When Is It OK To Fund Your Startup with Credit Cards?
We are fortunate to be living in a time when new financing options for funding your small business are popping up every day. However, they all come with limitations. Here is a super quick rundown of some: Banks. Hesitant to loan money to unknown founders. Crowdfunding. With some the money you raise will be taxed as income, with others you have to give away a piece of your company. Credit card processors. PayPal, Square and others will lend to businesses, but the business must have an established cash flow. Venture capital. VCs will take an ownership share. Despite all of these options, running up one or more personal credit cards is still one of the most common ways people finance new ventures. Of course, whenever credit card balances get maxed out, there can be severe consequences. Yet sometimes it works out quite well. Google founders used all of their credit cards to get going. But let me tell you a story about another startup that very wisely used credit cards to get established. When Max Shevyakov and Mark Gurevich founded Borrowlenses.com the main roadblock to growth was a lack of lenses. Camera lenses are, as you probably know, quite expensive. They were getting started at a time when credit card offers were arriving in the mail just about as fast as drug store sale flyers. They started buying lenses with as many credit cards as they could get their hands on. They rolled over balances into to new “zero-interest-for-a-year” credit cards when a card would get maxed out – or the zero-interest grace period was about to end. Was this credit card lens buying spree sheer madness? No, for a couple of very good reasons. Two important principles The first, and most important reason this was a sound business idea is because even though their cards were maxed out, they controlled significant value with the lenses. If their business failed, they knew that the lenses could be sold, raising a fair amount of the money required to pay down the credit cards. Secondly, after having operated the business for a while, they knew exactly how much revenue they could get out of a lens over a given period of time. They were working hard to keep up with demand. Lens rentals turned over in a very predictable way. They could easily calculate their ability to make their credit card payments. The lesson here is that if you buy a tangible asset that holds its value fairly well, you can significantly limit your risk. Further, if you understand your business – which you should – you can judge your ability to meet your monthly obligations. When these conditions are met, consider credit card debt, albeit carefully. By the way, Google founders ran up their credit cards to buy hard drives – another tangible asset. However, if you are taking cash out of your credit cards to pay for overhead, operating expenses or salaries, it’s a different story. Employee Joe Doe isn’t going to give you any of his salary back when you have trouble making a credit card payment. Your landlord isn’t going to rebate your rent when things get tight. You can’t take back electricity you consumed last month. Borrow too much on your credit cards under those conditions and it’s...
read moreWhy Teams Led by Nice Guys Finish First
Robert Fulghum has probably made about a gazillion dollars from “All I Really Need to Know I Learned in Kindergarten” and all the spin-offs it’s produced. His works remind me of a category that used to be on Kindergarten report cards. Back in the day we were rated on this report card line item: “Works and plays well with others.” What was really being measured in that report card category was a child’s niceness. (Talking to a current Kindergarten teacher, she said they note a child’s “respect” for others today. But honestly, it’s quite possible to be respectful and yet treat someone with indifference. Playing and working well with one another sets the bar higher.) Bosses shouldn’t be bossy It turns out that being nice pays off in the workplace, as well as in the Kindergarten classes of yesterday. Bosses that are bossy will not get the same performance out of their employees as bosses who know how to work nicely with their charges. Christine Porath is an associate professor at Georgetown University’s McDonough School of Business and she shared some results of a study she performed in the New York Times. Here’s what she said: “… the experimenter belittled the peer group of the participants, who then performed 33 percent worse on anagram word puzzles and came up with 39 percent fewer creative ideas during a brainstorming task focused on how they might use a brick. In our second study, a stranger – a “busy professor” encountered en route to the experiment — was rude to participants by admonishing them for bothering her. Their performance was 61 percent worse on word puzzles, and they produced 58 percent fewer ideas in the brick task than those who had not been treated rudely. We found the same pattern for those who merely witnessed incivility: They performed 22 percent worse on word puzzles and produced 28 percent fewer ideas in the brainstorming task.” Poor treatment in, poor results out The conclusion here is that if you treat people poorly, you will get poor results and I suspect that the results, in the long term, could be even worse in the workplace than it was in the experimental setting Porath had created. I say this because the subjects in this experiment were merely exposed to a single dose of rudeness. You can probably relate to this. When you run headlong into a rude person, it puts you on edge, occupies your thinking and prevents you from concentrating. However, if your boss is routinely rude, not only will you experience those negatives, you’ll stop caring and perhaps eventually decide (either consciously or subconsciously) to sabotage the boss. This is not a formula for productivity or a world-class customer experience. Have you ever walked into an environment where everyone seems to be either angry, apathetic or on edge? The great thing about this information is that the lesson it teaches is one that we should all be able to master: Just be nice to people. How hard is...
read moreThis Week in Small Business: Go to War with General McChrystal, Attend the Sage Summit via Video and Get Four Free Marketing Tools
Here’s a concisely curated collection of great small business information that was published throughout the last week. Leadership, management and productivity We use the language of war in business – rally the troops, battle for sales, win the contract – but when retired general Stanley McChrystal uses that language, he’s not speaking figuratively. In this podcast he talks about trusting your team. Hiring for emotional intelligence is just – if not more – important than hiring for skills. These seven interview questions will help you recruit the best people for your team. Joe Calloway comes away with three important lessons after he spends a couple of days with the Starbucks leadership team. Sasha VanHoven decodes the way people communicate via email like linguists decoded the Rosetta Stone. Make sure you really understand what people are saying so you won’t miscommunicate. It’s official – the 9-5 job is dead. Actually, it has been dead for quite some time. Your mission now – should you decide to accept it – is to manage talent in a flexible workplace. With about half of 2015 behind us, it’s incumbent on small business owners to find which of the current trends need to be capitalized on to boost growth and profitability. If you’re a company trying to secure your data, where do you begin? What should you think about? This Harvard Business Review article is a good starting point. When Ron Karr’s daughter smiled and said to him, “I can’t get you out of my mind. Help me!” he knew he was making a difference in her life. In this article he reflects how leaders and sales professionals can make lasting impacts on people. Marketing and sales Successful brands are likeable brands. Check yourself against this list of three habits of exceptionally likeable brands and entrepreneurs. Managing day-to-day operations, talking to customers, growing your small business through digital marketing keeps you super busy. These four necessary – and free – marketing tools will help. Remember how in elementary school science you learned about the physical laws that ordered the universe? Well, in that same spirit, here are nine laws of social media marketing for your small business. You’ve created an account for your company on every social media platform you can think of, but you still want more exposure and better results. Should you pay for social media? Here are an article and infographic that explore the question. Direct mail. Postcards are particularly popular with small businesses due to their affordability and impact, although sometimes a brochure-mailer can also be appropriate. Check out this direct-mail checklist. A key to growing your audience: Partner with subject matter experts. Discover where journalism and digital marketing overlap. Entrepreneurship, startups and innovation Getting ready to start your own business? Be ready for the hidden costs. Small business loan approval rates are at their highest level since 2008. However, equity financing can still be the best option for many startups. Here are the basics. Miss the Sage Summit? Enjoy a taste via video replay: Discover three women who, through business, reinvented their lives leveraging education, technology, and most important, perseverance: Jane Seymour, award-winning actress, artist, author, designer and humanitarian; Brandi Temple, founder and CEO, Lolly Wolly Doodle; and Karren Brady, Government small business ambassador, CEO, Business Woman of the...
read moreWill Google’s New Feature Make Lines Shorter at Your Small Business?
“Nobody goes there anymore. It’s too crowded.” That’s one of the most famous Yogi Berra quotes and while it sounds funny, a new Google search feature may turn this oxymoron into a reality. For many small businesses, Google now gives searchers a visual picture to help them determine when the business is most packed by customers or clients. It presents this information in a series of bar graphs – one for each day of the week – that show the relative number of people present at the business. For the business pictured in this iPhone screen capture, the feature was available in a Safari search, however, when I searched for the same business using a desktop computer running the Chrome browser, the “busy graph” wasn’t there. The same was true for several businesses I looked up. Google says it’s in the process of rolling out the feature, so I think it’s a safe bet to assume that it will be appearing in more and more places for more and more small businesses as we go along. The data source So far Google hasn’t been very talkative when it comes to how the search giant is gathering this data. If you press the “question mark” icon next to the graph, it merely says that the graph was compiled from “historical visits” to the location. Most observers feel they are mining the Google map data to determine the location of users. If so, this gives us another glimpse into how Google and many other app developers are taking up the mantle of Big Brother…hopefully in purely benevolent ways. It will be interesting to see how people make use of this information. It might help some businesses even out demand throughout the day. For example, workout enthusiasts might adjust their gym hours or days after they consult the Google graphs. Google might find additional ways to use its “historical visit” data. For example, it could rate all of a city’s seafood restaurants by number of users, or all restaurants in a given neighborhood. If it can determine when a user arrives at a restaurant and when the same user leaves, it might even be able to come up with a “speed of service” rating. Check your small business You should search for your small business on a mobile device, using a browser and using the Google app and see if the company is publishing a graph that highlights your busiest hours and days. This is information that you probably already know, but I’m sure it will be revealing to some small business owners. Perhaps it can help your planning and marketing. The folks at Google are always coming up with new ways to use existing information, aren’t they? Maybe that’s the real lesson for small business...
read moreStartup Retailer Jet.com Flys into a Heavy Headwind
Salmon are famous for how they courageously and tirelessly swim upstream to meet their destiny in their generational spawning grounds. Then they die and their rotting carcasses are eaten by a variety of creatures. I’m wondering if the tale of the new online retail startup Jet.com will be a modern, digital retelling of the salmon lifecycle story. In case you haven’t heard of it, Jet.com – founded by the very ecommerce-savvy Marc Lore – is taking aim straight at Amazon.com. It’s promising the absolute lowest prices on a wide range of consumer items. There is, however, a twist…two twists actually. First, Jet is charging a $50 yearly membership (after a free trial period). Second, Jet plans to rely solely on these membership fees to post a profit…at least that’s what the company is saying so far. Of course, Step A in this strategy is to be able to undercut Amazon – and your local stores – on price without losing money on every sale. Lore has come up with some good strategies to be able to do this, and here’s where there may be some lessons for small business owners everywhere. Pricing variables The pricing at Jet is dependent on the shopper’s location, payment type and desired guarantee. If you live closer to the shipping point, you’ll save money. If you pay via a method that doesn’t cost much to process, you’ll save money. If you waive your right to return the item, you’ll save money. If you find my prose a little boring, you might enjoy stand up comic and HBO “Silicon Valley” regular Kumail Nanjiani’s explanation of Jet pricing more entertaining: Profitero did a price comparison between Jet, Amazon and Walmart. They looked at 16,000 exact matches across seven product categories and found that on average Jet beat Amazon prices by 9 percent and Walmart prices by 6 percent. I don’t know if the company’s plan for profitability will work, but it looks like its pricing algorithm is generally working so far. However, Profitero did find some products where Jet was not the least expensive seller. Orders that reach $35 or more on Jet get free 2-5 day shipping, with faster 2-day shipping on the basics, and free returns within 30 days, unless if you waive your returns in exchange for a lower price. Amazon’s tight margins One interesting side note: If Jet is essentially selling items at break-even pricing, then comparing its pricing on an item to the Amazon price would give you a decent estimate of Amazon’s margin on the item. And if what Profitero found in its survey is typical of Jet’s entire catalog, Amazon is operating on a margin that averages 9 percent. Will Jet be able to establish itself as the Not-Amazon major online retailer? It has a lot of money behind it. Lore had a major online retailing success with diapers.com, so it wasn’t difficult for him to convince deep-pocket venture capitalists to write some big checks. Growth sustainability questioned I question the business model and here’s why: Amazon works hard to get its customers to spend more money on its site each year. That’s why it has continued to grow its offerings. However, by depending on the $50 membership fee for its profitability, Jet has capped the yearly value it...
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