Key Questions:

Q: How do I increase sales?
A: Think of your assets in a new way. For example, the database you have taken time to build could benefit others and they may either want to buy your list or hire you to communicate to those customers on their behalf.
Do you have a list of old customers you haven’t contacted in a while? And maybe your list of current customers would like to hear from you more often, or would benefit greatly from a product or service you provide that you’ve never told them about.
Think creatively about the list of contacts that you have. You’re probably worth more to each other than you realize.

Q: How do I find new customers?
A: First, you have to figure out who your customer is. The starting point to achieve this is to develop a database of customers. A customer’s name, title, complete address, phone number adn email in a computerized file is essential. You should keep records of who buys what and when. With this information you can better offer your customers what they need when they need it.

One of the most successful retailers we know, Bob Orenstein, says that knowing your customer means you know much more than their name, address, phone number and email. He says knowing means understanding them, even if your database has over 2000 contacts. You must find meaningful ways to understand and keep track of each person. In Bob’s case, he is personally part of his customer base which makes it easier for him to get inside the minds of his customers. But you have to remember that you are only one person and you have to listen to others even if you are part of your audience.

Bob is a member of the Direct Marketing Association which is good place to learn about demographics and how to reach a specific target of people. Also see www.demographics.com, and www.fedstats.gov.

Q: How do I ask for referrals?
A: You can ask those current customers to refer you to their friends and family. A referral program is fun but it takes discipline as does all marketing.

Step one of a referral program is to ask your current customers to send you new customers. We are convinced that many owners are afraid to do this because what if the current customer says that they aren’t comfortable referring? What has the owner just discovered? That there is a problem with that particular customer relationship. Oops. The good news is the owner can work to solve that problem and the referral program has already paid off as it helped to convert a luke-warm customer to a hot customer.

Step two is contacting the referrals.

Step three is tracking the referrals.

Step four is rewarding the customer who made the referral.

We know a hairdresser who gives a 20% discount off a customer’s next visit when that customer has brought in a new customer. This is perfect. Everybody wins and the happy process repeats itself.

Key Questions:

Q: What is intellectual property?
A: The people we interviewed for this episode all gave us their definition of intellectual property. George Borkowski said it is, “Intangible creativity. It’s either ideas or it’s manifestations of ideas, often concepts. It is not something you can see, feel or touch usually. You can see the expression of it often but the thing itself is often almost invisible and I think that’s one of the problems sometimes people have understanding it.” He went on to say, “Fundamentally it really is the creative impulse or creative idea that’s manifested somehow and once it’s manifested, the challenge to protecting it becomes important.”

Mark Litvack said, “People often say intellectual property is the driving force of this country. Be it software, movies, games, or music. It is really your creative thought process. Something that you own because you have taken ideas and either put them to words, music, art. It’s not like real property or personal property. It’s not a chair; it’s not my house. I can share it with the world.”

Most small business owners don’t think about the value of their brand, their logo, their customer list or even their unique products and services.

Q: How do I teach respect for intellectual property?
A: If your products or services can be obtained online, often the best way to engage users and slow piracy is to make it very easy to buy your product or service.

Many online membership services or products are offered up in levels to the user. The user can access basic functionality for free and if they want to continue, they must buy. They call this strategy “try-buy.” Another “try-buy” method is to allow users to test your full offer for a few days or a few uses. After the free offer expires, the user can be given the chance to purchase. This builds trust with the customer in both your product and your company. There may be ways that you can meaningfully let people explore your products online in order to build trust before asking them to buy.

We’re old enough to remember this as the “Puppy Dog Close” in selling. If you own a pet shop and let the customer take the puppy dog home, there are huge odds that the customer will come back and buy that puppy.

Q: Why do we have to give something away in order to make a sale?
A: It’s about trust. Many Web users will never meet you face to face because you are a global company the minute you put yourself on the web. The old analog way of buying and selling was done in person.
The best way for you to win thousands of new customers you would never be exposed to without the Internet is to give them an opportunity to test your product or service risk-free. The other reason is that all too often if people can’t get something easily in a legitimate way, they will steal it.

Key Questions:

Q: How do I stand out in the crowd?
A: Refuse to compromise and you’ll discover new ways to do things. It is very difficult because we think that if we try to be like others we will gain more acceptance.

We know that Thomas Keller is willing to stay true to himself. First, he lost a partner when he wouldn’t compromise on the menu at Rakel. Second, when he saw The French Laundry and decided this would be the location of what he hoped would be his first successful venture, he would not relent. He had no money but he was so strongly attracted to the building in Yountville that he worked like a dog to put together the financing.

We all know that accomplished people do whatever it takes for them to achieve their goals. The runner runs the extra miles, the parent sacrifices for the children, the scientist works non-stop in the laboratory to prove out a theory, the rancher stays up all night to nurse a sick animal.

Something deep inside told Thomas Keller that this location was right for him. He said, it feels like home and it feels like it could be any where in the world. It is a magical place and he knew he would not be happy if he could not open a restaurant in this location.

Q: How do I do it differently from others in my marketplace?
A: While other American restaurants pile the plate high with food, Thomas Keller believes that small is beautiful. All of his restaurants are small and all of the portions appearing on plates are small. His kitchen in Yountville is small considering what he and his team accomplish in it everyday.

Q: How does this philosophy translate into a marketing strategy?
A: First, because he has limited seating and it is so hard to get a reservation, even more people want to come to The French Laundry. Thomas is not knocking down walls to add more dining space, he just makes people wait two months to join him for dinner.

People brag that they have a reservation. They brag that they went to The French Laundry and tell stories about the fabulous food. This creates a buzz and more demand.

Second, Thomas has figured out that people are sated by a flavor after just a few bites. Therefore, he pleases the customer by giving them a little of a lot. Thomas plans his meals based upon the law of diminishing returns: the more you have of something, the less you want of it. He says, “So we want to give you just enough to where you get to the point that you’ve had that last bite at the pinnacle of flavor. Your taste buds accept the flavor, realize the flavor, and then your mouth reaches the point where all of a sudden, it becomes saturated with the flavor and then your enjoyment of the flavor begins to diminish. Well, we want you to finish the dish before your enjoyment diminishes.”

Again, he creates buzz. The diner is so perfectly pleased, he tells everyone they must go to The French Laundry. Many diners don’t even know why they are so happy when they leave.

Q: Can this philosophy be applied to other businesses?
A: Sure. A great circus has so much variety that just as you might tire of the elephants, they bring out the lions. Theater works this way as well. It is called pacing. A play or musical that stays on any one thing too long will disappoint an audience.

Thomas Keller’s style may be difficult for diners, however, because we are all so conditioned to having salad, soup, main course, and then dessert. Thomas says he has no main course because every course to him is a main course. Every course is of equal value to the total experience. This offers a safety net because if you don’t like one particular dish, they’ll be another course along soon. What’s not to like?

Key Questions:

Q: Why did Scott say it was good that he couldn’t borrow from a bank at the beginning?
A: From 1996-1999, during the dot-com boom, millions of dollars were thrown at ideas that did not turn into viable businesses. This is Scott’s point: an idea is not a business. On our program, Bill Tobin said the idea for a business is just 2%.As Scott looks back, he sees all his mistakes and realizes they were made with his own small amount of money and big time commitment.
He is confessing that if he had had more money at the start, he would have wasted it.

Q: How do I organize to get things done?
A: Scott and Marthalee poured their retained earnings into marketing. This finally resulted in thousands of happy customers which meant the need for supply increased. These two are such hard workers, they just kept adding to their plate all the aspects of the supply chain.

Q: What discovery did Scott and Marthalee make in 1999?
A: Scott said they were spending so much time taking orders, manufacturing, packing and shipping orders that they had, “lost the focus on the customer.”

Q: How did they solve their problem?
A: They outsourced every function except for marketing. As we have said here in the past, do what you do the best and outsource the rest. In urban areas we often see small business owners start and grow a business with this strategy as there are plenty of resources handy. We feel that Scott thought, as he grew, that he couldn’t control the supply chain from Ottumwa and all the resources were not so readily available.

Key Questions:

Q: How do I increase profits?
A: Don’t assume that all sales are equal.

Laurie’s customers are basically retailers. She has some direct sales from her catalog, but, this is a very small percentage of her business. Retailers are not all equal. She started her business with the specialty shops and today she could sell to the mass merchandisers such as Wal-Mart or Costco, but, if she does that, her profits will erode because they want to buy at such reduced prices her margins evaporate.

She could find a way to make the products for less, but, she is committed to the quality she achieves by keeping the entire production process in the U.S. If she let the manufacturing go off-shore, she is convinced that the quality would drop and competitive pressures on her shops would be too great. If that quality drops with the prices required for mass distribution, her specialty shops will stop ordering products.

Rather than put these relationships in danger, she has decided not sell through mass merchandisers.

Q: What is one business process Laurie does better than others because she does it different?
A: Collections. Most manufacturers won’t ship to a shop owner who has bad credit, but, Laurie finds ways to do business with people who have bad credit. She gets them to pay with a credit card; she holds checks; she ships C.O.D. Her sister works closely with all of the questionable accounts and collections are made. Laurie is making sales to retailers others refuse to work with. Everyone wins because the shop owner gets Laurie’s unique high qualtiy products; Laurie gets distribution; and the kids get the great hats and clothing.

Laurie is also creative when it comes to collecting from her big customers. Early on in her relation with them, she was able to get a 50% advance payment from a big customer . This upfront cash is critical to her ability to get the product manufactured.. Customers want you to succeed and will work with you if you demonstrate your good faith by achieving deadlines. Also, notice that Laurie only used her credit card to finance short term production costs and she fully anticipated not carrying that debt beyond 30 days. Never carry credit card debt. Period. No further discussion.

Managing cash flow from operations is important. Any amount of cash will go further if you can get cash into the company quicker and postpone disbursing funds from the business.

Q: How does a small business owner manage cash flow from operations to his or her advantage?
A: In addition to the money you put into the business, debt financing and equity financing, there’s cash flow from operations. Primarily, this consists of cash receipts from sales, generally the collection of receivables, and cash disbursements related to inventory and other accounts payable purchases and, of course, payroll. Let’s look at cash management strategies for each of these:

Cash Receipts from Sales

If you are not in a business where your customers pay cash for goods and/or services received, then you will have accounts receivable. The sooner your customers pay their bills, the better your cash flow. To encourage them to pay promptly:

• Collect advance deposits on sales if possible.
• Get your invoices in the mail quickly, preferably delivered with the goods and/or services.
• Offer a small discount to customers who pay the invoice substantially before it’s due. Put this clearly on your invoice, e.g., “2 10, Net 30″ means the customer can take a 2% discount if (s)he pays in 10 days, otherwise payment is due in 30 days.
• Charge interest on amounts not paid on time, i.e., according to the terms of the invoice. Prominently display the interest rate and terms on your invoice.
• Call each customer on THE day that his or her invoice is past due.
• Mail monthly statements summarizing outstanding invoices. Most accounting software packages used today have this capability. Most importantly, minimize your bad debts.
• Get credit references and do credit checks on all new customers. Monitor your accounts receivable aging daily and stop shipping or serving problem accounts until collection issues are resolved.

Inventory Purchases and Other Accounts Payable Items
Here, our strategy shifts. While we do everything we can to accelerate the flow of cash into our businesses, once it is there, we do all we can to hold onto it as long as possible. Don’t cross the line of affecting your credit rating or vendor relationships, but walk right up to it. Here are some specific things you can do:

Practice JIT Inventory Control
JIT stands for “just in time”. Order what you need to be available when you need it, but don’t stockpile goods. Inventory investments tie up MOM.
Ask your vendors for extended terms. Tell him you are starting a new business and you could build it up faster if you could match your payments to the vendor with your collections from your customers. Take the time to explain your business to your vendor and then ask for terms of 30 days more than your normal collection cycle. In other words, if most of your customers pay in 45 days, then ask for 75 days. Remember, your vendors are like you, they are looking for new quality customers. And who can better sell the idea of your business’ promise than you?

Deposit your funds locally and then arrange to have them transferred at the end of each day to an out-of-town bank. Write your checks on the out-of-town bank. This usually gains you about three days of “float” where the vendor records your payment before the funds are actually available to him or her. Writing a check without the funds to back it up is against the law and we are certainly not advocating anything illegal but good cash management systems take advantage of the float.

Payroll
If you are one of those rare small businesses who have started your business with employees, you have special considerations.

Meeting payroll is one of the biggest responsibilities and expenses of most businesses. You do have to pay your people and you certainly have to deposit your payroll taxes on time. Still, there are some cash management opportunities here.

Outside payroll services and staff leasing companies provide a wonderful service to small businesses. In addition to handling all the required filings, they offer the opportunity to procure certain employee benefits, such as workmen’s compensation insurance, at reduced rates since you are purchasing as part of a large pool. But these services may be a luxury you cannot afford in the early years. In addition to the cost of the service, because the payroll service company is writing the paychecks for your employees on their account, they’ll require that you fund that account several days in advance to ensure the funds are available as they process the payroll. They also draft the payroll taxes from your bank account, including the employer portion of social security, as the payroll as processed.

In fact, you are required to remit payroll taxes, those withheld from your employees and the portion the employer pays, at varying times based on the size of your payroll. The smaller the company, the more the deposit can be delayed. You can research the statutory requirements in your State on the Internet. The point we are making here is there are cash management opportunities in processing your own payroll.

Key Questions:

Q: How do I get more done for less?
A: Make every employee an expert in quality control.

Q: What happens to the corporate culture when everyone is responsible for quality?
A: At first you might think that if no one is in charge of quality then quality suffers but the opposite is true. When every person in the process has the power to stop a golf club and send it back, then everyone is on their toes. People take person pride in the fact that a golf club will not leave their hands unless it meets the high standards that Ping has become known for in the market place. The entire company is infused with pride and this translates to increased productivity.

Making everyone in charge of quality is also a team building strategy. If there was a quality control position, the person with that job might be seen as the cop on the beat who is looking for employees to make mistakes. Employees might even see this person as the enemy, and therefore quality becomes a bad thing not a good thing!

Q: How do I keep quality high?
A: To control all of the processes has proven to be a good strategy for Ping.

Q: When and why does a company outsource parts and pieces of its processes?
A: When the company cannot yet afford to invest in the necessary equipment or technology needed to do produce quality. Or when others come up with better and more cost effective ways to get things done.

Ping has grown slowly and carefully, so it has been able to design and build or purchase what it needs to manufacture a quality product. However, there are many situations when entrepreneurs have to depend upon others to help them produce a final product.

Key Questions:

Q: How do I grow my business?
A: The single most important factor in your life is who you hang around with. Successful people know this and successful business owners seek out people who are ahead of them in the game. Kim, Ken and Gunars have had each other for decades but they have also had the same core group of mentors since the late 80s.

Q: What did the mentor advise?
A: They told the Biosite founders that they were sitting on an idea that was powerful enough to be duplicated. The mentors pushed the team to take the company public so there would be enough cash to invest in the research and development that produced today’s number one selling product.

Q: How do I keep on growing?
A: Keep thinking.

This is easy to say but hard for most people to do. In fact, some psychologists argue that most people don’t think most of the time. We run on automatic pilot. Each person’s automatic pilot is following the paths set in place by early childhood development. You’ve heard it say, “first we make our habits then our habits make us.”

With a stoic expression on his face, Ken told us that when he has a problem, he thinks. We have the conversation on tape and we looked at it over and over. It sounds too simple. Here is a man who has worked on a big problem for nearly three decades and in working on it, he has encountered thousands of new problems.

He has two partners. That seems impossible too. Most founders can’t get along with one partner, much less two.

Q: What do most people do when they are confronted with a problem?
A: If we just step back and look at the lives people live, we guess that they don’t face up to most problems. They accept the status quo, run from the difficult and if they do try to solve a problem, they often quit before they arrive at a solution.

Here’s what we leaned from Ken.

First, face the problem and acknowledge it.
Second, stay calm, cool and collected.
Third, take time to think.

You probably know the famous story of the founder of IBM, Thomas Watson. He must have believed in people more than they believed in themselves because when he noticed that his employees were not being as productive as he had hoped, he printed up signs for everyone. The sign simply said, THINK.

When faced with a problem then, try sitting and thinking. You may not need to call people or sign up for a class or read ten books or hire new people. You may be surprised what happens when you just think.

Key Questions:

Q: How do I increase sales?
A: Bud Konheim, co-founder, says that their customers are happy when then can by an original design that is well made, that makes them feel pretty and that comes in under $300.

Q: How does Bud know that women are happy when they buy from him?
A: His revenue tells him.

Q: What is happiness? What does agelessness and aesthetics have to do with being happy?
A: “Life, liberty, and the pursuit of happiness” have become more than symbolic words in our shrinking global village. Not everyone believes these words should be the cornerstones of a society. But, John Adams, Thomas Jefferson and the other framers of the Constitution of the United States of America thought there was something profoundly right about the pursuit of happiness.

Yet “making someone happy,” is hardly an “American” concept. It so much a part of the legacy of most cultures throughout history, it seems deeply embedded within our eidetic memories; it seems to be an essence of our very being, a primal thrust and energy that pulls us forward.

Though for Bud, it may be just a simple fact of life turned into a working business principle, Nicole and Hattie push it further. Nicole is attempting to create “ageless” designs. The inverse of our fear of death is our desire to be ageless. To be our very best self.

Being our best self, feeling and looking ageless, would make most of us happy. To the degree that Nicole can get inside “agelessness” is possibly the degree that her clothes make people happy.

What sounds like a simple statement — make people happy — can be a orientation to work and life that makes for good business and creates enormous social capital.

Q: In this segment, Hattie says, “There are over 24 million small and privately-held companies and only about 7,000 publicly-traded (active) companies.” Surprise. The big guys are really the little guys. Do you know the stats about the impact of small businesses within our local, national and global economies?
A: No. You really can not know. Most stats are really best guesses. Small business operates just below the standard measuring indices. Even the government agencies that should know — IRS, Bureau of Economic Analysis, Economics and Statistics Administration – Department of Commerce, and the Small Business Administration — are making calculated guesses. But these figure that Hattie quotes are within 10% for the USA.

Every small business owner, whether a Mom-and-Pop shop or a fast-growing business, has a creative vision. The more entrepreneurial, the more that vision is turned into action. And it is these visions, both active and passive, that keep “the dream” alive. The dream, of course, is to make this world a better place. Small businesses are the keeper of each community’s dreams and in this way Main Street is far more important than Wall Street.

Q: Why does selling happiness work?
A: It is what all of us will pay for.

Key Questions:

Q: How does one achieve digital workflow?
A: Steve achieved a digital workflow as early as 1995. This was before most people had email. This was at the front of the dot com boom. Steve was already doing what so many from Silicon Valley were promising.

Digital workflow means all information is inside a computer in some format somewhere. And, all of the computers talk to each other in some way. There is no paper needed to take an order, make and ship the order or collect for the order. Any business can do this but each of us has to weigh the cost/benefit and we have to understand where our customers are in their efforts to go digital.

Many small businesses are not digital because their customers aren’t yet and the wise position is to be only slightly ahead of customers.

Steve didn’t necessarily know he would be able to cash in on his investment to create a digital workflow. He just knew what he had could be improved. So, like most of us, he took a calculated risk. His personal passion is improvement and he could see that computers, for example, could more accurately tell a press how much ink to apply than could the most highly skilled pressman. Steve learned to write computer programs and the systems used today throughout Modern Postcard are all based upon his own code.

Deming’s rules to create constancy of purpose towards improvement area:

1. Adopt the new philosophy.
2. Cease dependence on inspection.
3. Move towards a single supplier for any one item.
4. Improve constantly and offer training on the job.
5. Institute leadership.
6. Drive out fear.
7. Break down barriers between departments.
8. Eliminate slogans.
9. Eliminate management by objectives.
10. Remove barriers to pride of workmanship.
11. Institute education and self-improvement.
12. Transformation is everyone’s job.

Based on his efforts toward continuous improvement, Steve was ready to implement digital workflow as early as 1995. He was at the front of the dot-com boom.Most people didn’t even have email. Steve was doing what so many in Silicon Valley were promising.

Key Questions:

Q: How do I buy a business?
A: You can buy the business where you work now. That’s what Don MacInnis did.

Q: What is the big advantage in buying an existing business?
A: Assuming you get accurate information from the accountants and attorneys, you know what you have. The good, the bad, the beautiful and the ugly. It should be clear what you’re in for if you buy a business.

Go back and study, Two Hands. Jon Zucchi bought a near bankrupt operation then breathed life into it. Look at the story we did about Cloud 9 Shuttle. John Hawkins bought the business out of bankruptcy.

Jim Schell sold a company he started to trusted employees. He had gone off and started another business, so the one that he sold had already successfully been running without his day-to-day involvement. This turned out to be a practice run for the two employees who bought him out. They had proven to themselves and to Jim that they had what it takes to make the company even more successful.

Jim priced the company fairly and set it up for them to pay him out over ten years which made the payments low for the new owners. They were so motivated to get rid of debt and they were so good at running the business, they were able to pay him off in three years! Today the company is three times larger than it was when Jim sold.

Jim, who now writes books, including Small Business For Dummies, says that if you can’t pay for the business out of cash flow in three years you should probably not buy the business.

Russ Seeley was smart not to give his business to his son, Matt, because even though Matt was working at Quality Bending, there were two other children to consider. By selling the business to Matt, the other children could not complain that Matt received inheritance that should have partially come to them.

Russ knew that Matt was ready to take over. He had learned the ropes as Russ gradually ceded responsibilities at a pace that gave Matt plenty of time to master the necessary leadership skills. In addition to training Matt, Russ also was brilliant to advise Matt to hire his own representation so that both the buyer and the seller had professionals crafting the document that outlined the agreement.

We know of at least one other situation where the second generation simply accepted a deal offered by their father and that deal turned out not to be in the best interests of the sons. Too bad. It’s hard to imagine a father not wanting the best for his children but then again, that’s the lesson taught in the book of Daniel. All men (and women) have clay feet.