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Future Tense

Posted on Sunday, May 4th, 2003 by

Future Tense

Dallas entrepreneur David Snell has mastered the art of hedging his bets on busine

To help you through these unsettled economic times, here’s a peek at what experts in management, sales and marketing, finance and information technology see as they gaze into their crystal balls.

When you ponder the business future, what do you see? Nothing but swirling gray clouds, impenetrable smoke and a din of noise and confusion?

To provide some guidance to small-business owners trying to plan for an uncertain future, we identified four vital areas: management, sales and marketing, finance and information technology. Then we sought out leading market analysts, consultants, professors and other experts to predict the coming key developments in these areas. Here’s what their crystal balls show.

Management, Part I:

Hedge Your Assets
Leading your business requires that you know where you’re headed. So how will small-business owners manage with the future so unclear? Paul Tiffany, a senior lecturer at the Haas Business School of the University of California at Berkeley and an adjunct professor at the Wharton School of the University of Pennsylvania, predicts the smart ones will hedge their bets.

Tiffany, who also is the author of Business Plans for Dummies, says that during unsettled times, small-business leaders will take a lesson from, of all people, options traders. They’ll do so by using what’s known in the academic circles Tiffany frequents as “real options theory.” This holds that a person or business can counter uncertainty by making a series of small bets.

Options traders quickly picked up the theory and applied hedging to their bets and calls. Now Tiffany expects to see this technique applied to business strategy. “The point is to ask yourself, ‘Can I make a small move—in terms of dollars committed—that allows me to stay in the game until more information comes in?’ Then, if the information that comes in is negative, you can exit, losing only your small amount. But if the news is positive, you have the option to up your bet if it increases the probability of success.”

Although he’s only 33, Dallas entrepreneur David Snell has already mastered the art of hedging a series of small but potentially profitable wagers. He started his first business while in college in Louisiana. “I was a sophomore, and I was learning to fly,” he recalls. “I needed to build flight time. The best way to do that was by taking tourists up on aerial sightseeing tours.”

That was in 1991. Since then, Snell has owned and operated Addison, Texas–based Starlight Flights, an airplane tour business that provides romantic flights above the nighttime glow of Dallas. It’s often a vehicle for marriage proposals. “We had four this past Christmas,” Snell says.

The aerial tour business took a big hit after 9/11 when the Federal Aviation Administration shut down such flights for four months. More recently, costs have soared with the rising price of gas. Not to worry. Snell has kept his capital participation in the business to a minimum by renting the seven Cessna 172s in his fleet. “I had worked as an information technology recruiter for seven and a half years,” he explains. The IT recruiting business started to go south last year but, as usual, Snell was ahead of the game, having hedged by starting Cajun Crawfish Company, a catering outfit that provides everything from boiled crawfish to zydeco bands. “There’s a ton of money to be made in this business,” says Snell, who is looking at setting up franchises in several other crawfish-deprived cities.

Unfortunately, the crawfish business is seasonal, so Snell has added a line of Cajun foods for the restaurant trade. “This way, I’m covered during the slow months,” he says, noting that he has also started Spirit Lights, which provides flashing probe lights to organizations that want to promote their team or group. “I buy the lights from China for very little, and I’ve already sold 5,000 to a group in Seattle and another batch to the Oregon Zoo.”

And if Spirit Lights doesn’t take off, Snell will have several new ventures in the works and established businesses to fall back on.

Management, Part II:
The People Principle
Another big piece of management involves people. Here’s the silver lining behind our “jobless recovery,” experts say. If your small business has jobs it needs to fill, employees can be hired for less money than you would have had to pay even a year ago. That’s true for low-level and high-level employees alike. At the high end, for example, Jim Nolen, president of CFO Services Inc. in Austin, Texas, and a senior lecturer at the University of Texas, says he’s recently seen CFO candidates that were being paid $150,000 to $200,000 accept jobs paying less than $100,000. They’re also accepting fewer benefits and options. “CFOs have almost become commodities,” Nolen says.

But not every small-business owner will be hiring. In fact, if you’re like many, you’re looking to lighten your payroll load, not freight it down. One option predicted to become increasingly popular is human resources (HR) outsourcing. Essentially, the idea is that you keep on the payroll only those people who contribute directly to the core business. Everyone else should be hired on an as-needed basis, whether as contractors, consultants, freelancers or through an agency.

The key benefit of working with HR-outsourcing agencies is that some not only find the manpower but also assume many of the traditional HR duties, such as handling insurance, workers’ compensation and payroll. David Schwartz, managing director of Single One Source, an HR-outsourcing project within services company Marsh Inc., says another reason for working with groups like his is that they can deal with the growing alphabet soup of regulations around HR issues. These include FMLA (Family Medical Leave Act), ADA (Americans with Disabilities Act), FLSA (Fair Labor Standards Act) and ADEA (Age Discrimination in Employment Act), among others.

“At last count, there were more than 30 new regulations that affect small employers,” Schwartz says. “Small-business owners need assistance in making certain that they’re providing timely government reports and that they are in compliance and following the regulations.”

Sales & Marketing:
The Buck Starts Here
Marketing, or the art of drawing potential customers to your business, is even more important in an unsettled economy. After all, during a boom, free-spending customers are everywhere. But now? As scarce as the proverbial hen’s teeth. So how to reel them in?

Experts see these trends impacting small business in the next 12 months::
  • All bets are on, sort of. Many experts predict that small businesses will hedge their bets—investing in expansion and new services without committing large dollars. That way, if they’re wrong about the investment, they haven’t committed much and can escape unscathed.
  • HR outsourcing.
  • Strong brand identity.
  • Few salespeople (not freelancers), who are super aggressive and sometimes willing to push clients past their comfort zones.
  • No major borrowing—instead staying lean and mean until the financial dust settles and markets bounce back.
  • Updated business plans—keeping business partners continuously informed
  • Wireless networks (great for businesses with fewer than 20 people); and field service technologies.

Companies that succeed in 2003 will create a strong brand strategy. So predicts Rob Frankel, a marketing consultant and author of The Revenge of Brand X. A strong brand strategy, he explains, “gives people a reason to evangelize your brand to others just like them, and that keeps your business moving. It’s what prevents client erosion; it’s what builds market share and customer loyalty.”

While a strong brand has always been important, Frankel argues that a changed environment makes it more important than ever. “With millions of magazines, newspapers and Web sites and hundreds of cable channels and radio stations, customers are exposed to something like 5,000 images a day,” he says. “You’d better hope that your message transmits quickly and sticks.”

Once your brand and marketing has reeled them in, of course, it’s up to sales to convert those prospects into paying customers. Ken Wolff, senior partner at Acquient LLC, a sales-training company in Vienna, Va., predicts our new economy will require a new type of salesperson. “The most common set of selection criteria that companies use are industry knowledge and experience, technical competence, past performance against quota and Rolodex relationships that can be leveraged,” he says. “Yet those four things have little to do with the likelihood that a person will succeed in sales.”

What will be needed, according to Wolff, are salespeople who possess a strong, even aggressive style, who are instructional and who are willing to push clients beyond their comfort zone.
Wolff also recommends against sales outsourcing, another growing trend in small business. He says that if a salesperson is great, you’ll end up wanting him or her on the payroll. “Great salespeople build a strong pipeline, generate a lot of business and earn large incomes. If they’re working for an outsource company and they start to make a lot of money, you are no longer going to want to pay the middleman fee,” he says.

Instead, Wolff says, successful small businesses will build what he calls a “network of champions.” It’s a group of salespeople at different companies who mutually refer clients to one another. “The degree to which that network of champions is motivated to send you business is directly proportionate to how much business you send to them, not the value you give to their clients,” he explains.

Wolff also says the future belongs to salespeople who can be contrarian. “If you tell me the things that I’ve been hearing from everybody else, you lose credibility,” he explains. “But if somebody comes and tells me, ‘Look, if you want to lose weight, the way to do it is to eat chocolate,’ now you’ve got my attention.”

Raise the Cash Slowly
With interest rates so low, this is a tempting time to go out and raise capital. But several experts say that would be a mistake. “Potentially, it’s a good time to borrow money, except that it’s only an advantage to have that capital available if I’m able to go out and grow my business,” says Mark Sellner, managing partner of tax at Larson, Allen, Weishair & Co., an accounting and consulting firm in Minneapolis. “If my business isn’t growing, I’m not going to go out and borrow, even if the money’s free. If I don’t feel I can invest to grow my company, I don’t want to carry that liability.”

Alec Abbott, president of accounting firm Squar, Milner Financial Services LLC in Newport Beach, Calif., says his firm is advising its small-business clients to steer clear of borrowing this year and to instead keep their finances lean and mean. “There are so many variables out there now,” Abbot says. “Sure, interest rates are at all-time lows, but volatility is at an all-time high. Until it settles and companies can get a good handle on future demand, we’re advising clients to keep more cash around.”

But what if you can’t afford to take that kind of advice? John W. Nelson III, president of The Capital Connection, a Newport, R.I., firm that helps small-business owners find capital, is pointing his clients toward loans from the government’s Small Business Administration (SBA). He says it represents one of the most secure lending sources around. “If a bank deems itself unsecured, it can call the loan. But they can’t call an SBA loan,” he says. “I don’t care how many times the name changes on the front of the bank, with all the mergers and consolidations you have out there; you’ll still have an SBA loan. And as long as you’re paying it, they can’t monkey with the terms and conditions.”

Nelson also sees a bright future in city- and state-run economic- development programs. In his home state of Rhode Island, for example, Nelson recommends that entrepreneurs check out the Slater Centers, which grant and loan as much as $150,000 for biotech and high-tech businesses. Similarly, his home city of Newport runs a revolving loan program that makes relatively long-term, fixed-rate loans to local businesses. “You have to look around your own state and see what’s available,” he recommends.
Is there any hope in attracting venture-capital firms or angel investors in the near term? “Venture capitalists are still looking for good deals,” Nelson says, “but they’ve got to be provable.” In this market, that’s far from easy.

If you’re determined to raise capital over the coming year, there are some ways to keep your written business plan afloat. First, be sure to update your business plan regularly— perhaps quarterly —recommends Jim Lewin, a principal of BizPlanIt, a business-plan consulting firm in Scottsdale, Ariz. That way, he adds, your business plan will also contain information about new products and services, new competitors and new business conditions. Ideally, these updates will be done by your management committee, not by just one unlucky individual. “If you begin to do those things in a vacuum, then one person knows what the business plan says, but no one else does,” Lewin says.

Next, you should email the updated business plan to your financial partners, including banks and other investors. Strategic partners, customers, potential recruits and others can receive the updated business plan, too, but only selected sections. “You may want to send the plan to two or three customers, but you may not want to send them the financials section,” Lewin advises. “It’s really none of their business.”

Kim Soo Seawell, owner of
Men’s Hair Quarters, Inc.

Kim Soo Seawell, owner of Men’s Hair Quarters Inc., a sports-motif men’s salon in Middletown, R.I., raised $25,000 in leasehold improvement capital from the Rhode Island Coalition for Minority Investment in July 2000. RICMI is a direct-lending affiliate of the SBA that works to promote minority-owned small businesses that other lenders would consider too risky. She used the capital to knock down walls, lay tiles, install shampoo sinks, buy chairs and do other work needed to open her shop. “Without that help, I would have had to go to friends and relatives,” Seawell says. “But I wanted to do it myself.”

Since opening her doors in September 2000, Seawell has managed to pay the bills and rent, and says she turned her first profit early this year. She has just one employee—but big plans. “My goal is to open four more stores,” she says. “There’s a real window of opportunity. Most men do not feel comfortable in a woman’s salon. The old-style barbers are retiring. The chain salons are inconsistent. So we’re in a great niche.”

Info technology:
Let’s Get Wireless
You might be forgiven for thinking the world of high tech has taken a long, collective nap. After all, the dot-com boom has ended, overall technology sales have been flat or worse and some of the biggest names in the industry have declared this the toughest business environment they’ve ever seen.

But you’d be wrong. The technology industry, long a bastion of innovation and cutthroat competition, is still up to its old tricks. It’s just that the focus has shifted. A good deal of the action is now in everything wireless.

One important development in this area is wireless networks. These are local networks that transmit data through the air via radio frequencies, similar to the way your cell phone works. An office with a wireless network will have one or more servers that act as relays to the individual PCs and notebook computers in the office. Since there are no wires connecting the computer, this means that you can take your notebook with you to meetings and consultations anywhere in your office and still be connected to the network and the Internet.

In addition to the extra mobility, installing and using a wireless network can be substantially less expensive than wired. Chris Kozup, a senior research analyst with the Meta Group, a technology research and consulting firm in Stamford, Conn., says the average cost per user in a wireless data network is now about $240, compared with about $440 per user in a wired network. However, Kozup is quick to point out that these numbers are based on a large network—where a wireless network overlays the wired one.

One barrier to the wireless network has been its lack of scalability—meaning, it’s not suitable for extremely large numbers of users. But for the small business, that could be an opportunity. “Although we don’t generally recommend using wireless technology as a cable replacement, for small offices of 20 people or fewer, it does become viable,” says Kozup.

A further development in wireless networks is the addition of voice. Already, some companies, including Symbol Technologies Inc. and SpectraLink Corp., offer wireless systems that could be used by a small company to eliminate wiring for both computers and phones. By 2005, Kozup predicts, other companies will offer what he calls a small-business-in-a-box solution, a hardware/software package that will support 20 to 30 users on completely wireless phones and computers. “When this happens,” he adds, “this kind of converged voice-data can start to make sense.”

One snag with going wireless is security—or the lack thereof. Because wireless data is floating through the air, it’s an easy target for hackers. Add-on security procedures exist, but they typically boost the overall cost of a network by 30 percent, Kozup says, not including ongoing support and maintenance.

Another wireless development that small-business owners should watch for is secure wireless email. This could include full-fledged email as well as shorter messages, such as instant messaging and short-messaging service. While these systems are available right now, look for a lot more in the next few years. “This may prove to be the killer app for handheld devices,” says Karen Smith, research director at technology watchers Aberdeen Group in Boston.

If your company is growing quickly, watch for another wireless application known as field service technologies. These tools support you and your staff whenever you go into the field to support your customers. Sometimes known as Field Workforce Management (FWM), this technology now includes systems that can log and track inbound service requests and issue work orders. The tools also can help with dispatching, scheduling and tracking warranties. While much of this is being designed primarily for large enterprises, the technology is trickling down to small businesses.

What’s more, future FWM systems will include mobile applications that small businesses should find useful, says Smith of Aberdeen Group. These will include global positioning to provide real-time updates on technicians’ locations. They also should include online collaboration that lets workers in the field share information in real time with the home office.

How about wireless crystal balls? For that, the experts say, future-gazing small-business owners will need to wait a bit longer.

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