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How to Succeed On Kickstarter With Really Trying

Kickstarter is one of the best ways for new businesses that are making or creating something to raise start-up funds. That’s why it’s called “Kickstarter,” because it’s intended to help creative people do what they do: create and make.
kickstarter-logo-light

First off, Kickstarter is not designed to raise funds for general use. It won’t provide money to individuals and their living expenses, it won’t provide general charitable donations (and is not designed to fund “worthy causes” in general), and it isn’t designed to provide general start-up money for just any type of business.

There are also pitfalls to Kickstarter. If you have a successfully-funded project and have promised to deliver an item or premium to a backer, you need to follow through.

Warning: Don’t Make This Mistake on Kickstarter

Seth Quest thought up an accessory for the iPad called Hanfree. He more than made his Kickstarter goal, receiving $35,400 from 440 people. Nearly all of those people expected to receive a Hanfree iPad stand. The problem? Seth is now bankrupt, because he just had the idea and made a video and put it on Kickstarter. He had never manufactured anything before, and didn’t have a working prototype. He wasn’t ready to start a Kickstarter tech/manufacturing project. After several months, Seth had to pay back all the backers. That wasn’t what made him bankrupt. It was Seth’s luck to have one backer for $70 who was a . . .

wait for it . . .

Lawyer. That’s right. The guy didn’t get his product, apparently did get a refund at some point, but he sued Seth anyway. The suit was dropped, but Seth was required to file for bankruptcy because of it.

Best Case: Independent Game Designers Have Kickstarter Wired

On the other side of the spectrum, many different independent game designers and game studios have figured out how to launch their games using Kickstarter. One of the newest is Wildman from Gas Powered Games. This is an ambitious launch, with its initial goal of over $1 million. Most games that were very successful last year did raise well over $1 million, but the catch is: they didn’t set their initial goals at that level. The majority slipped in under the initial $1 million goal mark.

Kickstarter provides the opportunity for creative businesses and individuals of all types to set up defined campaigns to raise funds to “kickstart” creative projects. It’s project-based.

History and Background of Kickstarter

Kickstarter began in April, 2009, and its founders, Perry Chen, Yancey Strickler, and Charles Adler, are still with the company. The NY Times, in initial coverage, called it “the people’s NEA” (National Endowment for the Arts). This is an almost classic meeting of old-school thought and journalism with the new economy and classic misinterpretation of what Kickstarter is. If you haven’t heard it already, Google the term “Maker Economy.”

Kickstarter is anything but “the People’s NEA.” People used to, and continue to, create work to serve the government customer known as the NEA. Projects succeed on Kickstarter because they are serving real customers in the real world. If this is “the people,” I guess the name is technically true. But every category, type and level of Kickstarter project has its own path to success, although there are many things in common. A small, regional music series that wants to raise $5,000 has some common elements of success (or failure) with the biggest, most sophisticated game design launch, that raises millions of dollars. The small Kickstarter campaign and project has some things in common with last year’s most successful Kickstarter project, the Pebble Watch, which raised well over $10 million (with over 64,000 backers – so at least 64,000 watches were pre-sold).

A big frustration currently is that Kickstarter began in the U.S. for U.S.-based projects and artists. It just expanded to the UK in December. Many other countries are waiting to become part of Kickstarter, not the least of them, Canada. Whenever you see an international (primarily Canadian) project, it’s because the project has a U.S.-based team member, at the least.

Kickstarter is so different from “old school” financing that business school research is limited to a single, really great analysis by Ethan Mollick from the Wharton School. This paper is a great way to get familiar with the dynamics of Kickstarter. It was written right about the same time as Kickstarter began showing its overall statistics on its site.

What are the odds of having a successfully funded Kickstarter?

In 2011/2012, there were more than 46,900 projects launched on Kickstarter, with total funds pledged of $198 million. Almost 49% were successful. So, a little more than half failed. That’s an almost 1 in 2 chance of success — where else are you going to get odds like that? In calendar year 2012, over 2.2 million people pledged almost $320 million. 18,109 projects were successfully funded.

Now, what are the characteristics of the happy ones that made or exceeded their goals, and what characteristics are the hallmarks of Kickstarter failures?

  • Featured on Kickstarter’s Front Page: 30% of projects that were not featured were successful. A whopping 89% of those that were featured made their goals.
  • Strength of Social Networks: This varies by type of project and category, but in the Kickstarter film category, number of social network contacts really counts.
      1. Film Project Founders with 10 Facebook friends had a 9% chance of success (i.e. almost guaranteed failure).
      2. Founders with 100 Facebook friends had a 20% chance of success – one in five.
      3. Founders with 1,000 Facebook friends had a 40% chance of success – two in five.
  • Video or No Video: Projects with no videos had only a 15% chance of success. Those with videos automatically improved their odds to a 35% chance of success.
  • Location: Kickstarter Projects on the East Coast did better than those on the West Coast. Here is a chart that shows the distribution:
Kickstarter Geographic Analysis of success vs. failure.

Kickstarter Geographic Analysis of success vs. failure.

The lighter color of green is the “failure” color. The darker color means “success.” The size of the pie charts correlates to size of urban area. For example, the big one on the upper right is the New York City metro area. The whopper on the lower left is Los Angeles. You can see how much better New York projects did, with almost 2/3rds successful, than Los Angeles, which performed slightly worse than the overall average of 47.9% projects funded successfully. Portland, Chicago, Seattle and the Bay area all had more than 50% successful projects. I think Orange County fits in the Los Angeles Metro area, and the sad little failure circle at the lower right of the big Los Angeles circle is San Diego. You can do better, San Diego! Go Chargers!

OK . . . back to the facts.

So far, setting a goal over $1 million actually doesn’t translate to greater success. It’s been more beneficial for larger projects (primarily games and tech projects) to go under $1 million. Then if the project does go way over goal, it just looks good for them.

There are a lot of other factors that go into successful/unsuccessful Kickstarter projects. I hope you’ve learned a little more by reading this article.

I’m thinking about adding a new business category called “Firestarter.” It sounds kind of destructive, doesn’t it? But nobody ever wants to be “kicked,” do they? Everybody could use a creative spark. Contact us if you are in the U.S. and want to do a Kickstarter and make it work. When Canada opens up I will be the first to let you know.

Why Choose Pacific Human Capital?

According to a competitor, “Most so-called ‘business plan consultants’ simply take what you say and put it on paper.” Pacific Human Capital does not and will not do that. We will help you identify your strengths, including some we are certain you never knew you had, and help you understand the business environment in which you will succeed. We will work with you to create the most viable strategy for success, which we then communicate in a peerless business plan. You will be able to use the plan to guide your business, secure meetings with investors, and raise capital or sell your company for a nice profit.

  • Get it Right the First Time: When you are asking for money, you only have one shot at making the best impression.
  • Save Time: Save hundreds of hours. Your time is better spent building your company, developing your products and services, and building your customer base. You hire an attorney and an accountant because you are neither one of them. You should hire a business plan consultant for the same reason.
  • Save Money: You could pay more, or less. But some businesses pay for their plan several times over when it proves ineffective because the consultant “didn’t get it” and neither did funders. Why not get it right the first time and save money?
  • Work with Experts: You will be working with a top-level fundraiser who has obtained over $300 million in government and private funding for many different projects and businesses in Canada and the United States, or a hand-picked, trained, equally qualified consultant with equally strong funding results. We also have experts in market research, financial planning, government regulations, and individual manufacturing/regulatory industries in cross-border environments.
  • One Consultant: Some firms assign a “team” of consultants to your business. That means you’re paying to get multiple consultants up to speed. This approach is costly and inefficient, and makes it difficult to ensure that all materials have the same “voice” and consistency. You will work with one person at all times.
  • Fully Customized: Some firms charge low fees because they have an assembly-line, cookie-cutter approach to crank out business plans. Your business plan will be written exclusively for you.
  • Ongoing Support: We don’t stop when the business plan is done. We will continue to assist you to help you implement it as well.
  • Speaks Your Language: Being a Harvard, Wharton or Yale MBA doesn’t necessarily translate into the “real world” and real people. We “get you,” and know how to translate your business know-how, talents and skills into the language that funders will understand.
  • Modern Plan Approach: Some business plans offered for samples on the internet, or through planning software, are two to three times the length any funder will read. They have the “ask” buried in the middle, and contain lots of unnecessary information. Sometimes the terminology is decades out of date.The shorter the plan, the better, no matter how complex or in-depth your business is.*
  • Appearance Counts: We look good. So will your plan.
  • We understand:  We have successful experience helping Women, Minorities, Immigrant (Visa), Under-served, Non-traditional, Young, and Encore Entrepreneurs. We have worked with Rural, Green, LOHAS (Lifestyles of Health and Sustainability), Hybrid, Destination and Urban Core businesses.

*A writer we recently worked with wrote a 3,000 word article. He needed a 500 word article for his task. We advised him on specific steps to cut the article down to 500 words. He was unable to follow any of the steps. So, even when he had detailed, step by step instructions, it was too difficult. He was not an experienced writer! This does not mean he was not a good writer, and did not have worthwhile information to convey. He simply lacked the experience to undertake all the steps.

Also . . .

Yes, it’s personal: Your business is “your baby.” Chances are, you are too close to your ideas and business to see the exact right presentation you should make. Have you struggled to write an “Executive Summary”? How about “History of the Business”? Your own biography?

Red Devil Firecrackers

We’ve been there. We can help pick the things that the people who will give you money will respond to, and want to see.

Yes, that’s just a random picture of some favorite fireworks. Let’s get something started!

 

Changing Work Patterns – Is the Unemployment Rate Really That Bad?

Business Insider featured a chart this morning that showed that the economic recovery still isn’t providing enough jobs, and that the employment part of the recovery is lagging far behind other post-recession periods in the past.

The information comes from Calculated Risk, which has been tracking economic statistics for a long time.

EmployRecDec2012

This shows that a lot of people have not gone back to work after the recession, no matter what anyone has said.

Another chart from Calculated Risk also shows a similar trend. These charts are valuable, because they cover information over a long period of time. The job loss chart compares recessions and recoveries going back to World War II.

 

 

 

EmployPopDec2012

This chart shows how many people as a percentage of the population are part of the labor force (i.e. employed people and those who are able to work). These charts don’t count people who are disabled, or who are over age 65 (or children).

Fewer people are working now as a percentage of the population who are able to work than in a long time. The last time the ratio of employed people dipped below 59% was January, 1982.

Looking way back into the 1960s on the chart, the participation level was also far below 59%. Most people know why that was so. There were many more married couples at that time, and many more stay-at-home moms. The sharp upward swing in the employment-population ratio (the black line) is all the women going to work.

Now, who has lost jobs in the most recent recession, and who has gone back to work?

First, there are a lot of long-term unemployed people out there. Calculated Risk also tracks how many people have been unemployed for more than 26 weeks (6 months) over time.

Unemployed26Dec2012 This shows that there really are a lot more people who have lost their jobs, and who haven’t found new ones, than in any of the previous recessionary periods. Even if this chart was adjusted to reflect these numbers as a percentage of the population, there would still be a lot more people unemployed for a lot longer period of time after this recession than after previous recession periods.

There are other signs of some type of recovery, however. First, the ISM (Institute for Supply Management) Index, which tracks non-manufacturing orders for goods and services, was up sharply in December, to a rate that indicates an expanding economy, not a shrinking one.

Second, Trulia, the online real estate data service, showed that asking prices for homes had increased by 5% in December, a big increase over the 4.3% drop that occurred in December, 2011.

If you are starting a business and looking to hire people, this is good news. It means there’s a “buyer’s market” out there for good employees. However, it may be difficult to attract people who have steady jobs. People are still reluctant to take risks and want to make sure they hold on to their jobs. If people have been out of work, however, they are ready, willing and able to get back to work. They are likely to work harder and be more committed to their jobs.

Most of all, these numbers show a great deal of change, and a big shift in who works, and how our economy works. I already know that many of my students are eager to work at good jobs, and that many of them work in part-time food service and retail jobs. These jobs are a start in the working life for just about everybody, and they have been for decades. As people mature, however, they are ready for more responsibility, and are able to handle full-time work and develop careers.

As you really get started with your business, these statistics are important in terms of marketing and understanding your place in the market. The U.S. Census Bureau has a fantastic resource in its Business Dynamics Statistics database. This is a cooperative, collaborative program that includes state, local, and private information about business start-ups and operation, as well as a wealth of other business-related statistics, such as labor force information and economic growth. Just one of their excellent reports covers the role that start-up businesses played in helping more people stay on the job during the recession, and afterward. The economy in the United States has 6 million establishments that employ at least one person. In 2010, 394,000 new businesses created 2.3 million new jobs. Unfortunately, closures and layoffs meant that during the same period, established businesses eliminated over 4 million jobs, resulting in a loss of 1.8 million jobs over the year.

Part of these trends include people retiring; for example, business owners who are selling and closing their businesses. Another part is larger companies who closed locations and consolidated divisions, across all industries. Yet another part is the devastation in the real estate market that will take a long time to sort out. Smart entrepreneurs will look for opportunities in these changes and shifts. As people retire, they will leave the market for big purchases typically associated with growing families, but will enter the market for smaller ones, especially ones associated with leisure and recreation. What things will retirees enjoy? The “Baby Boomers” who retired last year are living longer, and are healthier and more active, than ever before. I’ve done a number of business plans for long term health care-related businesses, and I know the healthcare needs of the older population in the U.S. and Canada fairly well.

But what about the other needs and interests of people who are retiring? Some may want to establish small businesses that fulfill lifelong interests and dreams. Others may want to spend time traveling or pursuing interests like Tamae Watanabe, age 76, who became the oldest woman to climb Mount Everest this past May.

Retired Coors marketing manager Cinde J. Dolphin launched Marketing for Mavericks, which produces unique online marketing content and helps businesses like wineries reach their markets through social media. I think Cinde gets to visit awesome wineries and make videos for them, then helps them build social networks to develop customer loyalty. I can deal with that job.

If you’re retired and going “stir crazy,” I highly recommend the SBA resources for 50+ entrepreneurs. These are free and will give you  lots of inspiration and guidance. If your pre-retirement career was very focused, and you didn’t work with payroll, receivables and payables, and possibly didn’t fire or hire, or, if you were accustomed to managing budgets — but not doing everything start-to-finish, these SBA programs are fantastic. Once you are ready to get going, contact Pacific Human Capital. We can get you started quickly and put everything into focus.

 

Spark Your Creativity by Changing One Simple Thing

You can change your life. You can make things happen and energize your creativity.

How do I know? Because I’m the biggest procrastinator on the planet! I’ve thought about my own business for the past ten years.

Here are a few of the things that held me back:

  • Inability to find a satisfactory logo
  • Inability to come up with a name
  • Inability to get website going
  • Inability to complete a business plan for my self

As they say, necessity is the mother of all invention. That famous quote originated with the Greek philosopher Plato, so it has been around for a while.

electric spark

Electric spark

So, what changed?

Here is the story, and how I realized that anybody can jumpstart their creativity and spring into action by changing one simple thing.

After writing numerous business plans for other people and working with them to achieve their goals and make their dreams become reality, I became increasingly frustrated.

Every time I tried to really move forward, I found myself frustrated by dozens of small barriers.

I’d already come up with a name – that hurdle was covered. I had a basic idea of what I wanted to do. But I hadn’t done any of the other needed steps, except reserving a domain name.

As we used to say back in third grade at Mentone School, “Whoop-de-doo.”

I tortured myself. This was worse than writing a book, worse than finishing a story, worse than any writing work that I procrastinated about. It was even worse than grading papers. Sure, I could have gone back to all those steps and little tricks I’d learned to force myself to get work done in the right amount of time.

Somehow, because this was for me, I kept coming up with excuses, I kept hitting brick walls, and I never got the things done that I knew had to be done in order to start my own business.

What is the one single, simple thing I did that jump-started my creativity and got my business off the ground? The one single thing that got me to complete the logo, complete the business plan, and start everything?

After another frustrating early morning session trying to get a few things done, and another fruitless logo search because, although I’ve done hundreds of logos for other people and other businesses, I could not possibly do one for myself, nor was I pleased with letting someone else do it for me, I did it.

I opened a file for myself on my computer, just like I was a client.

That’s right. I put myself to work – for myself.

In the words of Emeril Lagasse, “Bam!” Suddenly, the work got done. On time, too. Because now I had a client. I could see the client right there in front of me. This client needed to get things done. I knew what those things were, too. After all, I’d done those things over a hundred times — for other people. Now it was my turn. I was working for myself. I had better do at least as good a job for myself as I always do for other people.

That’s what I mean about “Just change one small thing.” Nobody’s going to start a business overnight, and there aren’t very many overnight millionaires. I think just those people who win PowerBall and this type of thing.

For me, the one small thing was to physically open a file on my computer. This gave my mind access to all the resources, work and knowledge I had built up working for other people’s benefit.

Don’t ask me why I am that stubborn, or find it that difficult to do these simple things for my self. I honestly don’t know. I just know that everything changed after I did that one simple thing.

What’s your one simple thing? Is it a phone call? A post-it note? Ordering business cards? Doing a business plan? Or is it simply opening your own file for your own self on the computer, making yourself your own client?

How To Hire Someone to Write Your Business Plan

Tim Berry, founder of Palo Alto Software, has made many videos of advice for aspiring and current business owners. Mr. Berry advises that business owners use business planning software, and his Portland, OR-based company makes Business Plan Pro and many other software packages for nearly every business sector, including even government and non-profit organizations. Business Plan Pro is $159.95 for a desktop computer version, and Live Plan, which is online software, is $19.95 a month.

Here are a few impressions about this brief video starring Mr. Berry. Like the title and intro music. Pine trees in window: awesome!

Mr. Berry is 100% correct when he says “You can’t just hire someone to write your business plan.” You have to understand all aspects of your business in order to be successful. One way to look at the process is, there’s no such thing as “Business in a Box.” Successful entrepreneurs invest thousands of hours in getting their businesses off the ground.

Mr. Berry recommends using the resources of the Small Business Administration (SBA) and SCORE, the society of retired business executives that used to be an all-volunteer, no-cost organization in the U.S. years ago. These organizations offer all of the basic, necessary information, especially government regulations and “best practices” that are needed to obtain SBA loans or similar government-backed financing. If you can locate a SCORE volunteer or program that is in your exact business or industry, I too, highly recommend it. In Canada, each province has similar business development resources, and major urban areas like the GTA also have a number of business incubators, as well as industry-specific incubators and grant/loan programs. ABC (Aboriginal Business Canada) also offers business loans and support for qualified First Nations entrepreneurs.

It turns out that a friend of mine who is a talented decorative painter, writer and book publisher, thinks along similar lines to me when it comes to these matters. He tried out a new software system for writers called Scrivener. I haven’t yet tried this software, because I know that a competitive product for film scripts, Final Draft Pro, doesn’t write top-grossing film scripts on its own. It’s just another form of software to learn, while the skills it takes to write a great film script have nothing to do with learning, updating, and dealing with the cumbersome Final Draft software system. The best thing Final Draft does is produce an ideally formatted script for any type of script use, from films to plays and comic books/graphic novels, and it will even submit it for Writers Guild registration after it’s finished.

If the SBA and SCORE were truly able to get businesses off the ground with high success rates and a high level of efficiency, we would have a lot more successful businesses coming out of their system. Instead, the SBA has a disturbingly high failure rate (despite news articles you may read to the contrary). What is of more importance to the new business owner, however, is that the SBA disburses only .05% of the total commercial lending in the US. If they knew what they were doing, they’d have a much larger, better-performing portfolio. It isn’t the businesses that receive SBA loans and later encounter problems which are of concern to you, the small business owner and/or aspiring entrepreneur, it’s the businesses that never get through the process or get the loan in the first place.

Everyone’s time is valuable. As an entrepreneur, your time is best-spent building your business. You have to invest the right amount of time in discovering who your customers are and meeting their needs. You have to understand your business finances, and must be able to accurately identify your own strengths and weaknesses.

You do not need to spend time trying to fit your ideas and your business into a “one size fits all” system like the SBA/SCORE process, or like the type of systems set up by Palo Alto Software.

Palo Alto Software was founded in 1988 by President Tim Berry. Originally California-based (“Palo Alto”), the business is now located in Eugene, Oregon. According to Crunchbase, Palo Alto Software has 50 employees; however Crunchbase’s profile is three years out of date. The company is privately-held, with an estimated $8 million in annual revenue in 2010. That works out to 40 to 50,000 copies of the software packages and/or the online applications sold. It’s simply impossible that the software can be so up to date that it will fit every new business, or produce a truly solid business plan. The business climate and circumstances are changing so rapidly that it’s almost impossible that software could be updated frequently enough to make it truly responsive or appropriate for every business.

For example, who is giving money to whom, and for what? According to a complete report prepared by the Small Business Administration on all US commercial lending, the top five lenders in 2010 were American Express Company (first in 2009), Capital One Financial Corporation (third in 2009), Ally Financial Inc.(fifth in 2009), GE Money Bank (41st in 2009), and JPMorgan Chase and Company (fourth in 2009). You can guess as well as I can that these amounts aren’t actual small business loans. They represent commercial lines of credit or credit cards, not actual loans.

You can see the change in the numbers of loans (and amounts) from this report from the SBA. Loan numbers and quantities have not improved since mid-2010, when this report ends.

Loans under $100,000 are called “micro loans” in the SBA terminology.

But how many businesses are starting up?

About 550,000 new businesses start every month in the U.S. The growing trend is for these businesses to be sole proprietorships/self-employed individuals. According to the Kauffman Foundation for Entrepreneurship, which keeps very detailed statistics on business start-ups and activities, Latino/a business owners have grown tremendously over the past 15 years, new immigrant entrepreneurs have been on the rise, and encore business owners and entrepreneurs have also grown as a group.

These are all new and emerging business owners and leaders who are different from the leaders of the past. Men continue to start new businesses at a higher rate than women, according to the Kauffman Foundation; ironically, women-owned small businesses are responsible for most of the job growth in the past five years, a fact reported by nearly all business publications.

This is the type of information I need to gather and understand, in order to help entrepreneurs start and grow their businesses. That’s because you, the entrepreneur, are my customer.

Once again, the answer is: you, the entrepreneur, need to understand your customers, know your competition, and have mastery over all the key aspects of starting and growing your business.

You don’t need to learn how to use cumbersome software or sit through endless cookie-cutter or “one size fits all” seminars. You may well get excellent information from reading business publications or participating in networking events.

Mr. Berry is right. You don’t need to hire someone to write your business plan who is not a business person. That person may be forced to “create a plan” for you, or even worse, use a cookie-cutter or “sample” plan that has nothing to do with your real business or how it will really work. You need a business coach who will help you to maximize your strengths and improve on your weaknesses.

Contact us to see how our coaching and support can help you.

 

 

Why Do Nine Out of Ten Restaurants Fail During their First Year?

They don’t!

Restaurants still experience about a 60% failure rate during their first three years of operation, and a 25% failure rate during their first year of operation. This “oldie but baddie” incorrect statistic was used in television commercials for American Express. H.G. Parsa, a professor in Hospitality Management at Ohio State University, heard one of the commercials that said that many restaurants fail and set out to discover the truth.

Lenders have bought into the mysterious extreme restaurant failure myth, however. According to Mr. Parsa, banks often ask restaurants to pay very high interest rates on loans they do obtain, or they are asked to put up extreme amounts of collateral, such as their own homes and other property.

I know from working with restaurant business planning that a lot of funders believe franchises are “safer bets” than independent restaurants. However this isn’t 100% true. Mr. Parsa found that franchise restaurants had about a 43% 3-year success rate – just 3 points higher than the “average” restaurant.

Many franchise opportunities advertise 90% success rates or even higher. It stands to reason that this isn’t necessarily guaranteed, and the reality is, an independent restaurant will have just as much chance of success as a franchise. With some franchises, the independent operator will have more of a chance! Be sure to analyze franchise opportunities carefully if you’re considering buying a franchise.

Guess what success factor, and reason for closing (sometimes a planned exit, such as a planned, profitable sale or a retirement) is the most frequently overlooked aspect of running a successful restaurant business?

Family.

That’s right. Anyone who’s worked in the restaurant industry knows that the long hours required to run a successful business take their toll on family relationships. It’s especially hard for restaurant owners with young children, or family members who fall ill. Because so many restaurants are family-owned businesses, any problems within the family will impact the business, and will also make it difficult or impossible for an owner to continue who has to try to divide their time between the restaurant and life at home.

“Conventional wisdom” and business sometimes aren’t the best fit, and the myth about 90% of restaurants failing during their first year is a great example of that.

If you enjoyed this article and are planning to start or expand a restaurant business, contact us at Pacific Human Capital to see how we can help. Remember, if you’ve already started a business plan or have written one using one of the online business tools, we can go over that for you and let you know what you need to do to improve and get funded for only $149.95 – you’ll receive a professional review, report and “how to” steps you can use right away.

 

Entrepreneurs Under 25 and Over 45: Which Does Better?

Brock Blake, founder of Lendio, has a great article in Forbes about why entrepreneurs under age 25 are able to be successful. Brock thinks along similar lines to me. Lendio offers a $2,500 scholarship to student entrepreneurs who are in college. The funds are intended to allow the student to get a business started without having to worry about having a part-time job and college and starting the business all at once.

Brock’s reasons for the success of young entrepreneurs fit in two simple categories: first, they have “nothing to lose,” in that they don’t have big bills, own homes, or have other responsibilities that would make them more cautious and less eager to take the risks that result in major business success. Second, Brock says that 20-somethings haven’t acquired the habits of a lifetime that will also instill caution or cause more traditional ways of thinking that also don’t spell big business or entrepreneurial success. He lists five examples of some of the top entrepreneurs of our time, and their ages when they founded their companies:

  1. Founders of Google:  Sergey Brin (25) & Larry Page(25)
  2. Founders of Apple:  Steve Jobs (21) & Steve Wozniak (26)
  3. Founders of Microsoft:  Bill Gates (20) & Paul Allen (22)
  4. Founder of Facebook:  Mark Zuckerberg (20)
  5. Founder of Wal-Mart:  Sam Walton (26)

If you need funds, by the way, I urge you to investigate Lendio. With Lendio, you have a 70% change of getting funding for your business, and without Lendio, they say it is only a 1 in 10 chance. You will also increase your funding chances by working with Pacific Human Capital . . . we are shooting for better than Lendio’s 7 out of 10 funding ratio.

So is the only action for those who are 25 and younger? No. Analysis of start-up businesses in recent years shows that firms that began with principals who were over age 45 have a much better chance of still being in business five years after they started. Cheryl Conner, VP of Communications for Grow America, has another Forbes article that is matched to Brock Blake’s cheerleading for younger entrepreneurs. The article is linked to a poll that shows respondents say that either age doesn’t matter, or new businesses have the best chance of success when younger and older co-founders team up.

All of this action, by the way, is coming out of Utah. Both Lendio and Grow America are based in Salt Lake City. Let’s mix this up and spread the action around. It’s about time California started growing again. If you are interested in starting or expanding your business, contact Pacific Human Capital to find out how we can help.

 

 

 

Women in Business: Food, Retail and Tech Industries Dominate Fortune Top 50 Women in Business List

Number one on Fortune’s top 50 Women in Business list for 2012 is IBM President/CEO Ginni Rometty, who advanced from #7 on the 2011 list. Rometty oversaw the $3.6 billion acquisition of PwC international business consulting firm, which employs over 180,000 people in 158 countries. She has worked for IBM since 1981, and served as Senior VP and Group Executive for Sales, Marketing and Strategy, overseeing this division in 170 global markets. She became President and CEO on January 1, 2012, and was elected Chairman of IBM’s Board of Directors October 1. Ginny’s educational background is in math and science, with a degree in computer science and electrical engineering from Northwestern University. At age 55, this places her in a very small group of women who have technical degrees and who have also achieved significant business success. Directly after college, she worked at the General Motors Institute, where a number of highly-successful executives got their start. The GM Institute put recent graduates in a variety of jobs in different departments at the car company. Later, the GM Institute became independent Kettering University: that’s how good it was.

PepsiCo Chairman and CEO Indra Nooyi was number two on Fortune’s list in 2011 and 2012, but has been selected as number one in five previous years. Indra was born in Chennai (also called Madras) and is also frequently mentioned as being among the world’s most powerful women in general. Her undergraduate degree is from Madras Christian College, and she also has an MBA from the Indian Institute of Management Calcutta. She came to the U.S. in 1978 to attend Yale University, where she received a Master’s in Public and Private Management. She was a business consultant with major firm Boston Consulting Group, and also worked for Motorola prior to joining PepsiCo in 1994. She has overseen a sustained increase in corporate revenue and profit growth since she entered corporate leadership at PepsiCo, first as CFO (2000), and then as President/CFO (2001) and Chairman/CEO (2006). She is also #3 on Forbes’ World’s Most Powerful Moms list. She has led PepsiCo toward increased revenues from healthy or healthier products, divesting the firm of ties to junky snack food and emphasizing low-cal drinks and high-fiber oatmeal. PepsiCo is also moving away from use of fossil fuels whenever possible, and is contributing toward campaigns against obesity. Indra sings Karaoke and is regarded as a deeply caring CEO and leader.

Meg Whitman, former eBay CEO and 2010 California gubernatorial candidate, is #3 on Fortune’s list. Whitman has been President and CEO of Hewlett-Packard since September, 2011. A Princeton and Harvard Business School graduate, Whitman is currently also serving as a board member for Zipcar, Teach for America, and Procter & Gamble. Whitman suffered difficulties adjusting to political campaigning from the boardroom and executive office during her 2010 candidacy for California Governor, but did put together a detailed plan for recovery of California’s economy, improved jobs, and improved funding and results from the K-12 education system. Meg achieved remarkable success while at eBay, growing the company from a few thousand customers to 50 million. Her husband, Griffith R. Harsh IV is a neurosurgeon. Meg experienced the hailstorm of criticism aimed at all political candidates, especially first-timers, including accusations from her former housekeeper (an undocumented worker) and criticism of her young adult sons Will and Griff.

Irene Rosenfeld, former Chairman and CEO of Kraft Foods (founded 1761), and Chairman/CEO of Mondelez Foods as of October, 2012, was #1 on the Forbes list in 2011, but fell to 4th place in 2012 because of the corporate split between Kraft and Mondelez that she planned and engineered. Rosenfeld had served as CEO and Chairman of Kraft since its split from Altria Group in 2006. Many people were unaware that the delicious Kraft food products they enjoyed were corporately tied to Philip Morris (tobacco) under the Altria banner. Mondelez Foods now operates the global snack and other foods manufactured by Kraft, manufacturing, distributing and selling foods in 170 countries, with an estimated first-year revenue of $36 billion. What do they sell? Biscuits (aka “cookies” in the US), cheese and grocery items, beverages, gum and candy, and . . . wait for it . . . 27% of their sales are chocolate. I personally chew Trident and Stride gum, which they make, and yes – I’ve tried “natural” substitutes that fall apart after a few chews. Which chocolate, might you ask? Milka, Toblerone and . . . Cadbury! As to “biscuits,” why they make . . . Oreos. Highly educated, Ms. Rosenfeld has a BA in Psychology, MS in Business, and Ph.D. in Marketing and Statistics from Cornell University. Her favorite Kraft product is of course macaroni and cheese, and when she was little, she wanted to grow up to be President of the U.S.

If you enjoyed these profiles, and are a woman who can see yourself in the leadership spot owning your own business, this is one big reason Pacific Human Capital is here. Contact us to find out how you can achieve your business goals as a woman entrepreneur.

Wal-Mart Vs. Costco: Which Business Does Better for Employees and Customers?

Have you seen one of the charts analyzing how much better Costco pays and treats its employees than Wal-Mart? The charts use information from 2005 or earlier. An update presents a slightly different picture, but not much.

Costco vs. Wal-Mart 2012

Costco vs. Wal-Mart 2012

Costco is a great place to shop, as all 61 million Costco members know. It’s also a good place to work, as shoppers can tell when they visit one of the company’s busy warehouses. Not only does Costco pay its associates more on average than Wal-Mart, it also pays more than Target, JC Penney, Sears and a number of other retailers.

As of November, 2012, Costco was #24 on the Fortune 500 list of America’s 500 largest corporations, which is ranked exclusively by gross revenue. Wal-Mart Stores is #2 on the list, behind Exxon Mobil. Oil giants Chevron and ConocoPhillips, and General Motors, round out the top five. At number six is GE, and number 7, Warren Buffett’s Berkshire Hathaway. Number 8 is Fannie Mae, the quasi-public entity that backs nearly all US home loans, and Ford, the only auto manufacturer that did not take any type of “bailout” money in 2009, is 10th on the list. Costco is the third-largest general retailer on the list, right behind grocery giant Kroger.

Anyone who’s familiar with the retail industry, particularly grocers, knows that a 3% net profit margin is highly competitive in the industry. Gross revenue or sales has nothing to do with how much the company earns at the end of the reporting period. Walmart had a 3.5% profit margin as of the end of 2011, exclusively due to the excellent performance of its international stores. US store profit declined by 4.6%.

Costco, on the other hand, reported net profits as percentage of revenue of 1.6% in 2011. This does not mean that it is “losing money.” The company also paid $1 billion in taxes earlier this year.

The tale of the updated comparisons between Costco and Wal-Mart show that the world’s largest retailer is struggling. Although it has made a number of improvements in employee pay, benefits and retention since the mid-2000s, it still struggles to keep associates on the job. Wal-Mart employees just received notices that their share of health care costs would increase between $5 and $24 per paycheck, causing some associates to drop coverage altogether.

The average annual wage of a Costco employee works out to a little over $35,000 a year. People can add $13,000 to $15,000 to that right off the top to cover employer payroll tax liabilities, direct, and indirect benefits. Welcome to the world of business planning.

Wal-Mart full-time employees are currently making a little over $26,000 a year on average. We can add about $10,000 to $12,000 to that amount for their cost.

As most who have shopped at both stores know, a different type of person typically works at Costco. Most Costco associates are more physically fit than many Wal-Mart employees and their jobs are more physical. Costco is a warehouse store, and associates have jobs that involve lifting large, bulk packages and other items.

People not familiar with business planning could see a difference in the chart in that Wal-Mart’s labor and overhead costs are 19.5%, while Costco’s are very low, only 9.6%. Many Wal-Marts are open 24 hours, while Costco has limited hours. Costco is a warehouse store which keeps overhead low. Wal-Mart isn’t the fanciest store in the world, but its costs in stocking, maintenance and inventory management have to be much higher than Costco’s.

Part of this savings has been reinvested in the Costco employee, which further strengthens the retailer, leading to their increased Fortune 500 rankings (increased revenue) between 2010 and 2011. Costco has also received a lot of favorable press for its good treatment of employees and its profitable business model. Wal-Mart, of course, has tried to emulate Costco’s approach in its Sams Club membership warehouses, which pay somewhat better than ordinary Wal-Mart stores. Sams Clubs are far from unsuccessful, but it is Costco that dominates the warehouse store landscape.

Costco is simply a well-run company with a clear vision of what it wants to sell, how it wants to sell it, and what it needs to do to operate successfully and profitably. The company long-ago realized that what one might term “reasonable” operations are the key to its success.

Costco’s vision is: “Our business is to give the customer the best value we can.” The company also has a clear code of ethics that applies to daily operations, employment relations, and above all, to customers. Costco was guided by Jim Sinegal up until last year, when Sinegal handed over the reins to Craig Jelinek, who has worked for the company since 1986. Another key figure from the Wal-Mart/Costco comparison chart is executive compensation.

Mr. Jelinek’s final compensation was $548,400, including a nearly $200,000 bonus, which had to have been tied to company performance, which was outstanding during his final year. Wal-Mart CEO Mike Duke received $1,265,775 in compensation in 2011, according to Hoovers.

I’m writing this from the perspective of a business planner who is committed to shared value and sustainable business practices. Clearly, Costco has gone a long way toward successful, sustainable operations, and maintained growth even during the serious economic downturn years of 2009 and 2010. Clearly, the company has what I would call a reasonable and responsible approach to operations.

Wal-Mart is too large a multinational corporation to begin to evaluate in a brief article. The company has made positive progress in providing associates with improved pay and benefits in recent years, and is aware of the problems it faces in terms of maintaining profitability and the serious issue of employee retention. With 2.1 million employees, they have a completely different workforce situation than Costco, with 160,000 employees. The situation is not that Wal-Mart is an exceptionally bad company. It’s that Costco is an excellent one.

Information in this article was compiled from Hoovers/D&B, Forbes, Businessweek, Google Finance, and the New York Times, as well as corporate websites and shareholder information, and covers the 2011 fiscal reporting year for both companies.

If you find this article in-depth and beneficial, and are starting or expanding your own business, contact Pacific Human Capital today.

 

What is a Business Plan? Why Do You Need One?

A business plan is a formal document that supports business operations for new, expanding, and existing/current businesses. Usually, entrepreneurs decide to create a business plan when they need funding to establish or expand their businesses. The business plan isn’t just a way to “get money.” Ideally, it serve as a guide for your business goals in the short-term, medium-term and long term.

No matter what the plan looks like, or how extensive it is, the business plan has to cover the company description, mission and vision, products and/or services, market analysis, operations plan (strategic and tactical – what you plan to do, and details of how the business operates), management team, and financial projections.

Here are a few areas of real, effective business plans used by successfully operating companies that are often overlooked by “boilerplate” business plan software and “free” business plans available over the internet:

  • Real, reliable, in-depth market information
  • Analysis of competitors
  • Realistic financial and operations goals and objectives that are actual goals and objectives (measurable, time-related, specific)
  • Organization charts that are realistic and applicable to the business
  • A mission and vision that makes sense for your business

The business plan isn’t just about buying a document you can take to the bank or show to investors. It should be used to guide the real-world operations of your business. The plan also isn’t worth much if it does not reflect your real business. Lenders and investors have seen hundreds of the boilerplate plans that aren’t worth the paper they are printed on. They will not work with any business that shows them this type of plan and can answer no questions. Some of the plans have useless charts, or financial projections that are suitable for a report to shareholders. Neither of those is a business plan.

You will find many gurus and business experts talking about how you should write your own plan, and encouraging you to use the completely unnecessary and duplicative business plan software that is out there. You should write as much as you can on your own.

You absolutely need to know, and understand, every piece of information in the business plan. A loan officer, grant funder (in the case you are eligible for government or private grants because of your line of business or other qualifications), or investor will ask questions that could surprise you. You do not want to be caught off guard and be unable to answer a basic fact about your business that is in a business plan you have not really read in depth.

Which brings us to . . .

Why is professional business planning important and beneficial?

A good, real professionally-written business plan that is prepared by someone who knows funders and how to run a business sets forth your specific road map for success. The most important task for you is to run your business well and achieve the goals you’ve set forth — sales, net profit, customer development and service, product development, quality assurance, and more.

A truly professional business plan consultant will be able to understand your business, and communicate the products and/or services you sell to the funder, whether it is a loan officer, an investor, or a grant funder. The business plan consultant will also have extensive experience and knowledge to help you understand where your business fits in the marketplace. They will reflect your business in the best possible light.

You should be excited when you receive your professional business plan. It should make you feel proud when you see it, and it should inspire you to achieve the goals that it sets forth. You should be able to look at the plan, and update and revise it as your business grows and develops, and know that there is something tangible and concrete, that will give you the means and methods to achieve business success.

This template example comes from a website that’s full of Shamwow/Vince Shlomi hardsell. In this case, the $79.95 price for this business plan template set is probably the surefire “way to raise capital” mentioned by its creators, “Business Plan Fairy.”

You will not get very far with a real, professional business plan for $79.95, and the reason is: there are things you don’t know, that would take a lot of time away from what you should be doing (growing and operating your business) in order for you to learn. There are simply too many variable aspects of real-world business planning for any software program to strongly support it. Contact us to learn more about your business plan options and how to move forward.