governance of your business started early. Make sure you create processes that help you keep your business organized. If you are not good at this stuff, get someone to help. This problem will only get bigger as your business becomes more successful (and it will be successful).
5. Listening to too many opinions – When you are in start-up mode you need people who are going to push you forward, not hold you back. Too many “experts” will tell new entrepreneurs they need to stay grounded, and get good coaching from business professionals. I think having a realistic view of your opportunity is important, but the world is full of successful ventures that would have never taken off if the founder was too grounded.

Getting a new business started will take time, energy, and effort. If you can avoid some common mistakes and pursue your idea with passion you will be successful.

The University of Michigan’s Consumer Confidence Index fell to its lowest point in October since August 2006. Consumers continue to be concerned about rising energy cost and declines in home prices. The overall declining trend in the Michigan survey correlates to the declining trend in the consumer confidence measure from the Conference Board.

Meanwhile retail sales grew in September. The economic question of the day is, are consumers still spending or are consumers holding back? This particular story from Bloomberg side steps the real issue in the retail sales report. It is correct that retail sales grew in September; however, much of that growth was due to the rise in gasoline prices. When gasoline and automobiles are pulled out, retail spending rose a scant .2%. The irony is that in this same story it is reported that producer prices gained less than expected when excluding food and energy. This is a perfect example of ignoring all of the data to draw the reader to a predetermined conclusion.

The reality, as I posted here earlier, is that both retail sales and the producer price index were above expectations, in both cases the increase was due to rising energy cost. Retail sales excluding energy barely budged (with declines in key areas), and prices excluding energy barely budged. The bottom line is growth still appears to be sluggish and energy prices are putting pressure on the consumer.

Wall Street better wake up, because Main Street is not celebrating yet!

During the 1970s the U.S. economy was hit with a trifecta, continuing inflation, rising unemployment, and stagnant business activity. Economist defined this form of economic weakness as “stagflation.” Although I try to prevent myself from becoming too myopic (thanks Greg) when looking at economic data, I can’t help but consider the possible combination of rising inflation and slowing growth.

This mornings data shows a sharp increase in the Producer Price Index for September and an increase in retail sales. On the surface, both of these point to a period of economic growth. When we dig into the numbers we discover that sales of gasoline from retail outlets had the biggest increase in September helping to boost the retail sales data. The losers were clothing, furniture and home furnishings, sporting goods, and general merchandise. This is an indication gasoline prices are nibbling away at more of the consumers income. The increase in PPI was driven by a 4 percent increase in energy prices, and there are no indications this will abate anytime soon. 

The big picture view continues to be distorted, but there is some concerning data there. Consumer confidence is down and has been trending down, manufacturing in the U.S, although still expanding is also trending down, and labor growth has slowed. The U.S. Federal Reserve is expecting a slight uptick in unemployment in 2007. Keep in mind this all comes on the heals of continued weakness in the housing market.

The bottom line is the possibility of inflationary pressure due to energy prices, and growth pressure due to the decline in housing. Although we are not near the levels we were in the 1970s, I do wonder if these macroeconomic conditions have “stagflation” written all over them. The other possibility is that we have reached the bottom of a slow period in the economy and we are starting the march back towards northeast corner. I guess only time will tell!

Passing the torch to a new generation of leaders in any business is challenging, in a family business it can be an emotional minefield! The odds of transferring leadership in a family business from one generation to the next are not good. The odds get worse with each subsequent generational transition. The business owner has to deal with the normal issues of operating a business during a transition, as well as the emotional baggage that can accompany familial relationships.

Although shifting leadership from one generation to the next can be exacting, it is not impossible. If a family business is willing to take the right actions and avoid common mistakes it can succeed at succession. Some of the common mistakes we see are:

• Not Planning – On occasion I will hear someone say that a family business owner does not need to create a succession plan. If you do not create a plan then you will have no succession. As a business owner if you work with your family and create a plan, you can have some control over the direction of the business.

• Not Setting a Date – For a change to happen one generation needs to step down while the next generation steps up. If a date is not set for when this will happen, then it won’t happen. Setting that date is a major emotional challenge for any business owner, but it must be done for the plan to truly be a succession plan.

• Not Defining Task – You can create a succession plan, and set the date, but if you don’t decide who is doing what, your succession plan will fail. The duties of operating the business need to be split between the outgoing generation and the incoming generation. Clearly defining task makes it easier for everyone involved in the transition, including the employees, to understand who is responsible for what. This must be done so the employees understand who is in charge.

• Not Communicating – The incoming and outgoing generations need to talk to each other and let each other know what problems they have encountered. Nothing will kill a well designed plan quicker than not talking about how things are proceeding during execution.

• Not Separating – One of the most common issues with succession is that the outgoing generation does not want to let go. They know in their hearts they have to, so the business can move forward, but they are disconnecting from something that has been a huge piece of their life. Many times exiting generations will feel as though they are going to lose their standing in the community and their feeling of self-worth. As I said earlier, for a transition to be a transition, someone must leave, and someone must take over. You cannot have succession without separation!

• Not Differentiating – An estate plan is not a succession plan. Many business owners assume that once they have a family estate plan in place their succession plan is resolved. In many cases, the estate plan and the succession plan will mirror each other, in many cases they will not. Don’t halt the process once the estate plan is done!

These are just a few of the mistakes that occur when creating and executing a succession plan. If you would like to learn more about succession planning check out our free podcast on succession and learn to succeed at succession!

Yesterday Boeing announced that the new 787 Dreamliner would be delayed by six months due to supplier issues. Also yesterday, a pension fund in Michigan filed a shareholder suit against Mattel for poor product safety procedures, which has led to numerous recalls of Mattel toys in the past few months. Finally, Starbucks announced a voluntary recall of 250,000 plastic children’s mugs that were made in China because of safety concerns.

I was in a meeting with a colleague yesterday and he mentioned the Boeing delays, and the challenges he had heard Boeing was having coordinating the supplier base of the 787. This led him to muse that perhaps the outsourcing pendulum has now swung too far. I think he very well may be right.

At first the outsourcing phenomenon appeared to be a goldmine for U.S. companies. The opportunity to reduce labor cost significantly tempted many manufacturers to move operations to low cost labor markets. What was once a goldmine now appears to be a minefield. The liabilities are growing and the pendulum will swing back.

If you have a manufacturing business, and you are concerned about competeting in a globalized market, be prepared to address a new opportunity. Tout your “Made in the U.S.A” credentials, your proximity to the customer, your ability to deliver quickly, and address problems effectively. This is an outstanding opportunity for small businesses in the U.S., and they should not let it slip away! 

The United Auto Workers strike against General Motors lasted about a day and a half, the UAW strike against Chrysler lasted six hours, at this rate the strike at Ford (and there will be a strike at Ford) will last about 30 minutes. It strikes me (no pun intended) that what we are witnessing is more about perception than tough negotiations!

The positive outcome is that it appears both the U.S. automotive manufacturers and the UAW have come to the conclusion that they will either win together or they will lose separately. The agreements that have been created are good news for an ailing industry. These agreements should make GM, Chrysler, and Ford more competitive in a global environment. I would suggest a little less theatre. We don’t need the headlines of a strike to convince us both sides are negotiating hard to serve their interest.

Let me fully understand this, the economy has created 40 percent fewer jobs this year versus last year. The average price for a gallon of gas in the U.S. has increased 22% since October of last year, home values are declining, and consumer confidence is trending down. Therefore, poor results from retailers in September must be a due to the unusually warm weather, right!

The problem with spin, is that many times the spinner starts to believe his or her own message. When it comes to the economy I am an optimistic realist. I believe the best way to deal with a problem is to confront it head on, confidently, with the belief that the problem will be resolved. There are too many people out there trying to lay out an expectation that our current economy is in great shape. I fear that they are creating an expectation that will set many up for a hard fall.

I have spoken to many small retailers. None of them have blamed the softness in their business on the unusually warm weather. They generally say the downturn in housing is causing a slowdown in their business. There is nothing wrong with facing the truth, but of course these business owners are focused on Main Street and not Wall Street.

My hope is that the economy is nearing the end of its lull, won’t fall into recession, and will soon turn the corner. That is my hope, and as we know hope is not a strategy. If it walks like a duck, looks like a duck, and quacks like a duck then it’s probably a duck. Let’s face up to what we have to deal with and fix it, as opposed to alter reality to suit our needs! 

The reality of the day is that we are in an uncertain economic environment. If you are considering starting your own business in today’s environment, or you are a business owner trying to develop a vision for your existing business, you need to create a road map for your success. Check out the latest videocast from Rough Air Associates to learn how.

I was getting ready to come to the office this morning, and listening to the financial news as I do every day. An analyst reported that the stock market was up yesterday because the minutes from the U.S. Federal Reserve’s meeting in September indicated there was no recession risk, so investors were happy. I immediately began to wonder what in the world I had missed!

The comments from this analyst prompted me to go back and review the fed’s meeting minutes again. When I was reviewing the minutes, I came to a sudden realization. It was one of those “ah-ha” moments we all have on occasion. I came to the scary conclusion that none of us, the U.S Federal Reserve, the financial analysts, the traders, the economist, or even me has any clue where this economy is headed. This was not an easy thought to consider before my first cup of coffee!

The minutes from the fed’s meeting are clear, and vague at the same time. There seems to be less concern for inflation and more concern for growth. The voting members were united in their decision to cut rates. The highlights I picked up from the minutes were that growth is expected to slow for the rest of this year, and the Federal Reserve is lowering its growth expectation for 2008. The expectation is that economic growth will firm up in 2009. The meeting minutes also show there is an expectation unemployment will tick up slightly next year, and that job growth has been trending down (something I have posted here more than once). None of this information struck me as extremely rosy, or that there was no risk of a recession. In fact it appears to me that the primary concern is the housing slump will impact consumer spending (something else I have posted here) which could lead us to a recession. The bottom line is the Federal Reserve is looking at the same data we are, so they don’t know anymore than we do.

This scary thought, that no one really knows shows up in the attitudes of corporate leaders. Many are on the fence about whether they should be investing for growth, or cutting expense. They are falling into the trap of the dichotomy of the or, they must do one or the other. We are telling our small business clients to do both. Never give up on trying to grow your business, but always be prepared for what may be just around the corner.

The scary reality is that none of us really knows what direction the economy is headed. We generally get our economic information from others who digest it and then tell us what they think. We get our information through the prism of their glasses, and like us they just don’t know!  

We have all played it. Some of us are playing right now. None of us like it, but it is an unavoidable challenge of business. It is the waiting game!

I have played the game, waiting for a boss’ approval. I have also played the game waiting for a customer to respond, and many times I play the game waiting for a vendor to get something done. Did I mention this is a game that I have no patience for? I and millions of other entrepreneurs hate playing the waiting game!

As a small business this is where we can beat the competition and win the customer. Small business is more nimble, responds quicker, and has less layers to fight through. Small business can win the waiting game!

I remember a challenge I ran into not long after we sold our business to a ”multi-billion dollar global company.” I was working on a major integration project, and I learned quickly that you did not move a major project forward without all of the necessary approvals. I believe there were nine to be exact! It took nine months to get a project approved that should have taken nine minutes. A business does not win the game by taking nine months to make any decision, much less one that is less than a seven figure investment.

For small businesses to win the game they must always move quickly. The question is how? Here are some suggestions for keeping your business nimble and on top!

• Spread the decision making – Folks who have contact with the customer need to be able to make decisions when they talk to the customer. A customer does not want to hear you will get back to them with a decision, they want an answer now not tomorrow!
• Allow mistakes – If you let people make decisions. don’t beat them up when they make mistakes. Nothing will kill a quick thinking organization faster than employees that are afraid to make a decision. When an employee takes the initiative to solve the customer’s problem and it isn’t what you would do, coach them on what you would like to happen. After that, praise them for taking the initiative to help your business look good in front of the customer.
• No bureaucracy – If you want your teams to make decisions quickly then don’t create a lot of ”red tape” for them to fight through. If you keep things simple and easy to understand, you can give them the tools they need to take care of the customer.
• Communicate with each other – There will be times when an employee can’t make a decision. The lines of communication must be open. Employees must be able to get to the person who can make a decision. Don’t make them work their way through a process that will keep the customer waiting.

If you want to win the “waiting game,” create a business that does not know how to wait!     

The U.S. Federal Reserve’s policy committee was united when they decided to reduce the targeted interest rate by one-half point last month. The minutes from the meeting show the Fed Governors were concerned about the economic impact from the subprime issues and the downturn in housing. They took action at September’s meeting in hopes of limiting any negative impact on economic growth. I like the comments (primarily because I have said the same thing) from St. Louis Fed President William Poole in regards to the current labor numbers. Poole said, “The substantial upward revisions to data released in the August report remind us that it is a mistake to place too much weight on any one report.” This is a great example of someone else who has been overwhelmed by “myopic trinkets.” 

There is a jumble of economic news out today that may be relevant, although it is not real substantive. There will be two big news items on the economic front this week. The first big item will be the retail sales number out on Friday. The second big item will be the slew of earnings reports that starts with Alcoa’s earnings release later today. Both of these items will provide a picture of what actually happened in the third quarter, and what we can expect the economy to look like in the near future.

After reviewing this morning’s economic news, and listening to the analyst spout everything from recession to inflation, I have decided to debunk some of the common rhetoric.

•  Global Growth Will Save Us – The Financial Times has a piece this morning on falling home prices in Ireland. Last month we reported on falling home prices in England. If the housing markets in Europe decline, I would expect to see some of the same effects there as we see here. Mainly lower demand in new home construction and related industries. That could impact the European consumer. If the U.S and Europe slow, who will buy all that stuff from China? Keep in mind none of this happens in isolation.
• The Subprime Crisis is Over – There is a group out there pitching the idea that the subprime crisis has passed. My guess is that this is the same group that suggests we buy financial and home building stocks (no market manipulation there). Standard and Poor’s reported today that they believe the subprime crisis will not peak until 2009. This is similar to what we posted here last week. Although S&P falls into the “we will be saved by global growth camp”, they do see weakness in the U.S. economy. A reality check reminds us that this crisis still hovers over the economy. It is always calmest before the storm!
• Oil Prices – I am not really debunking anything here, the common belief is that oil prices will be up this winter. Some are expecting $100 for each barrel of oil. There is also an expectation that it will cost 10 percent more to heat your home this winter. I believe increased energy cost will create more resistance to economic growth in the U.S. and abroad.
• Investor Optimism – If I ran my business based on the optimism or pessimism of investors of publicly traded companies, I would not be in business very long. The stock market is fickle, it can turn on a dime with one piece of news. Look at the run-up in stocks last week which had no real logic behind it. It does not appear to me that these “investors” take into account the real value of a business, or the real risk/potential of markets. Remember, many of these folks are the same ones who bet on subprime mortgages!

At this point I still see little or no data to support the idea that the current economy is strong. I believe our short-term prospects continue to point to a softer economic environment, while our long-term prospects point towards growth (they always do don’t they).

I ran across this article in the New York Times yesterday about Wonton Food in New York. The article took me back to the 1980s and New Coke!

Many of us remember New Coke. The Coca-Cola Company, due to declining market share, decided to change the formula of their classic soft drink. The results were disastrous, customers were outraged, and a few months after its introduction the company reintroduced Coke Classic, a brand Coca-Cola is still using today.

There have been many marketing gurus that have analyzed Coca-Cola’s mistake, some have even speculated that it was not a mistake at all, rather it was a marketing coup, although that myth has been dispelled. The reality is Coca-Cola made a mistake. It now appears Wonton Food made a similar mistake when it decided to make the fortunes in its fortune cookies more “realistic.” It is as if Wonton is saying, “Have a bad day!” 

I want my Coca-Cola to be Coca-Cola and I want my fortune cookie to make me feel good. I have enough reality in my life, the last thing I need today is a cookie telling me ”my problem just got bigger.” I believe that sort of realism takes the fun out of my fortune cookie.

Small business owners must ask ”How do I avoid falling into this trap?” So here are four easy tips that can help you avoid a major marketing goof.

1. Talk To Your Customer – As a business owner it is very easy to become isolated. If you don’t talk to the customer on a regular basis, how will you know what they want? A business owner that loses contact with the customer runs the risk of being led down the wrong path.
2. Understand Change – I am a big proponent of trying new things in your business and I believe change is good; however, don’t just change something to change it. One of the best marketing lessons I learned early on was that many times we get tired of something long before the customer even knows we have it.
3. Get Second Opinions – Don’t just rely on the product designers and your marketing folks when it comes to new products. Ask your customers, distributors, and vendors what they think. Get a wide cross-section of opinions before you start marching down a path (or falling from a cliff).
4. Watch Out For The Train – After a product is introduced many of us feel committed. Once we have invested a great deal of money we feel as though we can’t give up, we believe that success for our new product is just around the corner. There will always be those who say they see a light at the end of the tunnel: You need to make sure it isn’t an oncoming train! If it is not meant to be, it is not meant to be, take your lumps and move on.

 If you do your homework up front, you can prevent your company from falling into the category of “What Were They Thinking!”

October 1st, 2007

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I have decided we have too many people analyzing the economy that provide us with nothing more than “myopic trinkets.” The only thing they do is give us short-sighted information that has little or no value. One does not need to look much further than the major financial newspapers today to understand what I mean.

In today’s Financial Times, the outgoing Managing Director of the International Monetary Fund warned that the current credit crisis was not over and would have a negative impact on global growth. He said, “Policymakers should not think that the problems will stay at the desk of the bankers.” There are two articles in today’s Wall Street Journal indicating that the “rosier” employment numbers are spurring some analysts to believe that the dollar will rise, because now the U.S. Federal Reserve will not be likely to cut rates again when they meet later this month. This strikes me as a plethora of “myopic trinkets.”

What employment numbers are these people looking at? The data released by the Department of Labor this past Friday showed the economy added 110,000 jobs in September. Prior to that report being released the consensus was for 115,000 new jobs in September. I think it is safe to say that for September the economy met expectations. The bright spot was the revision to August adding 89,000 jobs and an upward revision to July. Ironically in September, when the August numbers were released, the July employment numbers were revised downward! None of this data strikes me as being rosier than expected! The bottom line is the economy is not creating jobs like it has for the past few years. In the third quarter the economy generated 292,000 jobs, the lowest number of new jobs in a quarter since the third quarter of 2003. The long term job growth trend has been steadily declining for quite some time, perhaps we turned a corner in September, I do not know. I do know that the economy is generating fewer jobs now than it has it the last three years. I would not call that rosy!

Too many analyst are looking at one employment report and telling us that based on that report the economy is in great shape. I suggest they stop trying to promote their point-of-view and start looking at all of the data. The indicators pointing to an economy growing at a slower pace are certainly outweighing the indicators pointing to inflation. I am not pessimistic about economic growth. I believe the economy ebbs and flows, it is currently in a downward trend, and at some point in the future it will be on an upward trend.

I have often mentioned the differences between Wall Street and Main Street. Here on Main Street, in the real world, certain segments of our economy are having a difficult time. In the last few months I have spoken with Realtors, bankers, electrical distributors, and furniture salespeople. All of them have told me the same thing. The segment of the economy they are in is not strong. They are feeling the fallout from the downturn in new home construction.

You cannot cure a disease you don’t believe you have. We have too many analyst trying to convince us the economy is booming to serve their self-interest. When the economy picks up (and it will pick up), we will know. The data will tell us the economy is growing and we will feel it on Main Street!      

This is an article I wanted to share about the National Foundation for Teaching Entrepreneurship, a non-profit headquartered in New York that teaches business skills to low-income kids. I do not know much about this organization at this point, although I will certainly learn more. Anytime we can teach our kids to be self-reliant, and give them practical skills they can use, we are doing the right thing!

If you know of any other organizations like NFTE let us know!

In case you have not had the opportunity to see our most recent Rough Air In-Flight Video you can catch it here.

The Rough Air In-Flight Video is a quick five minute video-cast that focuses on small business and family business issues. Our most recent video takes a quick peak at what is behind the current economic curtain, and how you can help your business manage the rough air!

We have more economic data to watch for this week, which will continue to help us understand what direction this economy is headed, maybe! On Thursday we will see the Import/Export data. Many people have speculated that the weak dollar is leading to stronger exports which will act as a lift to our economy against the drag of housing. We will get some inflation data on Friday with the Producer Price Index. The economic bulls are hoping that inflation remains in check. Finally on Friday, we will get Retail Sales for September. A strong number will indicate that the economy is weathering the subprime storm and the consumer is still buying. A weaker number will continue to stoke those fears of a hard economic landing!

Will your business still be around ten years from now? Will there still be demand or will you be forced out of business because of some major shift in societal or technological trends? Entrepreneur Magazine has an article on businesses they believe will be extinct in the next ten years. Some of these such as camera film manufacturing, and record stores, are strong possibilities for extinction. Some, such as newspapers, I am a little more doubtful about their demise (perhaps because I enjoy receiving and reading my newspapers everyday).

I would like to add two more businesses to the list of the soon to be extinct:

1. Check Printers – I remember years ago when I did not leave the house without a checkbook. Now I don’t leave the house with one. More people are becoming comfortable in the online world. The inevitability of this is that more people will pay their bills online. Also, since debit cards and credit cards are everywhere, I can see a day when checks are a thing of the past.
2. Commercial Airlines – Perhaps I should restate this as “commercial airlines as we know them today.” Very light jets (VLJ) will eventually change the complexion of private jet leasing. As the cost to operate smaller jets decreases, and the cost to own or lease declines, more businesses will go the route of private jet leasing networks or air taxis rather than traditional commercial air travel. Perhaps this is more hope than reality, but I look forward to the day when my short-haul flights will be flown on a small private jet.

Now you have my contribution. What businesses do you think will be extinct in ten years?    

It is no secret that globalization and free trade have been hot business topics in the U.S. for quite some time. Ross Perot ran for president in 1992 on a platform against free trade agreements. Do you remember, “That giant sucking sound?” Lou Dobbs has spent a great deal of time and commentary on the outsourcing of jobs. There is no doubt that as small business owners we must deal with globalization; however, we also need to be prepared in the event the blowing trade winds shift direction.

Yesterday the Wall Street Journal ran an article about the growing skepticism of free trade in the Republican party. This is an unusual shift since the party platform focuses on an agenda of free trade. The recent spate of product recalls on goods from China, due to safety concerns, helps fuel this skepticism. There is also some speculation that we might be seeing some “tit for tat” actions taken by the Chinese government on trade issues.

I recently read an article about a European manufacturer, Schneider Electric, which was ordered to pay $45 million in compensation by a Chinese court for apparently infringing on a patent held by a Chinese company. Not long ago I was in a meeting with several other business owners and executives, and we were discussing this issue. One executive talked about a project in China for a U.S. company that was halted, apparently as retaliation for recalls of Chinese made toys.

The question for a small business owner is how will a shift in trade policy affect your business? If you are a manufacturer in the U.S. your prospects are beginning to look good. A tougher trade stance with China may limit the amount of low cost competition in your marketplace. Combine this with a weak dollar, and U.S. manufactured goods become more competitive here and overseas. We are suggesting our manufacturing clients highlight their “made in the U.S.A.” credentials, and look to expand their market reach in areas like Europe, where the dollar makes U.S. goods very competitive.

For businesses that are importers or distributors of goods made in China, a shift in trade policy has a more negative impact. The weak dollar is making any imported goods more expensive. The reputation of goods manufactured in China is deteriorating quickly, so both of these issues can impact competitiveness. If the prevailing government winds become more protectionist then you can expect more restrictions on imported goods. Now might be a good time to look at other possible sources for imports or expanding your base of products made in the U.S.

The question for everyone is will there be major shift in our trade policy with China, and what will it be? That is likely something we will not be able to answer for quite some time!   

Justin Lahart has a good piece in the Wall Street Journal today about how a weak economy does not always mean job losses. His primary issue is the way the Department of Labor accounts for teaching jobs in its monthly report. He also sees some discrepancy between the Institute for Supply Management’s survey, which shows manufacturing jobs growing slowly, and the Department of Labor number which shows a steep decline in manufacturing jobs.

Lahart refers to the jobless recovery of 2003 and points out that U.S. companies are running pretty lean, so they may not be cutting back, even if the economy slows. I am not sure I agree with all of Lahart’s points, but he does seem to take a pretty balanced view. If you have a subscription to the WSJ, I suggest reading this article. Here is the free highlight. 

The Department of Labor announced today that 110,000 new jobs were added in September. The numbers for July and August were both revised upward. Although, the number rebounded from the decline in August, the unemployment rate increased to 4.7 percent. If the current rate holds the economy will add 1.4 million new jobs in 2007, versus 2.2 million in 2006, and 2.5 million in 2005. The rebound in September and the revisions for July and August are positive news. Whether or not this means that job growth is going to start moving back to 2005 and 2006 levels remains to be seen.

It appears that more U.S. toy manufacturers are jumping on the bandwagon and emphasizing their “Made In America” roots. I have mentioned in the past that every competitor has a weakness. Here is a another story on U.S. toy manufacturers, that build their products in the the U.S., capitalizing on the recent quality and safety issues that have enveloped products being manufactured in China. These issues do not seem to be going away, as recently as yesterday we have heard about more product recalls.

This is a great example of U.S. companies adapting their businesses to gain a competitive edge during an age of globalization. I have been told that if you have a strong competitor it can serve to make your business stronger. As business owners our responsibility is to figure out how to compete, whether that competitor is on the next street, in the next state, or on the other side of the world. We must learn their weaknesses, adapt, and overcome. 

As more data is revealed the picture of a slowing economy is becoming clearer. The Commerce Department reported today that factory orders fell in August 3.3 percent. The largest drop since January, and larger than the expected decline. The decline is further evidence that the U.S. economy has weakened in the last few months.

A few weeks ago I posted an article about the slowdown in the economy and its potential impact on the industrial automation and electrical distribution markets. I am still very interested in these market segments, because many of our current clients are involved in these industries. My projection that the downturn in housing and the subprime mess will spill over into these areas seems to be playing out.

Recently Schneider Electric, a global leader in electrical distribution and industrial automation, indicated its concern for a possible slowdown due to its exposure to the U.S. construction market. This announcement preceded a Chinese court ruling against Schneider for patent infringement. Schneider was ordered to pay $45 million in damages; however, they are appealing the ruling.

The concerns expressed by Schneider executives are valid. I have been told by several contacts in the past few weeks that the problems in home construction are impacting suppliers and distributors on the electrical distribution side. I posted an article earlier this week about a distributor of supplies to home builders who is beginning to see a cash crunch from the construction slowdown. The relatively weak U.S. automotive market is impacting the industrial automation segment. The feedback we are getting is that growth in this segment is limited this year, anywhere from flat to an increase of five percent.

This data just confirms a widely held view that the downturn in housing and the subprime problems will not be isolated to home builders and financial firms. As I have said in the past, how much this effects your business depends on how close you are to the point of impact. The bottom line is that this is not an isolated event, and could be holding down economic growth for the next several months.

Weekly jobless claims revealed little about the what the labor market report, due out tomorrow, will tell us about the current economy. New claims for unemployment came in slightly above the consensus, and the four week rolling average had a minor increase. The “mother of all economic” reports is due out tomorrow morning when the Department of Labor releases its data on September employment.  

I was born into a very competitive family, that is probably why I am a very competitive, and goal-driven person. Whenever I start to pursue a goal and someone tells me it can’t be done, I have an incredible desire to prove them wrong.

If you saw me in a crowd you probably would not guess it. In fact you likely would not even notice me. I would strike you as pretty much a regular guy. The fact of the matter is, I am not unlike any other entrepreneur out there.

I have a love for business. I often refer to myself as a student of business. Through the years I have learned that any business problem, no matter how challenging, can be resolved with time, patience, and sometimes money. There are times when your business problems may seem insurmountable, but you can always find examples of people who have overcome adversity to be successful in business.

I have found that many times in life, our greatest successes seem to come from our most difficult circumstances. How many failures did the Wright Brothers have? How many failures did Edison have? I could cover the walls with platitudes about how attitude will create success. I could inundate you with positive quotes and phrases intended to motivate you to achieve something greater. All that is wonderful, but it still won’t get you there.

Being a successful entrepreneur is all about how bad you want it. The folks who commit to it and think of nothing but success are the ones who make it. No matter how challenging your business gets, keep it at, and commit to moving it forward. No one can teach you to be successful.  No one has the magic formula for getting you there, it is all about you, and how much you are willing to commit to build your business. So together, let’s get it done!

In another sign the economy is slowing the Institute for Supply Management’s non-manufacturing survey fell in September. The survey came in at 54.8, which shows some modest growth in the service area of the economy. This is another piece of data that indicates the fallout from the subprime issues and the housing decline have impacted the economy. Many analyst will put a lot of weight on Friday’s jobs number as the indicator of the health of the U.S. economy. 

There is little doubt that the ripple effects from the subpime mortgage fallout and the housing decline will spread far and wide. Although the impact from both is being felt strongly by financial firms on Wall Street, it also being felt by small businesses on Main Street.

Yesterday, we posted an article about a distributor that supplies home builders and renovators. This distributor is now struggling with some potential bad debts, because its customer’s business has taken a significant downturn. Fortune Small Business has an article about how the credit crunch is now impacting some small business owner’s ability to raise capital. This is putting these business owners in the position of not being able to invest for growth.

In the past few weeks I have had several people approach me about helping them find employment. Some are in industries that have been directly impacted by the current problems in the economy, and some are just concerned about what the future holds. It strikes me that the analyst need to wake up and develop an understanding of how the current economic crisis is impacting the 5.6 million small businesses that are Main Street, not just portfolios on Wall Street!  

During the past several weeks I have cautioned our clients to view the current financial circus with a skeptical eye. The U.S. stock market is up this year, and many analyst are attributing it to our strong economy. The data that we look at, which is the same data everyone else looks at, does not support the idea that the current economy is robust. The current economic data drives me to a different conclusion.

Whether it is in our business, or in the economy, many of us try to assign predictability to unpredictable events. What will happen in the U.S. economy in the next few quarters is unpredictable. The best we can do is review the trends leading up to our current environment, and make a guess on whether we believe the trend will reverse or continue.

As I listen to some analyst, they cite many reasons why they believe the economy is strong or has stabilized. Some say the stock market is a leading indicator of economic growth, so since the market is going up we must be in store for stronger growth. There are those who will say that the housing decline will have limited impact because of globalization. They believe growth in emerging markets will offset any downturn in the U.S. economy. Some have even said that the housing market has hit bottom and is preparing to turnaround.

The data I look at does not seem to support these conclusions. When I review GDP growth I see three major peaks over the last four years. In the third quarter of 2003 GDP growth was just under 7 percent, at that time the Dow Jones Industrial Average was under 10,000. During the first quarter of 2006 GDP growth came in over 5 percent, the Dow Jones at the time was right around 11,000. The second quarter of 2007 saw GDP growth of 3.8 percent, the Dow Jones Industrial Average ended the second quarter near its all time high. Since 2003 GDP growth has been trending down, while the Dow Jones Average has gone up around 40%. If there is a correlation between these two pieces of data, I am having a difficult time seeing it.

The thought that that any downturn in the U.S. economy will be offset by global markets sounds reasonable, although there are indications that the U.S. is not in the subprime crisis alone. Spanish property delinquencies are expected to jump, home prices in England are falling, and German business confidence is at a 19 month low. The dollar is also making goods from Europe expensive for U.S. consumers. If growth in both Europe and the U.S. slow, I cannot see how the global economy can continue to grow.

The thought that the September pending home sales data was so bad that it cannot get worse defies logic. Just because a number is bad does not mean it can’t get worse, it may mean we just don’t want to consider the ramifications if it does get worse. According to Market Watch, the mortgage reset ”tsunami” is not finished yet. It is expected to peak in 2010. Even the home builders are expecting the current downturn in housing to be with us for quite some time.

I still remain concerned about the overall economy. I am hopeful that I will start to see some data that alters my view, but I am not expecting it in the short term. The Rough Air In-flight Video ,which went up on our site yesterday, covers contingency planning. I suggest you watch this free video, and get some ideas on how you can manage the current rough air!  

The economic data continues to point to a slowing economy. Business owners need to ask themselves what areas of their business will be impacted if the economy slows. One of those areas will likely be collecting receivables.

I was meeting with someone last week and she shared a story about one of her customers who was having trouble collecting receivables. This particular customer is a distributor of supplies to home builders and renovators. Over the past few months this distributor has seen its business slow as the housing market has slowed. This company has been able to effectively manage its inventory as it prepares for the slowdown. The problem it is having is that its customers in the housing industry are stretching payments as their cash flow tightens.

As customers have slowed payments, the cash flow for this distributor has begun to tighten. The owners of this business decided to increase its line of credit to address slowing receivables, although the tightening credit markets do not make that easy. This is a good case study in understanding your customer’s business and limiting your risk. This is also a good example of the impact the housing downturn is having on Main Street. The bottom line is that you don’t want to get caught financing your customer’s business.

Here is an article with some tips for collecting receivables. Always remember, when it comes to collections, the squeaky wheel gets the grease!

Pending home sales were down 21.5 percent from August 2006. This was the worst performance since the National Association of Realtors began tracking this data in 2001, the previous low was in September 2001. This is further evidence that the housing market continues to suffer, although there are already analyst “spinning” the data by saying it can’t get any worse! Well, now that seems logical, except for the fact that loan resets (which has been one of the drivers of the subprime mess) have not peaked yet. I think the only thing we can safely say is that the housing market is a mess! None of us know when it will be over! 

One of the early lessons I learned as a CEO (other than the one about humility, which did not take) was not to discount information just because it does not correlate with my already established point-of-view. This is a difficult lesson to learn, because many times we only want to process confirming information. We disregard any data that does not confirm our established point-of-view.

When I was watching the financial news yesterday I decided I would throw out all of the data I had processed over the last few weeks. I decided to ignore the fact that the the labor markets have been trending down, that the housing market is in a precipitous decline, that consumer confidence is waning, and that manufacturing growth continues to slow. I tossed out all of that data for just one day of economic euphoria!

The Dow Jones Industrial average was up almost 200 points yesterday, it closed at a record high. That makes me very happy. I, like many other Americans, own stock in publicly traded companies, so when the market goes up I am happy.  As I caught up on yesterday’s financial news not only was the market up, but the credit crisis is now over, the economy has turned, and happy days are here again!

Given yesterday’s news, I have decided that this morning I will hop on my unicorn and fly off to Never Never Land with Peter and Tinkerbell. This way I will feel right at home with all of the other analyst on television!    

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Rough Air Associates is pleased to provide these quality links for more information on Small Business.

www.daytondailynews.com – The Dayton Daily News business section can give our Dayton based customers a quick look at what is going on in the Dayton business community.

dayton.bizjournals.com – One of the American City Business Journals, they give an in-depth view of business in the Dayton area.

cincinnati.bizjournals.com – One of the American City Business Journals, they give an in-depth view of business in the Cincinnati area.

columbus.bizjournals.com – One of the American City Business Journals, they give an in-depth view of business in the Columbus area.

www.fsb.com – Fortune Small Business is a good resource for articles and up to date info impacting small business.

www.fastcompany.com – Fast Company is a magazine that gives great ideas on growth opportunities fo your business.

www.inc.com – This is a site and magazine dedicated to smaller, entrepreneurial businesses in the United States.

www.allbusiness.com – A site with good collection of resources for business owners.

www.sba.gov – U.S. Small Business Administration site.

Special Partners
Partnering with specialized service organizations helps your small business succeed. The Partners of Rough Air Associates are provided for your use.

www.provestproperties.com – A business dedicated to matching the right business owners with the right investment opportunities.

www.gemcompanies.com – Our partner in the Rough Air Small Business Centers, they manage our properties.

www.coollaw.com – Our legal support team.

www.ml.com – Our personal and professional financial advisors

www.nationalcity.com – Our financial support for the Rough Air Small Business Centers

www.forwardmediagroup.com – Our marketing design partner

www.daytonregion.com – The Dayton Developement Coalition

Blog Links
Here is a listing of blogs and blog resources.

cnnmoney.com - Fortune Small Business blog

blogs.usatoday.com/smallbiz - USA Today’s small business blog

blog.fastcompany.com – A blog focused on business growth

allbusiness.com/blog – A blog and site with myriad resources

blogsforsmallbusiness.com - A blog directory focused on small business

blogarama.com - A general blog directory

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The Institute for Supply Management released its September survey which reflects activity in the nation’s manufacturing sector. The index fell slightly for the fourth consecutive month reinforcing the idea that the U.S. economy has slowed due to the fallout from the subprime crisis and the recession in the housing market. September’s number came in at 52, the three month rolling average has been declining since the second quarter. This is the lowest reading for manufacturng since March. The data continues to point to an economy that is growing at a slower pace.

Managing a family business is not an easy task, not only must you deal with the day-to-day issues that challenge all businesses, but you also must deal with the unique emotional issues that come with a family business. Selling a family business can be a major emotional issue for the entire family. Most family firms are not just an asset to be traded, they are the family’s legacy. Many families that own their own business are known in the community for that business, giving up that status through the sale of the business is an emotional roller-coaster.

The Wall Street Journal has a great article on selling a family business, if you have a subscription I highly recommend reading it. The article touches on some of the emotional issues of selling a family business. One of those issues is where each generation in the business is on the Small Business Life Cycle Map I describe in my book, Rough Air Ahead. An older generation that is ready to exit the business is thinking about retirement, a younger generation is still thinking about investing for the future. One generation is concerned about protecting their assets, the other is concerned about growing their assets.

I experienced all of this turmoil when we decided to sell our family business. On the surface it seemed like a ”no-brainer” decision. We could have run the business for another 25 years and we likely would not have made as much money as we did selling the business. Although, the value of the deal was a critical factor, it did not eliminate the emotional issues. We had family members who wanted to sell and family members who did not want to sell. In the end it worked out well for our family, but it was not without its challenges.

If you want to sell your family business here are some tips that can help you calm the emotional turmoil and get what you need from the sale:

1. Know the real value of your business, get outside help in understanding that value
2. Remember, the value of your business is not what you need to maintain your lifestyle, it is what someone is willing to pay
3. Make sure there is clear communication within the family through the entire process
4. Get the family issues out on the table early
5. Educate everyone in the family on the value of the sale versus the value of keeping the business
6. Make sure you have a “what if” plan if the sale does not go through
7. Ensure you business is prepared for sale
8. Ensure the family is prepared for the sale
9. Every family member should have a financial plan for after the sale is completed
10. Every family member should have a personal plan for after the sale is complete

Selling any business is a complex task that requires a lot of patience. The legacy of a family business makes that task even harder, we know, we have been there!

Too many managers don’t recognize their employee’s efforts when those employees have done a great job. Perhaps that is because they have a hard time figuring out what to say, or how to recognize them for outstanding effort. Patting your employees on the back costs you very little and provides an incredible return.

I ran across this article which makes the point that positive recognition can improve customer service. I believe they got this one right. Positive recognition can also improve many other facets of your business like efficiency, employee commitment, and turnover. Employees who feel appreciated will always outperform those who do not. Recognizing your employees, and making them feel appreciated costs very little, and has great rewards! 

There will be a plethora of economic news this week to watch, and one number will stand above all the others as the most indicative of where our current economy is headed. On Monday we will see the Institute of Supply Management’s (ISM) manufacturing index for September, the consensus forecast is 52.9, which is the same as August. On Tuesday we will get data on motor vehicle sales for September, the expectation is for a slight drop from the strong showing in August. The ISM non-manufacturing survey will be out Wednesday and factory orders will be released on Thursday.

Fasten your seat-belts, because we will get the “mother of all economic numbers” on Friday when the Department of Labor releases the employment numbers for September. The consensus forecast is for an increase of 115,000 jobs. The forecasted range is anywhere from an increase of 50,000  to 147,000 new jobs.

If the forecasted numbers are hit we can expect many analyst to hit the financial airwaves this week and tell us that the slowdown from the subprime fallout is over, and happy days are certainly here again. These same analyst will also opine that the Federal Reserve went to far in lowering rates .5 percent in September, and the real issue facing the economy is inflation not growth. If the forecast is missed on the low side, then we will have many of these same analyst telling us how the Fed got it right.

I am not holding my breath for a great jobs report, although I would like to see one. The three month rolling average of new jobs has been trending down since 2006. At some point, I would expect this data to start trending the other way, although I am not expecting it just yet. A number below 65,000 will cause that three month rolling average to fall a bit more, and give us more data indicating that the economy has slowed over the past few months. The jobs number is the number to watch this week, stay tuned for Friday! 

The problem with gauging economic activity is that we are never able to judge what is just ahead of us, and we can’t seem to agree on what is just behind us. I am starting to see a significant increase in the “chatter” from analyst about a possible recession. Some have even indicated that we could be in a recession already. It is certainly safe to say the U.S. housing market is already in a recession.

Here is another article discussing a looming recession. I think they hit quite a few key points, although I am perplexed about the comments in regards to labor markets. The Bureau of Labor Statistics shows that job growth dropped over 40% in the first eight months of 2007 versus the same time period of 2006 (that is about 700,000 fewer new jobs). I am mystified about how that can be interpreted as a resilient job market. Perhaps the September jobs number will prove some resiliency, we will know at the end of this coming week. 

As business owners, we have no say into whether the economy is booming or busting. All we can do is structure our business to take advantage of the economic environment around us and be prepared for what we think may lie ahead!

We are now approaching my favorite time of year. College football is in full swing, the leaves are changing, and the weather is generally beautiful. The only downside is that autumn reminds me that soon small business owners all over the country will be getting their annual increase in health insurance premiums.

For our business this was always a crap-shoot. I felt like I was going into a Vegas casino when we would sit down with our insurance provider to discuss where premiums were headed. We always knew there would be an increase, sometimes it would be 5 percent, sometimes it would be 25 percent. It was one of the few vendor meetings I would have where I would actually hope for a 5 percent price increase.

The premium increase would be followed by several management discussions about what we were going to do with rising insurance cost. In most cases it meant more bad news for employees, because it meant more of the burden of paying the premium would fall to them, their plan benefits would decline, or both.

I ran across an article in the Financial Times about health care costs being the Achilles heel of U.S. business, and how the burden of figuring out how to handle the problem was likely to fall to employers. There are many ways to reduce your insurance cost, HSAs (Health Savings Accounts) have become increasingly popular because they put more of the decision making in the employee’s hands versus the employer’s.  VEBAs (Voluntary Employee Benefits Associations) are also becoming more popular. This was the method General Motors used this week to resolve their dispute with the United Auto Workers. Some employers are even taking a proactive approach by instituting wellness programs.

No matter what approach you take, if your business is like ours, you will get the usual complaints about the rising cost of health insurance, and the decline in benefits. This is one of those business problems where we seem to be making incremental improvements, but we have no solution. We tell our clients to do their homework and make sure they are balancing their employee’s needs with their business’s needs as they tackle another year of rising health insurance premiums.

Consumer spending and incomes rose in August while the Core PCE price index declined. Many of the talking heads are on TV and celebrating today. They say these numbers indicate the economy is in great shape, inflation is low, and consumers are still spending money.  Although these numbers look good, keep in mind they are a snapshot of one point in time. 

Many years ago I learned an important lesson about analyzing data in business. My business was having a poor year, we were behind forecast, and just barely beating the prior year. We were in the last of the month of the quarter and we had a record month. Our orders and shipments looked great, our profits were fantastic. At the quarterly board meeting I confidently reported that the year had turned, and we were back on track. I was almost right, our turnaround lasted one month. Suffice it to say I had a considerable amount of egg on my face.

Never look at data in isolation. A month’s worth of data only indicates how your business did in that particular month. Always look at the trends and what all of the data combined is telling you. Never celebrate until both you and the ball are in the end zone! 

The first step in resolving a problem is getting everyone to recognize there is a problem in the first place. There is a serious growth issue facing Main Street and many analyst don’t want to recognize it. Many businesses have not yet felt it, but they will over time. Every day I hear a few more stories of businesses that are running into issues due to a slowing economy. The CEO of Freddie Mac is close to the point of impact, so they are feeling the effects of the housing downturn and subprime problems early. Even former Federal Reserve Chairman Alan Greenspan believes the odds of a looming recession have increased.

The only thing I can say for certain is that I (and every other economic handicapper out there) do not know if we are headed for a recession or not. The indicators I look at seem to be telling me we are, so as I have said before be prepared.

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.  

New home sales fell 8.3% in August to the lowest level since June 2000. This news came on the heels of the announcement by KB Homes of a loss for the third quarter. They have indicated this is the worst housing market they have seen in years, and they do not see it hitting bottom any time soon. It seems, given our earlier post on oil prices, that I am just full of good news today.

The new home sales data was at the bottom end of analyst forecast, I am not sure that makes me feel any better. The data keeps mounting, although the final GDP numbers for the second quarter came in today at a healthy 3.8%, there is still considerable pressure on the current economy. It strikes me that we are still at the start of this economic saga, and not at the end.  

I hate to start everyone’s day with something so gloomy, but analysts are expecting oil prices to hit a record in 2008. This article indicates that next year oil may average $67 a barrel, and go as high as $95 a barrel by the end of next year. That is the bad news! The good news is that analyst expect oil prices to peak in 2008, and come down in 2009 and 2010 (I am not exactly sure what miracle is supposed to cause prices to retreat).

My primary concern is what impact higher oil prices, and higher prices at the pump, will have on an already sluggish economy. I heard a report the other day which said that most recessions were preceded by peaks in oil prices. These reports combined certainly cause one to think about things for a moment.  I must admit, I have had days which started better.

At the end of the day, it is what it is.  As I have said before, cash is king! We are telling our clients to ensure their business is prepared for a possible slowdown, so they can come out a stronger, better business when all is said and done! If they do that everything else will be irrelevant.

Every small business owner knows, cash is king! Regardless of the environment around us, our primary concern is always cash flow. The question our clients are asking, “Given the current condition of the economy, how do the rules of the game change?”

The data pointing to a softer economy continues to mount. It seems as each day passes, someone puts another nail in the coffin of strong economic growth. Are we headed for a recession, inflation, or both. No one really knows, and don’t let anyone convince you they do. Too many of us work very hard to assign predictability to unpredictable events. That said, we still need to figure out which way the wind is blowing, and position our business to manage the rough air.

As we head into a uncertain future (as if any future is certain), we are suggesting to all of our clients the best offense in this environment is a good defense. If a slower economy has the potential to hurt your top-line, it can hurt you competitor’s as well. If you are proactive and position your business to build cash you will be better positioned to sustain an extended downturn, as well as invest for growth. Here are five simple things you can do to build cash during a slowdown.

1. Cut Discretionary Cost – Advertising, promotions, sales travel, bonuses, magazine and newspaper subscriptions; these are all expenses on the income statement that we believe we need, but in the short-term we could possibly live without. I am sure for your business there are discretionary costs that can be cut, and the business will survive. If you want to build cash during a downturn, this is a place to start.
2. Capital Equipment – Are you thinking about a new computer system, or a new machine for the shop floor? Capital Equipment sucks up cash. Many businesses operate in a Cap Ex = Deprecation model. This means they try to limit their capital spending to an amount equal to their equipment depreciation. Lowering your capital outlays has two benefits, you use less cash on capital, but you are still getting a tax benefit from current depreciation. A temporary hold on capital equipment can help build a healthy cash base.
3. Accounts Receivable – How do your customers pay? Do they pay in 30 days, 45 days, or 60 days? Depending on the level of your receivables, reducing the days sales are outstanding, or how long it takes for you to get paid, can help supplement your cash flow. Don’t become your customer’s bank during a downturn. Always remember when it comes to collections, the squeaky wheel gets greased. If you ignore your receivables you will get paid when your customer is ready. A little extra effort on receivables can improve short-term cash flow and reduce bad debt.
4. Inventory – If you a manufacturing or distribution business, there is always cash to be found sitting in inventory. Getting those inventory numbers down can build cash. If sales growth is slowing or stagnate, your inventory should be coming down in proportion to a slowdown in your business. Bleed off excess inventory, and save some cash. Now would be a good time to obsolete old inventory as well. This is money already spent. If you obsolete it and expense it now, you reduce your income and overall tax liability.
5. Taxes – Explore opportunities for reducing your tax liability. Obsoleting inventory is one way. For many small businesses taxes are a major cash burden. A slowdown will likely result in a natural reduction in revenue and income. If there are other opportunities in your business to increase expenses without sucking up cash, take advantage of them now.

The reason many small businesses fail is not because the economy or the market puts them under, it is because the leaders of those businesses refuse to recognize the environment they are in. Every business owner can manage through the good times or the bad times. The most successful business owners position their business to succeed regardless of the world around them. 

Durable goods orders were down in August after a big rise in July. Demand fell 4.9 percent for the month including transportation. It appears that this is another indication we are currently operating in a softening economy. The real question is how soft do things get, and how long does it last?

I grew up in a GM town, I live and work in a GM town; therefore, many of my customers, and potential customers are involved in the automotive industry. Many of those folks are breathing a sigh of relief this morning as General Motors and the United Auto Workers reached a contract agreement. The major sticking point was rising health care cost, GM wanted the UAW to bear more of this cost, the UAW wanted job guarantees in exchange for taking a greater portion of the health care cost. We can only speculate on the overall impact of the agreement, because GM and the UAW will not talk specifics until the union members have an opportunity to ratify the agreement, which should happen this weekend.

This agreement should pave the way for UAW talks with Ford and Chrysler over the next few weeks. Whether it makes the U.S. automotive manufacturers more competitive remains to be seen. The fact that the strike was short, and they came to an agreement quickly, is good news for our customers who supply the automotive industry. Perhaps the adults are really in charge, and they are beginning to realize that they will succeed together, or they will most certainly fail separately. 

Existing home sales fell in August to a five year low. For the housing market to break loose existing home sales need to stabilize and the inventory of homes for sale needs to fall. When that happens construction will pick up again. The data out today does not paint a rosy picture. With homes sales down 4.3% in August, analyst continue to wonder when the market will hit bottom.

The Conference Board Consumer Confidence Index declined again in September. The index fell to 99.8, which is the lowest level since November, 2005. This should not be totally unexpected given the rest of the news we have been seeing in the broader economy. This is just more evidence that the we are continuing to see pressure on the economy from the subprime and housing issues.

How many times have you seen two kids who don’t know how to share fight over a meaningless toy? As they are fighting another kid will come up and start playing with the toy they are fighting over. If you pick up today’s paper you can see adults, acting like those children, who can’t seem to share, and we all know there is another “kid” lurking in the background.

The big news of the day is that the United Auto Workers has called a national strike against General Motors. The stakes are high, not just for GM, and the 73,000 union members who walked off the job yesterday, but also Ford, Chrysler, and many of our customers that are second and third tier suppliers to the automotive industry. The automakers are hoping that GM can craft a beneficial deal that will lay the ground work for future union negotiations with Ford and Chrysler. They all want the union to share more of the burden of spiraling health care cost. The union needs to reinforce that they are still relevant. Union membership at GM is down 37% over the last few years. The automotive manufacturers are looking to low cost labor markets, and the union is fighting for survival. Everyone is hoping for, and predicting a short strike, a long strike could cripple the already suffering U.S. automotive industry.

The primary sticking points are health care and job guarantees. GM sees their benefits cost per vehicle racing ahead of their Japanese competitors, and the union sees GM investing overseas, and closing plants in the U.S. It strikes me that both sides of this negotiating table need to wake up to the reality of their world.

To the management at GM, I would suggest you make some investments in your own backyard. You are after all an American company, and you have some responsibility to the American community. When you manufacture cars here at home you help yourself by creating some market potential. The reality is, your executive salaries are out of line, and everyone from the top of the organization to the bottom should proportionally share in the pain, or the gain. If Toyota and Honda can figure out how to manufacture cars efficiently in the U.S., then you can to. The challenge is not that it can’t be done, but that you have yet to figure out how to do it.

I am not going to rest there. To the UAW leadership I would suggest you wake up to the reality of your world. We live in a global economy. If you believe you can bury your head in the sand, and ignore the fact that the Japanese automotive manufacturers are kicking your rear-ends, you are sorely mistaken. Labor cost are too high, and you are too inflexible. A system that was created to benefit the workers has gone off course. It strikes me you have a choice. You can choose to take a hard line, and chase the U.S. automotive manufacturers out of this country, and contribute to their continued decline, or you can accept the realities, and save as many jobs as possible. There are no guarantees, competition is not easy, if it was everyone would do it. Wake up to the fact that the U.S. automotive industry has fallen woefully behind, and you have contributed to its decline as much as the management of the big three. I understand your issue, but forcing more cost on GM, Ford, and Chrysler is not going to fix your problem, and will likely make it worse. 

The long term implications of any deal negotiated between GM and the UAW are great. It is up to both of you to stop acting like children, and start acting like adults. If you don’t, the toy you have been fighting over is going to end up in someone else’s hands! 

After today maybe the folks on Wall Street will stop “high-fiving” each other for last week’s great performance, and wake-up to the reality that we have a real problem on Main Street. The evidence is continuing to mount that the real issue facing Main Street is growth. The impact from the subprime mess and the downturn in housing are going to be more than isolated incidents.

One does not need to look very far today to find the disparaging economic news. The nations largest home builder reported its biggest loss in its 53-year history, major retailers are pulling in their projections, and even consumer confidence in Germany (Europe’s largest economy) has fallen to a 19-month low. None of this should be a major surprise, we began talking about the ripple effect, and the overall impact of the subprime and housing issues long before there was real evidence of the potential problem.

Voltaire, a French philosopher and writer once wrote, “Common sense is not so common.” What a timeless quote! I have talked to a lot of people about the economy lately. When I express my thoughts about a slower economy, the housing problem, and related issues many just play it off as pessimism. They act as if I have something to gain by telling them the economy has the flu, and needs a strong antibiotic. They seem to forget that I am an investor, more so than most, and a business owner. I have no desire for the economy to slow. I am also a realist, and I strongly believe in having a clear understanding of the world around me.

The world around me points to a slowing economy, both in the U.S. and Europe. We are continuing to advise all of our clients to be prepared, a little hard work today can set your business up to beat the competition tomorrow. Don’t wait until your on top of the accident to put on the the brakes. Pay attention to the signs, they are all around us, if you do, you will manage the rough air.

When I was at Harvard one of my professors, Linda Hill, said “Culture change is evolutionary, not revolutionary.” I understood what she meant immediately. Any leader who wants to change their business can expect to make incremental changes, but changing the culture of the business, the personality of the business, is an evolutionary process. It does not happen overnight, it only happens over time.

The New York Times has an article about Hertz Car Rental. The article holds up Hertz as a success story of the private equity buyout boom. Although Hertz has been burdened with a significant debt load as a result of the buyout, because the new owners made some incremental process changes, they have significantly increased the value of the business. They back up their data with a stock price for Hertz which has risen over 40% since their IPO in 2006.

I have said before I am not a big fan of generalizations; however, I have trouble seeing how loading up any company with significant debt can be anything but unhealthy for that business. I have had experience with businesses carrying a large (and growing) debt load. The real issue for these businesses is they have no room to move. If the market tightens or there is the slightest hiccup they can get into significant trouble quickly. This is not unlike the home buyer, who puts no money down, takes out a big loan with a low interest rate up front, and hopes to refinance in a few years. If the market turns on them they can get into trouble quickly. Sound familiar?

The model many of the big PE firms have used is not new. I see it as similar to flipping a house. An investor who wants to flip a house, buys it, slaps on a fresh coat of paint, and tries to sell it at a quick profit. This is the reality of the PE model, buy a business at a discount, put on a fresh coat of paint, and sell it or create an IPO.

These are not great business operations people, they are business finance people. For the last few years they have been using cheap credit and easy credit to finance large buyouts. Have you taken notice that these buyouts have slowed? As the credit markets have gotten tight the buyout activity has slowed. Is this the next economic bubble.

At some point this bubble has to burst. Hertz is held up as a success, the reality is during the same time frame the Dow has risen 30%. How much of the rise in their stock price was due to inertia in the markets, and not operational improvements? My concern is what happens to companies that were acquired during the buyout boom through significant leverage if the economy slows? If credit markets continue to tighten what do these businesses do to support their debt load?

Is this the next economic bubble getting ready to burst?

In my second book, which is on its third draft, I share a story about a business owner I was having dinner with. This entrepreneur had a start-up business that was moving much quicker than she and her partner had planned, and they were grappling with the issue of whether or not they should create a business plan.

Their product was in place and their customer base was growing quickly, but someone somewhere told them they should create a business plan to move the business forward. She asked me what I thought she should do. I told her what I tell every new business owner who has this question, “The joy of entrepreneurship is you get to decide!”

I always tell entrepreneurs, and people pondering a potential start-up, that some plan is beneficial. The depth and complexity of the plan is up to the business owner. If you are trying to raise money for your business and are pitching your idea to potential investors, an in-depth business plan is essential. You need a document that will sell your business idea to those investors. If you are getting your business going on your own, with your own time and money, I suggest something like a one page plan.

A one page plan is exactly as it sounds, a business plan on one page. On that page you should indicate your vision, set a few objectives, and create some actions to hit those objectives. The idea with a one page plan is to just give you some direction, you don’t need to sell yourself on your own idea, you just need to understand where you are headed.

So if you are grappling with whether or not to create a plan for your business, weigh what you need as an owner, and what you will need if you are seeking out investors. Make sure you are creating a plan that meets your needs.

Here is an article with a lot of business planning resources.

We will have more data this week to give us a better feel of the overall direction of the current economy. Tuesday we will get data on existing home sales for August, the consensus expectation is nominal. Analyst believe we need to see existing home sales grow before we can see any turn-around in construction spending. The Conference Board will release their September consumer confidence numbers on Tuesday, there is not much change expected from August; however, rising energy prices may impact overall consumer sentiment. On Wednesday we will see durable goods data and on Thursday we will get a picture of new home sales. We will also get a revised GDP number for the 2nd quarter on Thursday, although the real importance of the historical GDP numbers can be questioned. We can only impact the future, not the past!  

Well folks, you heard it here first, or maybe second, or maybe third. Every competitor has a weakness. Many times a competitor’s greatest strength is their greatest weakness. The greatest strength of the Chinese manufacturer is their low cost capability. Their strength is not quality, it is not efficiency, it is simply they manufacture in an environment where wages are low, regulation is minimal, and there is a tremendous amount of government support.

Because of that strength they do not focus on small issues like quality and product safety. If they did they would have many of the same challenges other manufacturers have all over the world. It strikes me that “made in the U.S.A.” still means something. It is a sign of a high quality product, made by the best manufacturing workers in the world. Never forget, we still have the edge!

Fortune Small Business has a case study of a family business that went from a $400,000 profit in 2006 to a $50,000 loss since last October. Although they do not discuss any sales data for 2007, they do say revenues went from $11.9 million in 2005 to $12.4 million in 2006. This is a third generation family foundry business out of Wisconsin being run by two brothers. They have asked the FSB experts to take a look at their business and give them some advice on getting back to profitability.

One expert’s suggestion was the owners spend $150,000 to hire someone to run the business for them, one suggest an employee survey and restructuring the advisory board, and another gives some suggestions on improving their selling methods. While I am sure these are all credible suggestions, we would take a different approach.

First the owners need to assess how committed they are to getting back to profitability. If the owners and managers are willing to make the tough decisions that many small businesses won’t make, or make too late in the game, then they can start making money again. If they are not willing to make those tough decisions then it does not matter who you hire, what the surveys say, or how well you sell, the business will continue to decline.

I would start with the discretionary cost. Most small and family businesses I know started lean and mean. The owners grew the business’s profitability because they knew how to stretch a dollar, necessity is the mother of invention. As these businesses grow and become more successful they tend to get a fat. The owners need to do a discretionary cost housekeeping. Look at everything they are spending money on and determine what must stay and what can go. Get rid of the perks, many family businesses have some nice perks for the owners, if you want to make money some of those may have to go away. The owners may also have to make some tough decisions about non-manufacturing employees. They need to ensure they are getting what they are paying for.

On the manufacturing side it sounds as though this business has a good idea of their manufacturing efficiency. The question I would ask is can they be more efficient? What is stopping them from taking the next step? In a small business, the owners, managers, and employees tend to be family. These businesses are typically run in a patriarchal way. Many times the people in the business have built the business together and the owners have a sense of loyalty for the employees. They feel as though they must take care of all the employees, whether those employees are effective or not. If revenues are declining and the manufacturing workforce is not I would ask why? Cutbacks are never easy, but if you don’t take care of the problem now it will not go away!

The bottom line here is the bottom line. The owners of this business need to make some tough decisions about reigning in cost before they begin investing in new initiatives, like hiring an outside president, and then heading off to the golf course. If they are not willing to make the tough decisions, then they are not likely to empower a new president, or anyone else, to make the difficult calls. Getting the business back to profitability won’t be easy, but doing the hard things now, will save a lot of heartache in the future! 

As I go through the morning’s news and watch the financial networks, I have decided we live in a true financial circus. On Tuesday of this week the U.S. Federal Reserve lowered interest rates by one-half percent. The ink on the fed’s statement is not yet dry, and already another group of analyst are now pushing the agenda of Bernanke’s mistake and the risk of inflation. Here we go again!

A couple of years ago I was sitting in a luncheon meeting with the Chairman of a large European company. This was a publicly traded, global business doing well over $15 billion in annual revenues. At the time the stock price for this business was going up in a rather dramatic fashion. I asked the Chairman how he felt about it, and how he viewed the financial markets in general. He let me know in no uncertain terms, his view on the financial markets was less than enthusiastic. I could not be sure of all the words he used to describe his distaste for the world’s financial analyst, because his English was not totally clear. Suffice it to say, I was left with the impression that he believed they were quite dysfunctional.

He felt that price and value were no longer really connected. Traders make money on volatility, when the markets are volatile investors enact more trades. Fear and uncertainty are the main culprits of volatility, so if you can stoke a little fear and uncertainty in the markets you can create some volatility. I am not a conspiracy theorist, although I am a realist. The reality is folks operate with their own agenda in mind (myself included). They talk the economy up, they talk the economy down, all in an effort to serve their interests.

There may be signs of inflation out there, rising gold prices and rising oil prices, as well as other commodities. But there are definitely signs of short term growth issues. Those signs include Federal Express reducing their outlook and a drop in the index of leading economic indicators. You don’t have to look far or dig too deep to see we have a growth issue on the horizon. Look at the data from the BLS on employment numbers (click on the icon under employment situation to get the graph), it is not a pretty picture.

The reality is we do have a short term growth issue. Let’s take a step back and determine what the real effects of this week’s fed action are before we start screaming about the next big issue! 

The Rough Air Cost Index was updated today and shows that overall inflation remains in check; however, there is still price pressure on energy and food related items. The trend of easing prices over the past few months continued in August. This has given the U.S. Federal Reserve more room to adjust their overall stance in regards to interest rates. If prices remain under control then the fed can make interest rate adjustments as needed to stimulate growth. The primary challenge will be energy prices; oil hit another record high yesterday.

Although there is not a lot of positive economic news coming out today, and most measures are pointing to a slower rate of growth for the remainder of 2007, there is a silver lining to this cloud for our small business clients. If inflation remains in check, and the fed can act to stimulate growth, there is a good possibility for accelerated growth on the horizon. The challenge for all business owners is to continue to manage today’s rough air!  

Leadership succession in business can be challenging, couple that with all of the emotional dynamics that come with families, and it becomes perilous. I ran across this podcast recently that discusses succession in business and how a succession plan may not be necessary to be successful.

I am not a fan of generalizations in business, I believe that folks can capture success is all sorts of unusual ways, that many of the rules have yet to be written. Although, I do believe, that most succesful businesses are the result of great plans and strategies that are well executed. For the family business that wants to be successful at succession, a plan is a big plus. Just because there is a succession plan does not mean that plan needs to go beyond the family or the shareholders, but having a plan is a key component of success.

When setting up a family business for succession, the plan does not need to be layed out with all of the employees, managers, and customers; however, there must be a clear understanding about who the next successor will be, and when he or she will be taking over. If a business owner or CEO is hestitant to talk about or plan for succession then they are probably not emotionally ready to step away from the business and allow the next generation to step up.

Successful succesion is all about everyone being ready for the emotional challenges of moving the business to the next generation of leadership. In my book Rough Air Ahead I discuss the different life cycles of small businesses and how in family business an exit strategy for one generation is a start-up plan for another. Being at different locations on the life cycle map can create a great deal of friction in the succession process between generations. Family businesses need to have a plan for dealing with that friction and the other challenges of moving the business from one generation to the next.

For more succession planning tips read this recent post or listen to our free podcast on succession.

Are you like the multitude of small business owners that flies by the “seat of their pants” when it comes to running their business day-to-day. It is the same for many business owners, we love the thrill of running our business, but we never seem to have enough time to get everything done that needs done.

Most small business owners are doers. They are the kind of people who can take on any task and get it done. This is generally why they are successful in owning their own business. The trick is to harness that ability and energy that allows you to get things done, organize it, and make it work for you.

I follow a simple process to make myself as productive as possible. Here it is:

1. Plan the next day – Every day before I leave the office I spend the last 30 minutes planning my next day. My daily plan includes an hour-by-hour plan. No matter the task I make the effort to dedicate time to getting the task done. After a task has made my calendar, it then goes on a task list. The next day as each task gets done I earn a check-mark, my reward!
2. Utilize your time – When I am in the office, I work on the things that need done, I don’t allow my time to get away from me, Too many people get distracted with what is not important. This includes those lunch and breakfast meetings. Make sure when you dedicate time to someone at lunch or breakfast, that there is an objective, and it is time well spent. Building relationships is time well spent.
3. Balance – If you do nothing but work, even if you enjoy it, you will burn out. Our brains need diversions or distractions. Give yourself time with your family and friends. Shut off your email, turn off you Blackberry. There is nothing there so important that it cannot be answered the next day.
4. Exercise – My workout regimen in the morning is recharge time. It gets my brain and my blood moving. It also allows me to burn off that excess stress that tends to build up for all small business owners.
5. Be flexible – Having a planned day is critical to getting stuff done; however, business is dynamic, so our schedules need to be dynamic as well. Don’t become so focused on following a daily plan that you lose sight of other opportunities.

Here is some more good advice on making the most of every day.

The U.S. Federal Reserve cut their target funds rate by 1/2 percent today citing concerns about the slowing economy. The Fed indicated that the slowdown in housing and the problems in subprime mortgages could spillover into the broader economy and slow growth. This move is an attempt to soften any slowdown in the broader economy.

The equity markets reacted positively to the move, as you would expect. The question is, “What does this mean for my small business?” Although a reduction in the federal funds rate is certainly positive for overall growth, most small businesses will probably not benefit from the reduction immediately. As the rate cut filters through the financial world it can mean lower borrowing rates and a friendlier borrowing environment for small business in the coming months. By taking action today the fed acknowledges the economy is slowing, but they are willing to step in to stimulate growth! They are managing the economic rough air!

The Rough Air Demand Index has slipped back into negative territory. This is the first time the index has shown a negative demand trend since January. Several factors are pushing the demand index down, including a weak jobs number in August, the decline in consumer confidence, and slowing growth in retail sales and manufacturing. The end result is a developing picture which points to an economy being slowed by issues in subprime mortgages and housing declines.

View the index here, click on the graph to see our analysis.

It never ceases to amaze me how hard we will work to make easy processes more complex and to make something that is hard to achieve, seem easy. We live in an environment where everyone expects immediate gratification. The idea of working hard, over time to achieve success is no longer accepted as a reality. Many experts have convinced us we can have whatever we want, as fast as we want, with little consequence. Unfortunately, this has spilled over into the business world. Think of all the businesses that have tried to create the perception of success, without real success. Enron, Worldcom the list goes on and on.

During the rise of the dot com business in the 1990s we were told by the experts that profit was becoming obsolete. Every CEO needed the “vision thing.” Businesses that had big, bold visions and made huge investments to chase those visions were held up as examples of a great new economy. The new economy was supposed to change how we thought about and approached business. While in the broader sense of the Internet, there has been a major change in the way we do business; however, the fundamentals of business remain pretty much the same. If you sell a product or service for more than it cost you to make or provide then you will make a profit. If you do this enough times you can build value in your business.

Perhaps my definition of creating a successful business is too simple. Perhaps I am missing something or I need to be more open minded, but recently I ran across an article in the New York Times  that discussed the idea of creating a new way of measuring the corporate balance sheet. The idea is that corporations need to capture all of the intangibles on the balance sheet. The intangibles are being redefined as well. Instead of intellectual property, brand recognition, and strong management businesses are adding social responsibility, processes, and marketing to the list. Strategist and financial experts are now talking about capturing these intangibles on the balance sheet to get the whole value of the business.

My definition of insanity in business is doing the same thing, over and over, and expecting a different result every-time you do it. I believe that is what is happening here, and I believe the outcome will be the same as in the past. This is just another effort by some to help businesses create the perception of success, without having to create real success. Changing the way we are measured is simply a way of fooling ourselves that we are successful when we are really not.

The outcome of an effort such as this is easy to predict. At first everyone will wonder why we didn’t think of this before. They will tell us that now we know the true intrinsic value of every business, the value of what they add to society. Next we will start to see balance sheets that look great as more and more nebulous, new intangibles are added to the list. Then a few businesses will come along that push the envelope of the new system, they will come flying into the public eye, create an IPO based on their extremely healthy balance sheet, and investors will gleefully sign up to put their money in these strong, exciting, new businesses. Then one day, one of these businesses won’t be able to pay their bills or meet payroll. The experts will pass this off as an anomaly, a blip, nothing to really worry about. Then perhaps another will fail, then another, and another.

As investors start to lose money, and the market begins to drop, policy makers will begin asking, “how did this happen”? There will be investigations and inquiries. Then one day someone will wake up, open their eyes, and say “you know, you can’t pay bills with your reputation or a process, you actually need cash” The experts will then begin talking about the basics of business again, for a little while, until the next big thing comes along.

Making money in business is not easy. It requires time, effort, discipline and dedication. If it was easy, everyone that did it would be highly successful, and everyone would do it. The balance sheet provides a true picture of the health of a business. The balance sheet lets us know if a business has enough current assets to be able to pay its current debts. It helps us understand if a business has a lasting viability, or is a flash in the pan!

If you focus your business on the basics, solid sales and marketing to grow revenue, strong operations to control cost, good financial management to create profits, and intelligent debt that allows the business to maintain liquidity, you will create a successful business. It will take time, overnight successes are the exception, not the rule. Business owners need to stick to the blocking and tackling, focus on the basics, and you will create a successful business!     

Thirty-nine percent of 3,000 people polled by the Wall Street Journal Online feel as though the fed should not reduce interest rates at today’s meeting. It appears their philosophy is that the U.S. Federal Reserve should not take steps to support equity markets due to some investors making bad decisions.

I have decided to label this the “head in the sand strategy.” If I bury my head in the sand and ignore all of the data around me I can act as though the subprime crisis and the housing decline will have no impact on the broader economy. It does not matter that many key measures of our economic growth have been trending down, what matters is that we can’t appear to be bailing out investors.

If I am on a boat in the middle of the ocean, with ten people that I don’t like, and the boat begins to sink I am not going to break the radios so the ten people I don’t like cannot call for help. If I were to doom them I would also doom myself. It seems that this is the strategy some analyst have decided on.

Ignore the problem, don’t rescue anybody, and it will all go away. Right! 

Because of new federal rules which went into effect in July, businesses can now charge higher insurance co-payments to employees who are overweight, smoke, or have high cholesterol. Clarian Health in Indiana is charging $5 more per paycheck for employees who participate in the company’s health plan and have smoked in the last six months.

I have sat in many presentations and discussions about health insurance plans and costs. In the late 1990s as health insurance costs were skyrocketing employers were looking for ways to lower that cost. Many employers started increasing the percentage of monthly insurance premium the employee was responsible for. The reality is that in most plans, a small percentage of employees make up the bulk of the risk.

The new rules allow employers to increase the portion of premium the employee is responsible for if they choose to smoke, are overweight, or have high cholesterol. These types of things will continue as employers look for ways of reducing their health insurance premiums.

The question we posted last week in regards to service was, “What makes some companies great at customer service, and what makes others appear lost?”

During the service revolution we heard about those that are great like the Ritz Carlton, and Nordstrom. Both of these companies are considered premium players in their market segment, they also tend to be the highest priced in their segment. So, is their service great because they charge more, or is their great service giving them the opportunity to charge more?

I remember a story about Nordstrom’s extraordinary service. An executive I know was on a business trip. When he got to the airport to hop on the company plane he realized there was a problem. All of his colleagues had on suits and ties, he was dressed business casual. The signals had gotten crossed and he had not gotten the message about the change in dress code for the meeting. When he arrived at his hotel, he noticed that his hotel was in a downtown area near a Nordstrom. He ran into Nordstrom, told them his problem and an hour later he had a suit and tie, altered to fit.

Another story is about a friend of mine who was staying at the Ritz Carlton. He was sitting outside by the pool having cocktails with some friends. It was in the afternoon and he suddenly decided he was hungry for cereal. Most hotels would have let him know they were no longer serving breakfast, not the Ritz Carlton! The waitress promptly asked what type of cereal he would like!

So do they give this service because their prices are high? Our view is that great service cannot be bought, you must earn it. Most companies that have great service have two important elements, they trust and they verify.

Employees at both of these companies have management’s trust. They can make decisions for the customer on the spot. They do not have to go through layers of paperwork or approvals. They have the authority to make a decision and resolve the customer’s issue. Both companies, through customer feedback programs, ensure the process works, they verify!

Recently while traveling in London and Paris, I saw the perfect example of poor customer service. During our trip everywhere we went we had great service. The restaurants in Paris were outstanding, and the service was always top notch. One afternoon while strolling up the Champs Elysees my wife and decided to stop for coffee. I wanted espresso, she wanted a traditional American style coffee. When our coffees came we had two espressos. My wife tried to explain to the waiter in her broken French/English that she wanted a regular coffee. A kind French couple sitting next to us even got into the act, explaining to the waiter that she wanted a café ole. The waiter gave up on us, never returning to our table, and literally ignoring us as we tried to speak with him. I wonder if that is what the owner of this restaurant, Monte Cristo, on one of the most international streets in the world, had in mind when he hired this fellow. Were his instructions, “Ignore the customers you do not understand, they will go away eventually.”

I doubt these were his instructions, and had the owner known his employee’s actions would be documented for thousands to read about on the Internet he likely would not have been happy!

Always remember, trust, but verify!   

Some key pieces of economic data will be released this week.

The first of these, the producer price index, comes out on Tuesday. The PPI is a measure of prices for capital and other goods paid at the producer level. It gives a good indication of any inflationary pressure on producers. The consumer price index, which measures prices paid for a fixed basket of goods by consumers, comes out Wednesday. This is another measure of inflationary pressure. The expectations are for the PPI to drop and CPI to remain constant. If the consensus is correct then both measures will indicate that inflation continues to remain in check giving the U.S. Federal Reserve more room for a rate cut on Tuesday.

Another key piece of data will be housing starts which comes out on Wednesday. The expectation is for housing starts to be at the low end of the range near July’s level. Housing starts have been falling steadily since January, 2006. Given the current issues in the subprime market, not many analyst are projecting a big change here, at least for the short term.

The big economic news of the week will be what comes out of the U.S. Federal Reserve meeting on Tuesday. Most analyst are projecting the fed will cut interest rates, the big question is how much, one quarter point or one half point.

If the fed does cut rates, the easing of monetary policy can eventually have an impact on the ability of small business’s to borrow; however, that impact is not immediate. It typically takes some time before we see the impact of lower interest rates on the economy. The real impact from an interest rate cut will be the emotional impact on investors. If the fed chooses not to cut rates this week then you can expect a pretty wild ride on Wall Street!  

A Vice-President that worked for me when I was CEO of our prior family business once told me that good quality is no longer considered a competitive advantage, it is now expected as business as usual. This may be true, but your quality reputation can help or haunt you for years.

An article recently in the Wall Street Journal Europe discusses how U.S. car makers are playing tricks to lure buyers. The real story is not what is being reported, but the negative impressions car buyers have of American cars. It takes years to develop a reputation for good quality, and a very short period of time to destroy that reputation. How many of us are rushing out to buy our kids toys from Mattell? Once your reputation for good quality or poor quality is established you will carry the responsibility for that reputation, whether it is the responsibility to uphold it, or the responsibility to change it.

Good quality may be understood, but many times it is not practiced. Here are some simple thoughts on quality and building or maintaining your quality reputation.

1. Quality is not just the product – If you believe that your only quality focus is the product you provide you are mistaken. Delivering on time, keeping commitments, ensuring customers stay informed, and providing accurate product or service information, these all establish your quality reputation.
2. Keep Your Balance – Too many business owners, in an effort to boost revenues, emphasize getting the product out the door at all costs. Don’t create the perception among your employees that shipping product is more important than shipping quality product.
3. Know the details – Whenever we would be shipping a new product or a major new customer order, I would go back and spot check the order myself. I remember one experience when I found a manufacturing error when spot checking a new strategic partner’s order. Make sure your employees know you are committed to quality, and you are willing to commit time to the effort, lead by example.
4. Do more than registration – I know many business owners that automatically respond they are ISO certified when asked about their quality. ISO is about process, it ensures that you do things the same over and over again. While certification is good, it is not the end all solution. A company making cement life vests could meet the ISO standard by doing it the same every time.
5. Talk to your customer - Look past all the folks in the middle and speak directly to your customer. They will tell you about your product and your service. Too many times the business owner or CEO gets the filtered view. They get their feedback from the folks around them and not from customers who are willing to give them the straight scoop.

These are just some simple tips in regards to your quality effort. Always remember, while good quality may be understood, poor quality can damage your reputation and haunt your business for years.

Sometimes there is nothing like being there to get the real story. Earlier this week we discussed reports which are showing a downturn in England’s housing market and average home prices. As if we needed more reinforcement that the problems in the U.S. subprime market are spreading, yesterday the Bank of England rescued Northern Rock, England’s fifth largest home lender.

Northern Rock has recently faced the same challenge as many U.S. lending firms, the inability to raise funds in the credit markets. When these lenders cannot raise funds, they cannot finance new loans. The end result is a tightening credit market for current and potential homeowners, an increase in the housing supply, and a slowdown in new home construction.

The question is why does a small business owner from the middle of the U.S. care what happens in England’s housing market? As we mentioned earlier this week, there has been speculation that the slowdown in the U.S. economy will be offset by continuing global growth. The problem with this speculation is that it assumes global growth will continue at its current clip, we all know what happens when we assume!

We care because a downturn in the housing market in England could be the fore-bearer to an overall downturn in the European housing market. This could lead to a slowdown in growth in the EU, as we are starting to see in the U.S. A slowdown in two of the largest regional markets in the world will likely slow global economic growth, where do you think all those goods from China and India are going? Slowing global growth leaves many businesses without an offsetting safety net to pump up demand to balance the potential slowdown in the U.S. 

Over the next few weeks we should pay close attention to how, if any, events unfold outside the U.S. This may give us a better picture of what global economic growth will look like for the rest of 2007 and for 2008.  

According to the U.S. Department of Commerce retail sales increased .3% in August. Sales decreased -.4% when automobiles are excluded. The number came in below expectations and are an indication the slowdown in housing and the subprime problems have spread into the broader economy. At this point the majority of the data we have looked at are pointing to a slower pace of growth than we have seen in the past. The question remaining is how far the ripple effects of the housing market decline and subprime issues will spread, stay tuned.

When is the right time to start a new business? This is a question that has plagued many entrepreneurs and prospective entrepreneurs. They have an idea for a new business, they believe there is a decent market potential, but they are not sure whether now is the time. I ran across this quiz about your readiness to be an entrepreneur. Most of the questions seem to be pretty common sense, although, many people jump into a business venture without considering what it really means.

A few weeks ago I posted a blog about what we believe are some keys to being successful in your start up business. Prospective entrepreneurs need to understand that the majority of new businesses take considerable time to cultivate. Although it seems from what we read in today’s media, that every new business is an overnight success, the reality is to be successful a new business owner must be willing to commit the sweat equity. You must be willing to answer your own phone, take out the trash, fix the computer, and sell, sell, sell!

What makes a real entrepreneur? Do you need to have an office? Do you need to have employees? An entrepreneur organizes, manages, and assumes the risk of creating an enterprise. You don’t need to have an office, you don’t need employees, the object is to create an enterprise that can help you create a livelihood.

The Start Up Cycle of any business is one of the most difficult times for the business, and one of the most rewarding for the entrepreneur. The challenge is to get your business organized, figure out how you will raise the capital you need, and move the business from being an idea to an operating entity. Things like employees and office space will come with time as you try to build your business.

This same question was posed to a writer for USA Today Small Business. The decision for committing resources for your business is not one to make hastily, you will know when its time. One of the areas we focus on with Rough Air Associates is our small business incubators. Our objective is to create office space for the small business owner that is working out of the house and needs a small amount of space with the least amount of headaches. We provide them with office space, phone lines in 24 hours, and wireless Internet all in a nice facility they would feel good about showing to anybody. I am sure with a search of your local area, most small business owners can find a similar resource nearby that they can utilize as they take their business to the next level.

The problems from the subprime mortgage meltdown and housing decline can affect more than just the economy. One of the responsibilities of an employer is to understand that what goes on in an employee’s life outside the workplace can affect what happens in the workplace. Business owners need to be prepared to deal with those outside issues, and ensure they can help direct employees to potential resources that can help them deal with their current issue.

Here is an article from USA Today Small Business on how the stress from the subprime fallout may affect worker productivity. Here are a couple of resources an employer can suggest for employees with credit issues, The National Foundation for Credit Counseling and the Federal Trade Commission.

The housing market across England is beginning to feel some of the same pressure as the U.S. housing market. Home prices outside of London are beginning to fall, and new buyer inquiries have declined nine months consecutively. As a small business owner in the U.S. the question is how does this impact me?

The concern in the U.S. is that the decline in the housing market and the subprime problem will spread to other areas of the economy, remember the ripple effect. One positive in all of this has been the overall growth in the global economy. Many economist have indicated that any downturn in the U.S. economy will be muted by economic growth globally. Earlier this week the European Commission cut their growth forecast for the remainder of the year. A slowdown in global growth could accelerate any downturn in the U.S. economy.

The bottom line. Whether your business is in the U.K. or in the U.S., get that contingency plan ready in the event the slowdown in the economy ends up at your business’s door.

Sometimes my memory is not as good as I would like, but I thought for sure we had a customer service revolution several years ago. If we did, I believe we need to do a better job of raising the participation level, I think too many businesses decided to sit it out!

I often wonder if the business environment in the U.S. has become so focused on high volume and low cost that we have given up on good service. Don’t get me wrong, some of our most visible companies are great at marketing service. They do a wonderful job of convincing folks they really do care about the customer; unfortunately the marketing hype usually does not keep pace with their actual performance.

It seems we have gotten to a point where we will pay more for the brand, and the illusion of value, rather than true value and great service. Perhaps I am being cynical, but nowhere is this more prevalent than in our airline industry.

I am not one to bash the airlines. I don’t believe in giving anyone a hard time that has me in a small tube at 30,000 feet going 400 miles per hour. It strikes me as inappropriate to complain about their service as long as they get me where I am going safely. But one does have to admit that flying today is quite an experience. We all pay a little extra, or use our free upgrades, to get a few extra inches of space and a free cocktail.

We flew to London this week on Virgin Atlantic Airlines. Virgin Atlantic is the British airline owned by Sir Richard Branson, a British entrepreneur. We flew their version of business class. The ticket prices were very comparable to other business class tickets I have purchased. Keep in mind I am not a rookie at flying overseas. This was the 37th time I crossed the Atlantic. In my life I have flown roughly 20 different airlines. I am certainly not as traveled as some, but I have my share of miles under my belt.

Business Class with Virgin Atlantic was quite honestly like none I have experienced before. I had a seat with no seat partner, as did every other seat in business class. The seat lay down into a bed completely, and there did not seem to be any significant noise or light to keep me awake. It wasn’t just the seat, I ate when I was hungry, not when they were ready to serve, I had the opportunity for a scalp and neck massage, and my choice of at least 40 different movies, versus my normal selection of about five to ten. Their cabin attendants were very attentive, and they actually acted as though they enjoyed having us on board. By the way, there was also a nice bar in business class.

Why is it Virgin Atlantic can supply that type of service and support? I am not sure what kind of government subsidies the European airlines receive, but their overall costs have to be the same as the U.S. airlines. They pay the same for fuel, for the aircraft, and for the crew. Why can they provide a level of service that is certainly a cut above, when many U.S. airlines are struggling to get me a bottle of water and a bag of nuts?

Over the next few weeks we will be exploring this question. Why some businesses are great at service and why some are not?  It strikes me, that if we could all create a service model that strives to be the best then our primary worry will be filling orders not looking over our shoulder for the competition!

If my timing appears to be off this week as to when I post, it is because Rough Air has gone on the road for the next few days. We will be blogging from London and Paris the remainder of this week and next week. We hope to develop a better understanding of entrepreneurship outside out borders and how the current economic issues in the U.S. are playing overseas.

We arrived at Heathrow Airport outside of London Tuesday morning. As we were making our way to our hotel in central London we drove past a McDonalds. There was an effort to make the golden arches blend in by giving it a Tudor style exterior. When I travel abroad I am always somewhat flabbergasted by our most visible exports, McDonalds, Burger King, Wal Mart, and Hollywood. It does make one wonder.

I apologize, I digress! As we were driving by this McDonalds I saw a tremendous display of entrepreneurial persistence and nerve. There was a small hot dog stand right out in front of this McDonalds. Perhaps this small vendor was going for the overflow crowd, or perhaps he was making a statement, regardless, he was most certainly not backing down in the face of direct competition.

There are great displays of entrepreneurship all over the world. Small businesses all over the world face many of the same challenges, globalization, resources, and regulation impact us all. It does not matter if your business is in Paris, Kentucky or Paris, France, or if your customers are in Ottawa, Ohio or Ottawa, Canada, as small and family business owners we all face similar challenges. At Rough Air our vision is to create a community for small and family business owners, one they can turn to to help manage their rough air!

Earlier we discussed some of the harsh realities of selling your business, here is a good article describing the differences and some of the tax implications of selling your business via an asset sale or a stock sale. 

In an asset sale the business sells exactly that, assets. This would include all the designated assets outlined in the purchase agreement. The biggest disadvantage of an asset sale is the potential tax liability.

Let’s assume the price paid for the business is for all of the assets plus some goodwill. Goodwill would be those intangible assets that have no value on the balance sheet, things like brands, intellectual property, or market leadership. The purchase price would be allocated, partially to goodwill and partially to assets. Any gain on the assets are taxed at regular income rates. If you are an S-Corp or an LLC in the U.S., the gain on the assets would be taxed based on your tax bracket. The gain on goodwill is treated as a long-term capital gain and taxed at regular capital gains rates. For most business owners the current capital gains rate is less than their bracket rate.

When negotiating the purchase agreement in an asset sale, as a seller the ideal position would be to sell the assets at their book value and anything over the book value of the assets is treated as goodwill, this will lower your overall tax burden.

 Also, when negotiating the asset purchase agreement, you can pick and choose assets. If you have a keyman insurance policy with a significant cash value, liquidate that asset prior to the sale and keep the cash. As an S-Corp this is a cash distribution, which in most cases would have no tax penalty. There is no rule that says the buyer has to buy all of the assets! You can also negotiate how any liabilities are treated.

There are multiple levers to pull when negotiating the purchase agreement of an asset sale. There is no reason to fear an asset sale, with proper planning and solid negotiation you can walk away with the cash you wanted and still limit your tax liability.

The U.S. Trade Deficit, the value of goods exported versus the value of goods imported, narrowed slightly in July. The expectation is the trade deficit will remain stable due to a weakening dollar and rising demand for U.S. goods. This could change based on the overall impact of the subprime and housing issues.

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 check out our podcast on our resources page. Also, here is an article with some tips on increasing the value of your business.     

Well it is all over the financial news this morning, from the New York Post to CNBC. Everyone is talking about the “R” word. All the experts are trying to decide if we are headed for a recession. Some are saying that no downturn in housing has ever ended in anything but a recession. Some are saying that the fundamentals are good, that the economy will slow, but that is about all.

The truth is, no one has any idea. Many of these experts can’t tell us what they are going to have for dinner this evening, much less where the world’s largest economy is headed over the next few months. They would like us to think otherwise, but they just don’t know. They have the same information we all have and they will not know if there is going to be a recession until it is on us.

I prefer to deal with what I do know, the facts. I do know there is a major problem in the financial markets due to the subprime mortgage meltdown. I do know the hot housing market has cooled, home values are falling, and credit is harder to get. I suspect there will be an impact on the overall economy, but I have no idea how significant that impact will be. I have two pieces of evidence indicating there will be some impact on the broader economy, one is the poor jobs report from last week, and the other is declining consumer confidence. All of this data does point to a slowing economy.

If a slowing economy turns into a recession, what should you do for your business? First let me say, a recession is not the end of our economic world. Granted it can create some significant challenges for many businesses, but if you prepare your business, as I have advised in the past, you will be able to manage any economic downturn with ease and come out stronger on the other side.

Remember, we have been in a recession before, we will go into a recession again. This is a cycle that our economy goes through, don’t sit around wringing your hands and worrying about the possible impact on your business. Get your contingency plan together, and keep your business moving forward!

I have said it before, if your objective is to find the absolute lowest priced product, then common sense says you will get what you pay for. In the past few months we have all heard about the problems with inexpensive goods coming from low cost manufacturing environments. In particular we have heard about a plethora of issues in regards to products coming from China, from pet food to toys.

The Financial Times has an article that discusses this risk, specifically citing the issue with Mattell. Unfortunately you need a subscription to read the entire article, but the theme of the article is a discussion of the risk of manufacturing goods in China (something we have posted here), and how companies that have been importing these goods are now talking about the quality processes they need to put in place to ensure they are getting quality goods from their Chinese suppliers.

I have a silly question. Why in the world were they not worried about quality before? It seems to me if you were going to outsource your manufacturing you would do everything possible to ensure that the product you were getting was identical to what you could manufacture yourself. Common sense tells you doing anything less can lead to disaster for your business and a lot of unhappy customers. Perhaps that is too logical!

I suspect the only motivation to move manufacturing to low cost labor markets has been driven by the need to increase profits and increase share price. As long as these two things are happening, folks rarely question what is going on. It isn’t until things begin to unravel that people start to wring their hands and ask the tough questions. This is a great example of allowing your business to get out-of-balance, in this case too focused on manufacturing cost, and how it can have a major negative impact over the long haul.

If you are in the process of outsourcing your manufacturing to a low cost market, learn from Mattell’s mistake. Don’t become so focused on one aspect like cost, that you forget to take a hard look at others, like quality and safety. It seems like common sense to me!    

There are three pieces of economic data coming out this week to pay attention to. The first will be on Tuesday when the International Trade numbers are announced. Oil prices have been rising over the last few weeks, hovering around $75 per barrell this week. This may cause the trade imbalance to tip to imports, but the low comparative value of the dollar to the Euro and the Yen may help offset this imbalance.

On Friday there are two pieces of data, industrial production and retail sales. Pay close attention to the retail sales number. This is one that may help clarify the overall direction of the economy. This past week retailers were indicating that August was a good month; however, some have speculated that this was due to heavy discounting to attract those back-to-school shoppers. A poor retail sales report will reinforce an economic slowdown and create more market turmoil.

Why do small business owners care about the retail sales number? If you are a retailer the answer is obvious, if not the answer is a bit more obscure. A slowdown in retail sales may indicate a slowdown in overall consumer spending. If consumer spending slows significantly we would likely see a much broader hit to the overall economy.

What a shock! I woke up this morning to learn that the slowdown in the housing market and the subprime crisis might actually have some broader impact on the economy. Yesterday’s announcement by the Department of Labor that the economy lost 4,000 jobs in August, and the job growth in June and July was not as strong as previously reported, is being treated by many analyst as a major shock to our economic system. Well, welcome to the party!

 Back on August 15 I posted an article about the potential ripple effects of the slowdown in housing and the subprime fallout. I mentioned as the ripples from the subprime meltdown spread we could see impacts on consumer spending, credit, home prices, and so on. On August 24 we mentioned the economic muddle and the ripple effect, and we continued to recommend to our customers that they push forward with their business, but be prepared to take action in the event of a slowdown. This week I discussed the problems with how the economic data was being interpreted and our expectation that the housing and subprime problems would have some broader, perhaps limited, impact on the economy.

Too many analysts and media outlets look at the economic data and see only what they want to see. If it is in their interest to talk the economy up, then they will only point out the positive economic news and ignore everything else. If it is in their interest to talk the economy down, then they will point out the negative economic news. They ignore the data points that do not lead them to their foregone conclusion.

As I have said before, the reality of the current economy is that there will be a ripple effect from the subprime fallout and the housing market slowdown. Common sense tells us that if a large segment of the economy is in trouble, then there will be a spillover to other segments of the economy. It is not the end of free markets as we know them, it is simply part of the overall process our economy goes through from time to time.

If you understand the process, pay attention to the economy, and prepare your business to face these challenges your business will continue to thrive and grow. If you only see the data which reinforces your foregone conclusion then you will set up your business to be blindsided by an economic surprise! 

The Chinese government is scrambling to enhance their reputation in the face of growing quality and liability issues with goods manufactured in China. This summer alone we have seen tainted pet food, tainted sea food, and toys containing lead. These issues have exposed a weakness in the low cost manufacturing environment in China.

The Wall Street Journal has two articles today that reinforce this. One is about the Chinese government’s efforts to improve their quality reputation, the other is about a U.S. Congress probe of Mattel Toys in regards to their safety reporting. Both articles highlight in different ways the problems facing companies that are marketing goods manufactured in China.

The Chinese government is faced with two key business issues at this point. The first is their quality reputation. As small business owners we all know that it takes years to build a high-quality brand, and only a couple of missteps to destroy it. The current perception of goods manufactured in China is that they are of poor quality. This will take a long time to overcome. Their other problem is that they need to overcome the first issue quickly to be able to sustain the tremendous growth they have seen over the past decade. That will be a big challenge.

Globalization is a challenge we must all deal with. We may not like it, and it may have a negative impact on our business, but it is a reality that is difficult to get away from in a shrinking world. As I have posted before it is up to us as business owners to figure out how to compete. Take advantage of the perception being created by goods manufactured in China today and emphasize your “made in the U.S.A.” quality credentials. Every competitor has a weakness, exploit that weakness to move your business forward!

Where can entrepreneurs, small business owners, or family business owners turn to broaden their business education? Most entrepreneurs are pioneers, they take the initiative, assume the risks, create an enterprise, and strive to make it successful. The challenge when you are paving the way for others is to find opportunities to keep yourself moving forward.

I am a big proponent of lifelong learning. I also believe my best business lessons have come from other entrepreneurs and executives. Here is an article from Fortune Small Business on the best U.S. colleges for entrepreneurs. I only have direct knowledge of one, Harvard’s Owner/President Management Program.

The HBS OPM program was a life changing experience for me. Having the opportunity to learn from some of the best business instructors in the world along side a group of outstanding entrepreneurs changed how I view business and entrepreneurship. I would recommend to any business owner, if you can afford it, check out one of the programs in the article and take your entrepreneurial education to the next level.

The U.S. Department of Labor reported this morning that the economy lost 4,000 jobs in August, well below the consensus forecast. For the past three months the number of jobs added by the economy has steadily declined and the trend has been down since the fourth quarter of last year. In 2006 through August, the economy had created over 1.5 million new jobs, in 2007 the economy has created under 1.0 million jobs during the same time period, a 33 percent year-over-year reduction. This is the first decline in new job creation since August, 2003. Construction and manufacturing were the hardest hit as the housing market and subprime woes weighed on the broader economy.

On Thursday the Mortgage Bankers Association reported that home delinquencies spiked and the number of homes starting the delinquency process reached a record high.

Today’s job data, combined with the auto sales data from August and the ISM manufacturing survey continue to point to an overall slowing of economic expansion, although the U.S. Federal Reserve has indicated they believe the fallout from the housing and subprime problems will be limited, the jobs data from August indicates the fallout may be broader than expected.

As we have posted here in the past, we recommend you continue to push forward with your defined strategy and focus on execution. Also, have that contingency plan at the ready if the ripples from the subprime market reach your shores.

I picked up my Wall Street Journal this morning and I learned to my amazement that the current run-up in the stock market has been due to private equity buyouts. I was even more amazed to learn that because of the current credit crunch the expectation is that these buyouts will slow. Well, what can I say? That is certainly an incredible observation!

Whether it is the stock market, or your small business, we never seem to question things when the results are good. When revenue numbers are going up, and profits are increasing we assume that it is simply due to our incredible business acumen and it will likely continue forever. This reminds me of a small manufacturing business I was familiar with, when they were in business. This business was generating amazing results. The growth was strong and constant, and had been constant for several years. The profits were outstanding, and the shareholders were being well compensated for their investment of time and money. As this business was growing the owners were approached by a larger manufacturer in their industry who wanted to acquire their business. The offer was an excellent multiple, and could have set the owners up for life. The owners decided the growth of this business would continue forever, so why sell? A few years later they were forced out of business due to increasing global competition.

Never stop questioning what is going on in your business. No matter how strong your results are, no matter how adept you are at understanding your market, always work to better your business and work on methods for improvement. Positive trends don’t last forever, and negative trends don’t last forever, they come and they go. If you focus on developing a sound strategy, creating a plan to implement that strategy, and developing a process to ensure execution you can help your business move forward through the good times and the bad.  

The National Association of Realtors reported yesterday that pending U.S. home sales fell 12.2% in July, to the lowest level September 2001. They cited issues obtaining mortgages, especially the higher value jumbo loans, and higher short-term mortgage rates as being the primary reasons. They also believe the drop indicates the soft housing market will be with us for awhile. 

As I was perusing my morning papers I noticed that Mattel has placed full page ads in both the Wall Street Journal and the New York Times in regards to their latest recall announced yesterday. The media statement from Mattel’s website reflects the same message as the ad, “they are doing more to ensure the safety of their products and our children.” As I have indicated here before, we all need to face the reality of globalization. One of those realities is as business owners we must figure out how to compete with low cost labor markets, on our own turf, and on theirs. The other reality is that I have never seen a competitor who does not have any weaknesses. Exploit those weaknesses, differentiate yourself, and you will build a successful business.

If you stare at those numbers long enough, sooner or later they will say exactly what you want them to say. I know many business owner’s who have worked very hard to convince themselves that their business is doing great when in reality their business has some challenges. These are the owners who refuse to see anything negative in their business. They interpret any realism as negative thinking, and they steer their businesses the wrong direction because they never fully comprehend the current condition of the business.

This is how I feel about the reporting being done on the current condition of our economy. We have those who are trying to talk the economy up, and we have those who are trying to talk the economy down. For example, this morning in the Wall Street Journal we are told that the “manufacturing sector remains on course” evidenced by the Institute of Supply Management number for August that was announced yesterday. The New York Times; however, reports that “manufacturing growth has slowed.” Ironically, both are correct, but they interpret the data to fit their needs. Manufacturing did expand in August, according to the ISM survey a reading above 50 is an expansion. The ISM index was 52.9 in August. This is a slowdown from July.

The reality is that manufacturing expanded at a lower rate in August than it did in July. The trend has been down for the last three months; however, we are above our lowest reading for 2007 which came in January. I see no advantage to reporting it one way or the other, just the facts please.

Speaking of facts, the auto industry numbers for August were not stellar as reported by both The New York Times and The Wall Street Journal. Although, the Federal Reserve’s Beige Book, the collection of data from “main street” businesses that the Federal Reserve puts together eight times a year, seems to indicate the economy is doing o.k., not great, just o.k.

Our interpretation of the current economy seems to fall in line with the Fed’s beige book. There will likely be some fallout from the housing market and subprime problems; however, it is probably not the end of our economy as we know it! Over the next several months we will see many businesses attribute poor results to the housing market problems, and the meltdown in subprime mortgages. At the same time many CEOs will be hailed as heroes for steering their businesses through the crisis and being able to maintain positive results. This is how it will play out regardless of reality. That reality will likely be those businesses that are close to the impact of the housing market and subprime problems; home builders, lenders, and financial firms will feel it the most. Those businesses that are further from the impact will feel it the least.

Keep all of this in mind as time clarifies what we do not know today, and keep your business moving forward.  

The Institute for Supply Management’s survey for August fell to 52.9. A rating above 50 indicates an expansion. The drop in August was near overall expectations and indicates slower growth in the manufacturing sector. Construction spending fell in August o.4 percent, the largest decline since January. Overall both pieces of data were within the consensus forecast and indicate some slowing of growth. 

The Wall Street Journal has a story today about a business succession issue and a CEO facing retirement. Leaving the workforce for the next stage of your life is never an easy venture for anyone. For a business owner, retirement means giving up your baby. The business you have grown and nurtured, and the people that look to you for guidance.

When I was reading about this succession challenge I thought about what this CEO is going through. His reluctance to press forward with succession is likely due to fear. There is always the fear of what comes after retirement. The retiring business owner is usually also fearful of loss of status in the community and among his or her friends. Sometimes the business owner going through succession is fearful the successor will run the business into the ground, or fearful the successor will actually do better than the retiring owner. The retiring business owner also must grapple with the issue of life after the business, and the fear that retirement is an indicator of impending death.

For any business owner grappling with the issue of succession, whether a retiring owner or an incoming successor, we have some suggestions that may help you move through the process.

1. Set a date - Semi-retirement is a lie, and is usually utilized when the retiring owner can’t overcome their fear of stepping down. An agreed upon date for when the retiring owner will step down and the successor will take over is critical to ensure a transition. An open ended date will yield an open ended result.
2. Have clearly defined tasks – Before the transition is started, document what the retiring owner is responsible for and what the successor is responsible for during the transition. This will help eliminate a great deal of confusion.
3. Be clear about who is in charge – The outgoing CEO needs to defer decision making to the successor, make sure it is clear to the employees.
4. Learn from each other – The successor needs to learn from the outgoing CEO’s mistakes. The outgoing CEO needs to be open to the successor’s ideas and changes.

 For other ideas of dealing with succession you can listen to our free podcast. Roger Warrum’s book Family Business Mistakes is also a good succession planning resource. 

The New York Times has an article this morning about the U.S. leading the world in productivity gains. Many of our Rough Air clients involved in manufacturing are grappling with the challenge of competing with low cost manufacturing. Two of our family businesses had to deal with this issue, with one we were successful, with the other we were not. You can read about both of these cases in my new book Rough Air Ahead, available here, or at your favorite book retailer (sorry about the plug)!

When we were faced with this challenge we put together a strategy that had several key pieces. We worked hard at building our brand and lifting the quality perception of our product. Our belief was that we needed to position ourselves as a high quality, high technology producer. We also developed a lean program to help drive productivity. Our lean expert, and one I highly recommend, was Frank Giannattasio, here is his bio. Frank worked with us to improve our productivity, his efforts helped us significantly improve our bottom line.

One of the challenges we ran into up front was getting the employees to buy in to the lean effort. Many of our manufacturing employees were worried that productivity increases meant job cuts. We reinforced that our lean effort was designed to be able to grow our volume, and at the same time improve the output of each manufacturing worker. We did not want to cut jobs, we just wanted to add fewer than old system would require due to growth. This of course, did not ease their fears, and it took time to get people to buy in.

It strikes me that while no one wants to get forced out of business because of a low cost competitor, our businesses would be far better off if we accepted the reality that we operate in global markets and adjusted our businesses to compete in those markets!

There will be several key things to watch for this week in the economic news. On Tuesday three pieces of data will come out that will give us a glimpse of how trends are shaping up. Tuesday we will get the new construction numbers for July, the consensus expectation is for no change. Motor vehicle sales for August will be out on Tuesday as well, the consensus expectation is for a slight uptick. The ISM manufacturing survey for August will come out Tuesday morning, the consensus is that we will see a slight drop. This is one of the key measures we track in regards to the Rough Air Demand Index.

Payroll employment numbers will be out on Friday. The employment numbers have been trending down for quite some time, the expectation is for a slight pick up in August. This is also one measure that weighs heavily on our index. Hopefully by the end of this week the overall economic picture may be a bit clearer, but I am not holding my breath!

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. 

Here is an interesting item from inc.com in regards to an FAA rule that impacted 2nd and 3rd tier suppliers in the aircraft maintenance world. The SBA has the Regulatory Flexibility Act on their site. It was enacted in 1980. It strikes me pretty much as common sense. I believe what many folks don’t understand is that small business and big business are very different. One rule change, one rate hike, or one new regulation can sometimes be so onerous for a small entity that it becomes difficult to continue the business without a significant change. We would like to hear from our readers. What regulations are hurting your business?

I want to start by thanking all of our site visitors, and if you are a new visitor to our site, I want to welcome you. Since we launched www.rough-air.com in August site traffic has been growing tremendously, much greater than we ever expected. It is becoming apparent that we are filling a missing need, not just because of the blog’s repeat traffic, but because of the amount of time visitors are spending on the site. We appreciate you taking the time to visit our site and we will do our best to provide you with valuable material that can help your business.

More than a year ago when my wife, Wendy and I, were talking about our lives after Hyde Park, we knew one thing. We wanted to support small business and family business by utilizing our experience with our family businesses and our contacts in the business community. Hyde Park was our family business that we sold to Schneider Electric in 2003. Last year I had started my first book, available on our site now and through your favorite online or local book retailer in September. As I worked on the book, I thought about our businesses, what had worked, what didn’t, and how I could capture that. After interviewing dozens of entrepreneurs I came to a conclusion that I already knew, my best lessons in business have not come from books or lecture halls, they have come from other small business owners, who have lived the experience and shared that experience.

There are a tremendous number of resources and information out there for all business people. There are myriad management theories and ideas, and a financial media that seems to cover the same 500 companies over and over again, every 90 days! They spout all sorts of economic statistics, and try to educate us on the latest management fad which we should all follow. While there is a lot of good information out there, if you are a small or family business owner, the question is how does all of this stuff really impact your business?

That is where we come in. We started www.rough-air.com to create a real business news source for small and family business owners. Our goal is to look at all of this data, interpret how it might impact your business, and give you some ideas about how to deal with it. We will interpret economic information for you as it becomes available, and we will work every day to provide you with some articles that are specific to small business or family business.

We are creating small business communities. Whether it is through our weblog, one of our small business centers, or through our educational efforts, we want to bring small and family business owners together so they can learn from each other and keep their business moving forward. We invite you to help us with that effort. Let us know what challenges you have in your business, and what you would like to see us cover. Also, give us your feedback on the articles we post. The articles we post are just our thoughts, we want to create a discussion that business owners can have everyday. We want to create an environment where we can learn from each other!

Please continue to visit, thank you for doing so, and comment if you feel you can add to our discussions. We are excited about the great interest we have had in the site, and we want to provide you with the information you need to run your business.     

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 inevitable 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!

Time heals all wounds. At least that is what I’ve heard. Time also allows nagging questions to come into view. The nagging question for us has been, where in the world is this economy headed? I spend time every morning trying to understand and interpret the financial news for our small business customers. August has been a difficult month, because the talking heads on the financial news can’t seem to agree which direction we are headed. As I take a second look at this week’s economic news I feel we are beginning to get a little clarity on what to expect over the next few months.

The numbers that have gotten reported for July, and for the second quarter, have been for the most part pretty positive. Even our own Rough Air Demand Index was very positive after July. The GDP growth in the second quarter was good, and was revised upwards this week. Consumer confidence in July was very high, the trade deficit was down, personal income was up, personal spending was up, inflation was in check, and unemployment was stable. All of this data paints a picture of a pretty healthy economy.

The lingering question is what will the fallout be from the housing slowdown and the subprime mortgage mess. The concern is that as credit tightens and loan defaults accelerate, slowing consumer spending will cause overall business spending to slow. The picture that is starting to take shape now is one of a slower economy ahead, a little rough air ahead! Consumer confidence in August dropped, jobless claims were up, and some big retailers were lowering expectations for the rest of 2007. The projections are that GDP growth will slow going into the fourth quarter and carrying over to 2008.

How does this impact your business? Tightening credit markets will make it a bit tougher to raise money through borrowing. A common source of capital for small business owners just getting started is the equity in their home. There are signs that the declining home prices and tougher credit requirements are making those equity loans harder to get.  As we have been saying here, keep pushing on your business, keep your eye on the ball, and be prepared to make adjustments depending on the overall economic environment. Here is a review of some simple steps you can take:

• Have a clear picture of past revenue trends and short term revenue projections
• Watch your cash, know your needs for the next 30, 60, and 90 days
• Keep a close watch on spending and capital
• Know what you will cut if you need to
• Keep you business moving forward

In 2001, at our former family business, we were faced with a difficult environment like many businesses at that time. We had prepared ourselves early in the year for a potential downturn in the economy using some of these steps above. When we felt we needed to, we reigned in discretionary spending and capital. The economy took its toll on many of our competitors, the overall market we were in dropped 25 percent. Our efforts that year helped us grow our profits, despite a slight drop in revenues. An economic downturn is not the end of the world for your business. If you play your cards correctly, you can structure your business so you can push through a slow economy, and come out a stronger, more profitable, and more competitive business!

Someone told me once when you start a new business don’t tell anyone. Even your closest friends will doubt your ability to succeed. As a business owner and entrepreneur I know exactly what these folks are talking about. It strikes me that not many organizations want to support your start up business, everyone assumes your effort will fail, and until you prove them wrong, they maintain that assumption.

This can be true for your family, your friends, and the community. Our local governments will spend billions of tax dollars trying to attract major companies (large employers) to our geographic region. They are all looking to bag the elephant or get the big win. Banks generally do not want to lend you any money until you have some, and many times suppliers will not take your new venture seriously. I find this odd considering that facts. Half of the GDP in this country is created by small businesses, those companies with less than 500 employees. More than half of the private sector workforce works for a small business, and where do you think the majority of new job growth comes from, that’s right, small business. With these facts it strikes me that if local governments spent more time and money educating and supporting entrepreneurs and small businesses they would win in the long run.

Regardless, here is a good resource from the Small Business Administration for creating a plan for your start up business.

What would you do if a major disaster fell upon your business? If you woke up this morning and went to your office or your plant, and discovered it had been destroyed by a fire, a flood, or a tornado would you have a plan for the survival of your business? Last week I wrote about emergency preparedness and provided some resources for preparing your business for an emergency. Today we will discuss creating a disaster recovery plan for your business.

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 final stage of any disaster recovery plan is dealing with the long term aftermath. A major disaster can obviously impact your business operations in the near term. It can also create a source of frustration for the business for many years. You need to have a plan for dealing with the aftermath of a disaster, after the business is up and running. There may be long term implications.

• If there are going to be legal issues, make sure you designate where you will go for legal support
• Depending on the disaster there may be new regulatory issues to deal with, have someone designated to deal with these issues
• Make sure you assess the overall financial impact
• Have a process for reviewing what went right and what went wrong

A good disaster recovery plan involves being prepared, practicing, and knowing how you intend to recover.

As if the swirling winds of the economy have not been confusing enough, GDP estimates for the 2nd quarter have been revised upward to 4%. This is an increase from the original estimate of 3.4%. Remember this data does represent what happened in the past, and we know past performance is never a predictor of future results. The bottom line is a stronger GDP number is positive news; however, it may not reflect the full impact of the subprime meltdown we have seen so much of in August. Next week’s employment numbers for August may help to give us a better feel for the overall direction of the economy.

There is no employee that cannot be replaced. We have all heard that same sentiment expressed. Typically we hear this just about the time a key employee quits to go work for a competitor, retires, or is disabled. In the past I subscribed to this theory. I thought that over time we could replace anybody, and many times the person we replaced them with would do better. This was not one of my better management theories!

Human nature being what it is, we probably convince ourselves that everyone can be replaced so we don’t have to deal with the fear of losing a key person. I like many business owners had to learn the lesson the hard way. Several years ago when I was CEO of Hyde Park I had a marketing manager that was right in synch with my promotions strategy and was doing a tremendous job of executing that strategy. This person quit and I was never able to get us back to where we were from a promotions standpoint. Our execution in this area was never quite the same, and I believe our customers noticed.

The question for a business owner is what can I do to protect against the loss of a key employee? If the loss is an owner or someone that has a major impact on the health of the business there is the possibility of keyman insurance. For the loss of a key manager, or staff, there are some things you can do to try to prevent those losses, and some you can do to prepare. To be prepared we suggest:

1. Create a depth chart- Using your organization chart identify your key employees and who could replace them.
2. Understand their jobs – Spend time with your key people to understand what they really do. Make sure you have a clear, accurate job description, not just the one in the file so you can pass ISO 9000. One that is a true indication of what they do.
3. Know their strengths – Good people are hard to find, stars are even harder to find. Once you have one, develop a list of their strengths. You must understand what makes them a great performer.
4. Do a simulation – Create a simulation of what you would do in the event that key employee is gone. How would you train their identified replacement, what would your expectations be, and how could the replacement be taught to perform like the person leaving.
5. Don’t fool yourself – This is what many of us do. You will lose a key employee, and it will challenge your business. If you accept these facts then you can prepare and be better prepared when it happens.

The sale of Home Depot’s HD Supply division to a group of private equity players, and a discussion I had recently with a client had me reflecting on my days in the industrial automation and electrical distribution business. Our old business, Hyde Park Electronics, which we sold in 2003, is a manufacturer of ultrasonic sensors. These sensors are used to help control processes in manufacturing plants, so I have been around the electrical distribution and industrial automation markets for many years.

After seeing an article on the HD Supply buyout I began to wonder what the credit market turmoil impact would be on the electrical distribution and industrial automation business. If you recall HD Supply was Home Depot’s distribution business and was made up primarily of acquisitions, the largest being the acquisition of Hughes Supply in 2006. Home Depot has said they are selling this division in an effort to raise cash for a stock buy-back program. I can’t help but think there is a bit more to it than that. A big segment of this business is electrical distribution products, a product that is highly dependent on new home construction and remodeling. Since the housing market is not showing any signs of a quick recovery I wonder about the overall health of this business in the near term. It strikes me that things could get more challenging in the electrical distribution world before they get easier.

The question is will this spillover into the industrial automation markets? Year to date results in that segment indicate no; however, if there is an economic fallout from the housing market, the broader economy has not felt it fully yet. I looked at four major players in electrical distribution and industrial automation and they are all doing quite well this year. Their average year over year revenue growth is almost 12 percent. I could only find one player that was down, and they serve a niche of the automation market, they were down 15 percent. That could be an anomaly. The bottom line is that there has been no slowdown in the electrical distribution or automation markets.

Common sense does tell me that there is strong possibility this will not hold. The real turmoil in credit markets had been bubbling below the surface all year. We did not see this start to boil until August. If the housing market slowdown impacts consumer spending, I would expect an overall impact in broader areas of the economy. For our clients in electrical distribution or industrial automation, a slowdown in consumer spending could have an overall negative impact on revenue. I think back to 2001 when the economy slowed and the overall impact of that slowdown on the electrical distribution and industrial automation markets.

As we have been saying to our clients, continue to push on your growth plans, but be prepared for what may be ahead! 

This is not a huge surprise, but the Conference Board reported today that their consumer confidence numbers dropped to their lowest point in the last twelve months. Once again, this is just another data point giving us an overall picture of the economy. We suggest to all of our clients to keep plugging away at your business, but have a plan for what you will do if an economic slowdown occurs and if it impacts your business.

For some tips on creating a contingency plan, see my post from last week.

It never ceases to amaze me how people can be fascinated at folks who go the extra mile to provide great service. A story in the Wall Street Journal today talks about a pilot for United Airlines and how he goes the extra mile for his passengers. In small business this is a way of life. If you are not willing to go the extra mile for your customers then you will not likely be around long. It does not matter if you are a small manufacturing company, a restaurant, an accountant, or a consultant, as a small business owner if you do not reinforce great service then you will probably not maximise the potential of your business. For small businesses great customer service is not the exception, it is the norm.

An article in the Wall Street Journal  yesterday about a debate in Congress over the revamp of our patent system caught my attention. It caught my attention for two reasons.

The first reason was that the debate appears to be between a business coalition which includes folks like Microsoft and Cisco, and the AFL-CIO. The business coalition believes the revamped legislation will reduce litigation and judgments, the AFL-CIO believes it will risk U.S. jobs by making it easier to copy U.S. goods. It struck me that it did not appear that small business was represented in this debate. If we are represented it was not discussed. I will do additional research on this legislation and see if I can help all of our clients understand it and any possible impact on their business.

The second reason the article caught my attention was that many times in small business, intellectual property protection becomes a “nice-to-have.” It can be expensive and confusing, here are some basics and some ideas for your business.

There are three basic ways to protect intellectual property, depending on what you are trying to protect. The first is a copyright. Copyrights protect authorship. Whether it is music, literature, web site material, or other written material, a copyright helps prevent others from using the material without permission from the author. It is secured automatically upon creation of the material, although it can be registered with the Library of Congress, which provides some additional protection.

If you want to protect a logo, a name, or a symbol you will need trademark protection. Registering your trademark helps prevent any other person or organization from using that mark. Pretty critical if you are investing in building your brand or brand identity. As a small business owner you will certainly not want anyone “borrowing” your logo for their own use, or trying to counterfeit your product or service by using your identity. Trademarks are typically renewable for as long as you want.

For the business owner that is trying to protect a product design or process, patent protection is the way to go. It takes longer to get patent protection, there are over 300,000 patent applications per year at the U.S. Patent and Trademark Office. Obtaining a patent helps you protect your design by theoretically preventing other’s from using it. Since the patent process does take considerable time, you can use the term “patent pending” while in process. This does provide some protection. Most patents will protect you for up to twenty years.

Naturally there is a cost to all of these. There are some online resources like www.legalzoom.com, which can help; however, I cannot attest to them since I have not used them in the past. I suggest finding a good local attorney that specializes in intellectual property. You may pay more, but they should get the job done right. Copyrights and trademarks are generally pretty easy decisions in terms of what and how to protect. Patents become a little tougher. All of them are only as good as your willingness to protect them. It is up to the holder to defend the patent, trademark, or copyright. If you lack the resources, time, or initiative to protect your intellectual property then you will be fair game. Also, remember, if you are doing business overseas, you will need to obtain additional protection where you are doing business.

Going after patent protection is not an easy decision. Not only must you decide if you are willing to spend the money to protect your patent, you must also decide how much public disclosure can hurt your product. Remember, once a patent is granted, it is posted online and available for the whole world to see. It does not take a tremendous amount of engineering to find a way to create a similar product without violating the patent. If you do not have the resources to go after an infringing party then you may want to reconsider patent protection.

In my previous life I was in the automation industry. I remember an ugly patent fight between two of our competitors that left one struggling for several years. The smaller competitor had designed a product with a unique feature. They patented their design and moved ahead. Customers loved the new feature, today it is a standard on many similar products. A larger competitor copied the design, not exactly, but just enough. The smaller competitor decided to sue the larger competitor in an effort to protect their new feature. Unfortunately for the smaller competitor the hearing was held in a jurisdiction that was not friendly to them. The end result was they spent $1,000,000 fighting to protect their patent and lost. A real horror story for a small business and one that forces you to think about the best ways to protect your intellectual property. 

For detailed information on copyrights, trademarks, and patents visit www.uspto.gov.      

Exiting home sales declined .2% in July the fifth straight monthly decline. This reflects continued pressure on the housing market as credit markets tighten and securing financing for home purchases continues to be difficult. We reported earlier today on an article in the New York Times about declining home values in the United States. The effects of all of this on the broader economy remain to be seen; however, it is becoming apparent that the debt issues brought about due to the subprime market problems are raising economist concerns. There are also concerns being raised due to employers reducing their ranks of temporary workers in July.

One of the most challenging things for family businesses to work through is management succession, getting your business from one generation to the next. Each time a family business goes through a generational transition the odds of success go down. For example, the odds are not in your favor going from the first generation to the second, and they get worse going from the second to third, and so on.

Generational transitions are certainly not impossible. I serve on the advisory boards of several multi-generational businesses, one is currently going from the fourth to the fifth generation of family leadership. I have watched what these families have done and developed some quick tips on how you can get your business from one generation to the next.

1. Set a date – Management succession is not real until the generation in power steps down and lets the next leader or group of leaders step up. Setting a date makes it concrete for everyone. This can give all those involved time to prepare for the transition, and it creates a solid transition. Setting a date makes it real!
2. Define who does what – Too many families don’t define responsibilities for each generation which only serves to confuse everyone involved. When responsibilities are clearly defined and communicated, everyone involved begins to understand that the current generation is no longer calling the shots. Combine this with a set date and you show everyone the torch has been passed.
3. Communicate – The generations need to talk to each other and to everyone involved. Make sure employees are aware of the transition, let them get comfortable with the idea. If the current generation has been leading the business for some time, there will be a major adjustment for the employees as they test the boundaries with the incoming generation. Keep them informed!
4. Hold the line - Many times, simply out of habit, the outgoing generation will make decisions when asked by employees, or act as a go-between when employees have an issue with the new leadership. You cannot allow this to happen. Everyone needs to understand who is in charge.
5. This is not a monarchy – In a monarchy the first born gets the job. Regardless of talent and skill the first born child gets the first crack at leading the business, especially if the first born is male. You need to pick a successor based on who is qualified, not who is first. Making that tough decision early in the succession process will help everyone in the long run.

These are just some simple tips, if you would like to dive in to succession further you can listen to my free podcast on succession here. 

The New York Times reported on Sunday that median home prices are expected to fall in 2007 for the first time since the government started tracking this data. There does not seem to be any consensus on the overall economic impact of a decline in home prices. Those impacted will be folks that either wanted to sell their home this year or wanted to use the equity in their home to consolidate debt or for other spending needs.

This data will no doubt put additional pressure on the overall housing market as those who don’t need to move or remodel will hold off for a better climate. There also may be a side impact on consumer spending.

There will be some additional economic data this week which may help to shed some light on the overall direction of the economy. On Monday Existing Home Sales numbers will be out, on Tuesday Consumer Confidence for August, on Thursday the adjusted GDP estimates for the 2nd quarter will be released, and on Friday we will see Factory Orders for July. Of these numbers, the most important to watch are Home Sales and Consumer Confidence.

I sense a muddle! This is what one of my former board members use to say to me when he felt as though we were not being clear about a strategy or direction. This is how I feel today when trying to interpret the economic news and where we are headed. Like you, as a small business owner, I would like to have some feel for the direction the economy is headed. This would help me make decisions about forecast, capital spending, and other investments. It would help me understand how to position my business over the next few months.

The problem I am encountering as I tune in to the latest economic news, is that I do sense a muddle. There is no clear direction. The durable goods number came out just a few minutes ago indicating a sharp increase in July. Granted past performance is never an indicator of future results, but it is still a strong number. On the flip side, some analyst are projecting slower growth for the rest of 2007. Many are indicating growth should be in the 2.1 percent range for 2007. Given where GDP growth was in the 1st quarter and the second quarter, that would mean growth should be about 2 percent the rest of the year. Only you can answer how slower growth impacts your business and you decision making.

Our own Rough Air Demand Index is currently showing a “strong positive”, this could possibly change once we start seeing August numbers. Layoffs in the mortgage industry are increasing and performance from home builders does not seem to be improving. The problem is all of this is showing us what happened in the past and not where we are headed. Our view is still, proceed with caution! Focus on your business and your customer and prepare some contingencies in the event of an economic slowdown. Here are some quick ideas for creating a contingency plan:

1. Get everyone involved who has some budget responsibility.
2. Create a cost control plan while things are going well, this prevents having to make tough decisions on the fly.
3. Look at discretionary cost, advertising, travel, subscriptions, bonuses etc. Which of these can or will go away.
4. Look at potential capital spending reductions.
5. Pay close attention to stretching receivables, make sure your customers are still able to pay in a timely manner.

We continue to be optimistic about long-term economic prospects, although we believe in the short-term (6-12 months), there will be a ripple effect from the current mortgage crisis and housing slowdown. How this impacts all of us is a mystery, but we suggest being prepared.

It is inevitable, if you are in business you will eventually have a customer that pays slowly or not at all. We have all been there, these are the customers that always seem to try to stretch their invoices as far as possible. When you allow a slow paying customer to continuously pay slow, then you are financing his business. So we all know we want to get paid on time, the question is how.

First to remember is that the majority of your customers will pay on time. However, it is up to you to set the expectation on how quickly you want to get paid. As a business owner you always need to avoid allowing the collections process to get personal. The process gets personal when you or one of your employees allows that “special” customer to get away with paying 30, 60, or 90 days late. Many times for these slow paying customers, because of special relationships, we create a unique procedure just for that customer. The problem is that many times the unique procedure or “exception” we create to a normal policy becomes the standard procedure. The risk for the business owner is tighter cash flow as they finance more of his or her customer’s business.

Here are some easy tips for ensuring that your customers pay on time:

1. Have a set policy and stick to it. Having a policy in place takes the “personal” aspect out of collections.
2. Always reinforce your policy. There will be a time when, because of a special relationship with a customer, you will want to waive the policy to take care of that particular customer. Just remember, if you waive it once it will get waived again.
3. Be assertive about collections. This does not mean you need to be difficult or unprofessional, it just means you need to make sure the slow payers are getting followed up continuously. The squeaky wheel gets the grease. Be the squeaky wheel.
4. Don’t let the customer hang on with a “promise” to pay. Once they are behind consistently make them clean up their receivables before they will get more credit.
5. Make slow payers pay in advance. You typically have more leverage here than you realize!
6. Do credit checks. Use Dun and Bradstreeet and ask for credit references. This will help you build a picture of how a particular customer will pay.

The bottom line to a good receivables policy is to be consistent with its implementation, persistent when collecting, and vigilant about who you give credit to!

I was driving to Canada this week to work with two brothers who own a manufacturing and distribution business. I left early Tuesday morning and when I was about 70 miles north of Dayton, Ohio I came upon a long line of traffic on the interstate. Ohio State Troopers were routing traffic off the interstate due to flooding on Interstate 75.

As I was winding my way through several small Ohio farming villages, I was quite surprised at the extent of the flood damage. I passed dozens of businesses that were flooded, some had water several inches deep around their buildings, some had water several feet deep. I began to think about my business and what I would do in the event of an emergency, what is my crisis plan?

Crisis planning is usually not something business owners think about much. It tends to be one of those tasks, that when someone mentions it, we remind ourselves we need a crisis plan, but then we forget. It is one of those things that we may never need, but when an emergency occurs, we kick ourselves if we don’t have a plan to fall back on.

I thought about these businesses as I passed by their flooded buildings and I wondered, what are they going to do? Were they prepared? Ask yourself what you would do if your building was flooded, hit by tornado, had a fire, or some other disaster. What steps do you need to take to ensure business continuity? How quickly can you get your business up and running after an emergency? Would your business survive?

September is National Preparedness Month. The U.S. Department of Homeland Security has some helpful information for business owners about preparing for a crisis. Please check it out! Don’t wait until it is too late before creating a crisis plan for your business!