Take it apart and put it back together differently

Seth's post on the leap offers some timeless wisdom that I have often ignored at my peril.

Every now and then, a creative act comes out of nowhere, a giant leap, a new way of thinking apparently woven out of a brand new material.

Most of the the time, though, creativity is the act of reassembling many elements that are already known. That's why domain knowledge is so critical.

It's not enough to be aware of the domain you're working in, you need to understand it. Noticing things and being curious about how they work is the single most common trait I see in creative people. Once you can break the components down, you can put them back together into something brand new.

More times than I can recall I set out to reinvent the proverbial wheel without considering all the elements and there interconnection.

How to finance the project

Scott Shane offers 4 key lessons on entrepreneurial finance

In short, unless you have a rare, super-high-growth business with plans to exit through an initial public offering or acquisition within five to seven years, your best bet is to minimize your capital needs and finance your start-up with your own money, money that you borrow personally, and trade credit.

1. For most entrepreneurs, seeking outside financing isn’t worth your time. 

2. Your personal credit and personal collateral matter a great deal when financing a startup.  

3. You are more likely to get a loan than an equity investment from an outsider. Because venture capital and angel investments are sexier than bank loans and trade credit, the former gets the lion’s share of attention in books and articles about entrepreneurial finance.  However, most of the companies that get outside financing obtain debt, not equity.

Only a tiny percentage of startups are financed by selling equity to accredited angels or venture capitalists.  The statistics show that around 1 percent of companies get their financing from these two sources combined.  Other informal investors – like friends, family and unaccredited angels – add a few percentage points to the share of businesses that get outside equity, but research shows that these sources are actually more likely to lend money than to take an equity stake.  Therefore, unless your business is the type that angels and venture capitalists look for, you shouldn’t waste your time seeking equity investors.

4. Tapping trade creditors is where your odds of obtaining financing for the business itself are highest. According to analysis of the Federal Reserve’s Survey of Small Business Finance, next to having a checking account, trade credit is the most common financial tool used by small businesses.  Because trade credit is offered by suppliers to help you buy their products, even the newest businesses can obtain it.

Is outsourcing an option for my business.

Rhonda Abrams suggest you outsource,

• Get help! The single most important thing I did was I outsourced my financial management. I realized I was terrible at taking care of my bills. Entrepreneurs want to handle everything themselves, especially their money, but, like me, they're not always good at it.

One of my contractors, Rebecca Gaspar, wasn't good at it either. "One of the big lessons I learned from my first go-round as a freelancer was that taking care of my finances was not one of my strong points — keeping track of invoicing, payments and taxes. Quarterly taxes sneak up on you fast. I'd be all messed up." So when Rebecca became an independent consultant again, she changed. "I hired a small-business accounting firm. They make sure my invoices get out, I receive payments, that tax money comes out, and I pay my quarterly taxes. It's a relief for me not to deal with that stuff, and I can stay focused on client projects."

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Capex is impossible without a predictable payout.

What makes financing any venture difficult is the ROI (return on investment). Bankers, lenders, investors only care about one thing. When will they get their money back and how much profit do they stand to make from this investment. Capital Expenditure (Capex) is predicated on this notion of returning the original investment and providing future cash flow. If you cannot provide a satisfactory answer to that question, the funding will not be forthcoming.

Proformas are fabrication and everyone goes along with delusion if the storytelling connects. The story needs to provide a mechanism that the stakeholders feels comfortable with.The story needs to resonate a predictable payout.


Funding approved!

More effective Business Plan

Phil Dobbie interviews Seth about business plans.

He has a more effective approach to the business plan, with five key elements: Truth; Assertions; Alternatives; People and Money. He talks through what to put in each of these sections in today’s podcast.

Prepaid Reservation

Pete Wells explains the differential pricing strategy of Next restaurant.

Anyone wishing to eat at Next after its scheduled opening in the fall will pay in advance on its Web site. Like airlines, Next will offer cheaper tickets for off-peak hours. A table at 9:30 on a Tuesday night, say, would cost less than one for Saturday at 8. Ticket prices will also vary based on the menu, but will run from $45 to $75 for a five- or six-course meal.

Mix that with the service charge / tip strategy and you have the ingredients for a grand experiment

But the plan would also have value for Mr. Achatz and his main partner in Next and Alinea, Nick Kokonas. By law, restaurants may distribute tips only to those employees who work in service. But the service charge included in the ticket price “gives him control over the money,” said Bill Guilfoyle, an associate professor of business management at the Culinary Institute of America in Hyde Park, N.Y. “He can give it to whomever he sees fit.”

Who v how many.

Seth's philosophy offers a business model for everyone,

In the race between 'who' and 'how many', who usually wins--if action is your goal. Find the right people, those that are willing to listen to what you have to say, and ignore the masses that are just going to race on, unchanged.

Business planning basic.

Tim explains,

business planning, the way it is supposed to work.

Real business planning doesn’t lock you in over the long term. Quite the contrary, it sets directions and priorities, and concrete steps, and gives you something you can track and manage. It gives you more flexibility, not less. Keep the long term in mind while you deal with the short term. Watch how things unfold, what turns out to be as you expected, and what doesn’t. Manage your business, with planning.

How is your 2010 plan coming?

Never give up, for that is just the place and time that the tide will turn.
– Harriet Beecher Stowe

There is carnage all around you. Some of your friends have shuttered their dreams. Economists are telling you the worst is over however you see people losing their homes in your neighborhood. Against this backdrop you need to create a plan for 2010.

Ivana Taylor has some great questions for your (Plan 2010)

1. What is my situation right now?
2. What scares you about this?
3. Given what you’ve said, what is your default future?

Now take a look at that and decide if that’s right for you. Is this default future ok with you? I’m assuming the answer is probably no. So let’s try this again.

1. What’s the situation right now?
2. What missing in this situation, that if it were present, would open new possibilities? Is it risk-taking? creativity? passion about the business? Caring for the customer?
3. What future is possible now that you’ve brought in the missing ingredient?

Succession planning gone awry!

You walk into a restaurant ready to experience the sights, smells and dance of life. Immediately you are greeted by a sour faced unhappy individual who is unhappily earning a living in their parent’s restaurant. The dream of owning and working in a restaurant is not theirs. They are here presumably because they are still going to school or worse yet, have completed school and are unable to find a job in anything that is not restaurant related.

Restaurant owners need to evaluate whether having their children work in their restaurants is good for business? Yes you might save some money on payroll and they can help in a pinch, however if your child is not happy working for you, they will communicate that displeasure to the guests you have spent your lifetime nurturing.

Coping in 2009:

David Silverman offers strategies for how to cope in 2009

1. Invest Now
2. Focus on the Customer
3. Give Unique Value
4. Market, Market, Market
5. Be Honorable
6. Stay the Course

The need for transformation:

Scott Anthony’s post illustrates the opportunities that are available;

For many companies, the Great Disruption requires nothing short of transformation. It requires fending off attacks from below and making the creation of new growth systematic. It demands embracing new forms of innovation, such as business model innovation, and dramatically improving the productivity of innovation efforts. Investing in transformational efforts in a brutal market appears difficult, but the alternative isn't stagnation, it is extinction.

Six-Words

Smith Magazine has a challenge, describe your business in six words.

What does your customer want?

"The only way to influence someone is to find out what they want, and show them how to get it."

Dale Carnegie

The way for any business to flourish is to discover what the customer wants and find a way to give it to them in a manner that makes a profit. Really it is that simple.

What does your customer want?

Wet-finger-in-the-air Estimates:

Dileep Rao’s post offers insight into the often mysterious world of venture financing.

“Wet-finger-in-the-air estimates don't cut it, either. Financiers like to know specifically where their cash will go: fixed assets (such as equipment and real estate), current assets (like inventory and accounts receivable), operating expenses and the like. Understand, too, that it's much easier to raise money for tangible fixed assets (which can be sold off in the event of default) than for more ephemeral things like marketing campaigns.

How do you determine what you need? First, calculate sales projections (for more on this, see "How Great Is Your Company's Potential?"). Then use industry databases to determine the level of assets needed to achieve those projections (check Dun & Bradstreet, RMA, financial Web sites and trade associations).

Next, deduct from those assets your cash savings, cash flow generated by the business, accounts payable (essentially, money you are borrowing from suppliers) and any relevant accruals in the normal course of business. What remains, roughly, is the amount you need to finance.”

A short quick lesson on a very highly charged and emotional facet of the restaurant business

Big Bet:

Chris Dannen at Fast Company’s blog post “Competition” offers:

“McDonald's has nearly 14,000 stores nationwide, all of which will be equipped with full-fledged coffee bars and baristas by year's end. Having already begun adding plush seating, gentler lighting and subtler colors to their franchises, the big M is looking to steamroll the limping Starbucks on its own turf. Starbucks, however, isn't going anywhere; rather, it's McDonald's that will be maimed most by its own campaign to destroy the Seattle super-brand.

Admittedly, McDonald's is one of those monolithic brands that will likely have a longer half-life than radium -- but that hardly makes it invulnerable. By adding the "theatre" of a coffee bar (as one McDonald's VP has phrased it), the company has gained little more than the potential to alienate customers, confuse its menu and open up a black hole for capital.”

The mixture of food and coffee is the norm in Europe, though it has not been perfected in the states. McDonalds tried the café experiment several years ago with mixed results. Will its counter customers migrate to the coffee bar? Can it scale to 14,000 coffee bars by year end? Even for McDonalds 14,000 units in a short period time has to be a logistical nightmare! Will the concept be muddled? Has it run out of ideas for expanding the food menu?

Warren Buffet’s investment strategy is to analyze, find opportunities where there is a margin of safety in a great investment and then make big bets. McDonalds is clearly making a Big Bet.

Test, Measure and Implement:

The secret of Sam Walton and WalMart is that he conducted hundreds of small tests every day. He measured the results and made changes based on those results. Sam did not create huge all compassing tests, rather he would move a product from one aisle to the other and record the difference. He discovered what worked and what did not work. He implemented what worked and discarded what did not. No lengthy evaluation phase, no committee reviews, something either worked or it did not. He tested, succeeded and failed, and implemented. Do not be afraid to test. Small tests are much better than huge ones.

Great organizations have a culture where it is ok for everyone to test recipes, steps of service, menu and marketing placement. Give yourself and your team that freedom.

Test, Measure and Implement!

Cash Flows Rules:

Tim Berry has a really great post about Cash Flow.

“Profits aren't cash; they're accounting. And accounting is a lot more creative than you think. You can't pay bills with profits. Actually profits can lull you to sleep. If you pay your bills and your customers don't, it's suddenly business hell. You can make profits without making any money.”

Profits aren’t cash. That is the most difficult lesson for restaurateurs to learn. Even after three or four locations, the perception is still that if the restaurant is making “profits”, then everything will be ok. When auditors review your financial record, they do not care what your profits are, all auditors want to see is the cash flow. “follow the cash” is the popular mantra because that is the real lifeblood of the business. Income statements reports on trends in the business, balance sheets detail the actual health of the business. Please take Tim rules to heart, “you can’t pay bills with profits”

Cash Flow Rules!

Secrets to success!

Seth Godin post “Small Business Success” (reprinted below in its entirety) crystallizes the use of a business plan perfectly:

“Three things you need:
1) the ability to abandon a plan when it doesn't work,
2) the confidence to do the right thing even when it costs you money in the short run, and
3) enough belief in other people that you don't try to do everything yourself.”

The elements that comprise the secret to success are finding out what the customer wants, formulate a plan to deliver them, execute that plan, adjust, execute, adjust, execute, adjust, execute. The courage and persistence to stay the course when all else is against you and the faith to trust people by letting go.

Easy really, these secrets to success!

Catering Anyone?

The Arizona Republic’s Karen Fernau and Susan Felt article “Catering to Newbies” highlights a growing trend toward catered functions at home.

”Catering is decidedly mainstream. Today, record numbers of Americans are hiring others to do their cooking, from grocery-store deli managers to chefs at four-star restaurants.

"Catering has gone from being affordable only to the elite to a practical service for anybody and everybody," said Bonnie Fedchock, executive director of the National Association of Catering Executives in Maryland.”

Times are changing, not long ago no one thought about hosting a dinner party, holiday gathering or a backyard BBQ and having all the fixins catered. Now you will receive strange glances if you slave in the kitchen all day preparing for the party. Clearly there is an opportunity for an enterprising restaurateur.

Catering Anyone?