Wednesday, April 16, 2014

The Five Key Skills for Entrepreneurial Success


Usually when you read a headline like this, you expect a sales pitch for the writer’s products or services that will help you avoid the what the author claims are the leading causes of small business failure.  The author’s conclusions may be that most business failures are due to a lack of a business plan.  Sorry, I’m familiar with the research on business failures, and lack of a business plan isn’t listed.  Nor is lack of an SEO program.  Nor is the lack of specialized software or any of the myriad products and services offered in the small business formation marketplace.

The primary causes of business failure according to a century plus of tracking surveys by the business credit firm, Dun & Bradstreet, are two in number.  And they make up two of the basic skills any prospective business owner MUST have if he or she is to be successful.  The two leading causes of business failure are:

1.  Lack of financial management skills and experience (often combined with poor decision making).
This, again, isn’t rocket science.  To succeed with a business on any scale you must be able to read and interpret the three basic reports common to all businesses, organizations, churches, governments and Cub Scout Troops:
    • The Profit and Loss Statement.  This answers the intriguing question, are we making money?
    • The Balance Sheet.  Which answers the starting question, do we owe more than we own?
    • The Budget.  Your personally maintained crystal ball which attempts to predict with reasonable certainty, how much money you need to stay open next month or next year, and how much you feel your business will bring in?

Doing your own books is not part of this skill.  Being an accountant or CPA isn’t necessary.  My father-in-law with his eighth grade education can tell at a glance whether a business is doing well and what problems it has simply by scanning the first two reports.  It’s an acquired skill anyone can learn at their local SBDC or community college. 
Budgeting, on the other hand, is something the business owner must do him or herself.  The only way you can incorporate budget numbers into your day to day is to keep your budget yourself – at least until the point your business is too big for this.  In the beginning?  It’s something you do, and no one else.
2.  Lack of marketing management skills and experience (often combined with poor decision making.)
It is the small business owner’s job – and no one else’s – to sell the business's products and services.  You can hire salespeople, but unless you have the sales and sales management experience to guide their efforts, you may as well toss the money out the window.  This is knowledge you can pick up at your local SBDC or community college, and from there – it’s practice, practice, practice.
According to this research, 89% of all business failure is due to these two factors and these two factors alone.  Throw in “Acts of God”, and you’re pretty close to 100%.  

I mention five basic skills, and these are but two. Here's three:

3.  To be successful as an entrepreneur you must have a good mindset.  
A mindset is a combination of attitude, expectations, understanding what your time is worth, and the skill to manage attitude, expectations and time.  While we haven’t time or space here to discuss how to do this, I do teach some basic, scientifically proven techniques for self-managing.  This includes simple mental imaging exercises that anyone can learn, understanding the nature of goals and expectations, and computing in simple dollars and cents what every hour you have available to you to invest in your enterprise is worth.
So that’s three.

4.  Four is developing the skill of asking questions, reasonable questions.  
Traditionally, these questions were organized as a business plan, but NOT the modern form of business plan.  What’s wrong with the modern business plan?  Besides being an exercise in wishful thinking and mental masturbation, nothing.  Far too many prospective entrepreneurs buy expensive software or hire expensive services to write “The Business Plan” to present to bankers, Angels, Venture Capitalists and whoever else they can pigeonhole long enough to read their fiction.  Which they won’t, because they know the damn thing was written using expensive software or by high-priced writers and has no more connection to your business than the book, “Huck Finn”.  At least Huck Finn has a plot.  Your Business Plan doesn’t, and your ending is very predictable.
What does this rant have to do with asking questions?  Well, originally, a business plan was an organized set of answers to questions that only the business owner and closest associates or advisers would ever see.  It was a living document that was used and updated and used more.  The questions aren’t rocket science nor do they require an MBA to answer.  Simple questions like,
    • “Who is the prospective customer?”, 
    • “Where do they live?”,
    • ”What price are they willing to pay?”,
    • “What competition is there?”,
    • “What will it cost to start and operate this turkey?,
    • “How do we make this happen?”, and so on. 
 Very basic commonsense questions that anyone, including me, can pose and find answers for – usually with a reasonable investment of time and a little money.
Skill five isn’t really a skill.  It’s an attitude that in my workshops I explain using the “John Wayne – Bruce Willis I-don’t-need-no-stinkin’-help Misapprehension.”  In their many movies, John and Bruce were usually pitted alone against the world, and too many entrepreneurs, especially men, have picked up this silly attitude. 

Starting and running a successful business isn’t a gunfight in the Old West.  For one thing, despite the history that Hollywood teaches, there were only five or six true “walk-down” gunfights during that entire fifty-year period.  Researchers starting with Napoleon Hill through today clearly document that people who understand that running a business is a collaborative enterprise – even for the self-employed – are far more likely to succeed.  (And as women are by socialization trained from a young age to be collaborative, women owned business are, according to all research, more stable, more profitable and last longer than businesses run by men.)

5.  So the fifth skill anyone who craves success needs is the ability to ask for help.
It's critical to seek out other’s opinions and to have a circle of professional advisors near at hand when needed.  Yes, this is an attitude, and could be included in mindset, but it is so critical to an entrepreneur that is deserves a separate listing.  Business management is a huge field, and no one, no matter how well educated and experienced, can know it all.  The successful know who to call, who to talk with, and the benefits of doing so.

Yes, I teach two classes scheduled for this May at North Seattle College.  They are listed below.  So, yes, I wrote this column to sell my products.  So sue me.  At least these classes are research based and focus on what a person needs to learn and do to become a successful entrepreneur.

If you’re starting a business with employees and a physical location, I recommend ~

The SmartStart Workshop for 
Starting the Business of Your Dreams
Not sure how to start a business? You’re not alone. According to data from Dun & Bradstreet, most failed entrepreneurs started a business with little or no management training or experience.  It’s this lack that caused them to fail, not necessarily their business idea or concept.

The good news is, you do not need an MBA or an undergraduate business degree to successfully start a business.  You do need to – before you start –

  • Work on developing an attitude that will help you overcome failure and find success.
  • Understand the business skills research shows are at the core of success, and make a plan to gain the basics. (You can't know everything, but there are basics you must know.)
  • Learn to think like a successful entrepreneur, analyzing opportunities in a realistic and practical way.
That’s why I invite you to join other entrepreneurs for a full-day workshop that guides you through starting a business. You’ll begin with
  1. an inventory of your management skills and personal resources, before we
  2. work to set realistic goals for your life and business, then
  3. learn to evaluate your business idea like an experienced entrepreneur before you risk your money and time. The class also features a discussion of the 
  4. 25 known ways to finance the business of your dreams. 
The two most common questions I’ve been asked in past workshops:
  1. Don’t most small businesses fail?  No, they don’t.  According to research published by the Kauffman Foundation, the Small Business Administration and the IRS, over one half of start-ups are still in existence five or more years later.  To read the latest research, visit my blog, Small Business for Real People and read: The Facts of the Small Business Survival Rate  
  2. Some variation of “I need $100,000 to start my business.  Who do I talk to?”  Research shows that the vast majority of new businesses are financed out of the entrepreneur’s own pocket.  This is a topic we spend quite a bit of time discussing in the workshop, including a list of the 25 Known Ways to Finance a New Business.  I suggest reading my blog post:  The Myth of Venture Capital 
Spring 2014 Class Schedule:  Saturday May 10th, 9:00 a.m. to 4:30 p.m. (1 session) 
Click here for enrollment information on:  

If you’re going to be self-employed as an architect, IT consultant, housekeeper, gardener as well as an artist, writer, photographer, or musician, I recommend ~

Business Basics for the Self-employed
Are you currently self-employed, or considering becoming self-employed, and want to take the next big step to make a profit with your work? To be successful in any self-employed craft, professional or art, you have to craft a winner’s attitude, and incorporate a simple set of financial and marketing skills into your existing daily routine.

We’ll talk about how to approach and manage clients or buyers, how to price your work, how to negotiate work-for-hire contracts, what records to keep, and how to maximize your income.

Common questions I’ve been asked at past classes:

  1. As an artist don’t I have to sell-out to be commercially successful?  The answer is no.  You do not have to sell out in any way, shape or form to turn a hobby or passion into a money-maker.  Running a business has nothing to do with politics, selling out or becoming “commercial”.  Wouldn’t you like to earn enough from what you’re doing to be able to do it full time?  The basic skills of business I teach have been around for thousands of years, and while they have become more sophisticated over the centuries, you can learn to use the basics quickly.  Most successful self-employed people have figured these things out, usually the hard way, by trial and error.  We’re not talking rocket science here.  It’s simple but powerful stuff.  
  2. I don’t have time to keep books and market my products or services.  Is there an easier way?  To succeed in any form of self-employment, you must make basic business skills a daily and routine part of what you do.  This takes a combination of an entrepreneur's attitude and an understanding of the basic business skills that will add to your success.  Join us as we work to help you develop a holistic approach to your art, craft or professional practice. 
    1. Do you know why research says the first ten seconds of your first meeting with a gallery owner, prospective client or customer is critical?  
    2. Do you know the one thing research says you most likely do in front of a prospective buyer that kills your sale every time?  
    3. Do you know how to set realistic prices?  Or, do you know the one thing that Mercedes-Benz did in pricing their cars that made them such a huge success.  It’s not illegal or immoral, but does it ever work.
    4. Most basic of all, do you understand how much your time is worth?  Most people who take this class are shocked when they work this out for themselves.
Spring 2014 Class Schedule: North Seattle College, Thursdays 6:00 p.m.to 8:30 p.m. May 8th, May 15th, May 22nd  (3 sessions)
Click here for enrollment information for:

Tuesday, April 15, 2014

Screening Facebook alienates your best job candidates

"Elite job prospects likely steer clear of potential employers they don't trust."
It's a common practice for employers, from the very large to the very small, to screen the Facebook, MySpace and other social media sites of job prospects as part of the hiring process.

Research from North Carolina State University is clear that this practice is likely to backfire by alienating the very prospects you most want to staff your business. In some cases, social media screening even increases the likelihood that you could find yourself in court, defending yourself.

"The recruiting and selection process is your first indication of how you'll be treated by a prospective employer," says Will Stoughton, a Ph.D. student at NC State and lead author of a paper describing the research. "If elite job prospects feel their privacy has been compromised, it puts the hiring company at a competitive disadvantage."

The results of two studies
In the first study, 175 participants who had applied for a job online were told that their Facebook accounts had been reviewed for "professionalism," and that a decision on whether they'd been hired was forthcoming.
  • Two-thirds reported finding the prospective employer less attractive because they felt the Facebook screening was an invasion of privacy that reflected poorly on the company.
In the second study, 208 participants were asked to envision a hypothetical scenario in which a prospective employer reviewed their Facebook profiles for professionalism. Half of the participants were asked how they'd respond if they had gotten the hypothetical job, while the other half were asked how they'd respond if they hadn't gotten the job.
  • 60 percent of participants in both groups reporting a negative view of the potential employer due to a sense of having their privacy violated.
  • 59 percent of participants were significantly more likely to take legal action against the company for invasion of privacy. 
"This research tells us that companies need to carefully weigh whatever advantage they believe they get from social media screening against the increased likelihood of alienating potential employees," says Dr. Lori Foster Thompson, a professor of psychology at NC State and co-author of the paper.

"Elite job prospects have options, and are more likely to steer clear of potential employers they don't trust," the authors conclude.

Suggested reading
click on image
Companies look at wrong things when screening Facebook
To make matters worse, if you screen the social media accounts of prospective employers, you're screening for the wrong things.  In a related study out of NC State, the same researchers found that screeners often have a fundamental misunderstanding of online behavior and needlessly eliminate good job candidates.

"Companies often scan a job applicant's Facebook profile to see whether there is evidence of drug or alcohol use, believing that such behavior means the applicant is not 'conscientious,' or responsible and self-disciplined," says Dr. Lori Foster Thompson, co-author of the paper. 
  • The researchers found that there is no significant correlation between conscientiousness and an individual's willingness to post content on Facebook about alcohol or drug use.
"This means companies are eliminating some conscientious job applicants based on erroneous assumptions regarding what social media behavior tells us about the applicants," says Will Stoughton, a Ph.D. student at NC State and lead author of the paper.

And companies that are looking for extroverts -- such as those hiring for sales or marketing positions -- may be doing themselves an even worse disservice. The study found that extroverts were significantly more likely to post about drugs or alcohol on Facebook. So companies weeding out those applicants are likely to significantly limit the pool of job candidates who are extroverts.

The one thing to screen for?
If you feel you must screen job candidates' social media accounts, there is one personality trait that employers should look for.
  • Study participants who rated high on both agreeableness and conscientiousness were also very unlikely to "badmouth" or insult other people on Facebook.
"If employers plan to keep using social media to screen job applicants, this study indicates they may want to focus on eliminating candidates who badmouth others -- not necessarily those who post about drinking beer," Stoughton says.
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Story Source:  Materials provided by North Carolina State University. 

  1. J. William Stoughton, Lori Foster Thompson, Adam W. Meade. Big Five Personality Traits Reflected in Job Applicants' Social Media Postings. Cyberpsychology, Behavior, and Social Networking, 2013.
  2. J. William Stoughton, Lori Foster Thompson, Adam W. Meade. Examining Applicant Reactions to the Use of Social Networking Websites in Pre-Employment Screening. Journal of Business and Psychology, 2013

Sunday, April 13, 2014

Moving a prospective entrepreneur from analysis to action

Working with prospective entrepreneurs that lack management training or experience has its joys, one of which is helping them develop a mindset that can lead them and their businesses to success.
Mindset includes, to my way of thinking, learning to think like a business owner, keeping a rough P&L and Balance Sheet running in the mind, learning to think about their business as do their customers and prospective customers, learning to evaluate opportunity, how to capture it and use it to build their business without wasting time over analyzing the situation.

Mindset involves attitude as well as skills, so in the workshops I lead, students spend time learning simple but useful attitude management practices based on the latest science.

According to researchers PhD student John-Erik Mathisen and Associate Professor Jan Ketil Arnulf at BI Norwegian Business School, increased formal competence (business education) affects the mindset of people who are interested in becoming an entrepreneur, retarding new-business formation.

Entrepreneur mindsets
The researchers take a slightly narrower definition of mindset than I use.  In their research, a mindset may be described as automated recognition of patterns in one's surroundings, with associated actions.  For example, a chess player's ability to quickly see and solve chess problems which other people would take a long time to consider, is a good example of a mindset.

In other words, the better the education and the more the experience, the more quickly an entrepreneur can see opportunity, analyze it and act. Researchers distinguished between two main types of mindsets in entrepreneurs:
  • Elaborative (explorative) mindsets: Mindsets that concentrate on assessing a situation and obtaining information. When people are influenced by elaborative mindsets, they are open to new information and become thoughtful. Elements of doubt will also increase. 
    • When you are taking in new information, a consequence is that you are unable to draw conclusions. (analysis paralysis)
  • Implemental (implementation-oriented) mindsets: A state where everything is interpreted using known patterns, and where the outcome is always some kind of action. (To quote Nike, thinking about how to "Just Do It.")
Anyone who works with people thinking starting a business has worked with someone who is trapped in "analysis paralysis."  They research, think, study and analyze an opportunity until all they are doing is dithering and thinking in circles.

As Mathisen and Arnulf point out, "Teaching can of course provide useful information for people who are interested in entrepreneurship. But it is also possible that the teaching situation in itself leads to a prevalence of elaborative mindsets, with doubt and too many different ideas."

In simple terms, we need to be aware that how the education we provide man trap some students in a never-ending cycle of research and planning.

The study
The researchers studied mindsets among 242 bachelor students at BI Norwegian Business School and finance students at the Norwegian University of Life Sciences (NMBU) in ├ůs near Oslo.

Their work shows that students who participated in the survey had different degrees of the two mindsets. The researchers looked for any connection between the students' mindsets and the number of new companies they set up (entrepreneurship in practice).  In other words, how many got on with it and started the business as opposed to dithering.
Mathisen and Arnulf found that students with implemental mindsets were behind most new companies, while there was no corresponding connection between new companies and students with elaborative mindsets.
Too much education may lead to doubt
"We find that formal knowledge may get in the way of action, because it makes room for more doubt," says Mathisen and Arnulf.

The researchers argue that doubt should be considered a cost in entrepreneurship. "Only students who had implemental mindsets to a very high degree, seemed able to also benefit from elaborative thinking."

Suggested readingClick on image
So how does anyone working with nascent entrepreneurs help our students get off the "elaborative" analysis-paralysis merry go round?  No answers were offered by authors other than to be aware of the tendency in some students.  It may be the simplest way to help is to continually ask them, "how would you do that?", "how would you implement that?", "what can you do to make that idea or concept a reality?"
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Story Source: Materials provided by BI Norwegian Business School. John-Erik Mathisen, Jan Ketil Arnulf. Competing mindsets in entrepreneurship: The cost of doubt. The International Journal of Management Education, 2013

Saturday, April 12, 2014

How to increase ad response up to 15% through facial selection

Having worked in advertising and direct response for most of my career, I am very aware of how difficult it is to create an effective promotional piece.  It's about one half science and one half trial and error.

So when a new science based technique is introduced that offers to increase response by a whopping 15%, professionals in the field sit up and take notice.  To put this in perspective, through dint of effort we were able to increase response by one or two percent, that was a major accomplishment.  Five percent and our clients thought we could walk on water.  Fifteen percent? Almost unheard of since the day N.W. Ayers invented the ad agency just after the Civil War.

So what is this technique?  It's facial selection, not through trial and error, but through facial recognition software as used by law enforcement and security organizations.

Here's the story:

Merely changing the face of a model in an ad increases the number of potential purchasers by as much as 15 percent (8 percent on average), according to a study. The study shows that a technique to screen faces when designing ads can transform the current subjective process into a scientifically automated one. Considering the extensive use of human faces in advertising (over 50% of print ads contain human faces), this technique may be quite profitable.

"This technique will revolutionize the field of ad design," predicts author Min Ding.
The technique is eigenface method, which has been widely used for face recognition purposes in other fields, including personal device logons, human-computer interaction, and law enforcement's tracking of suspects. Eigenface method aims to identify each face by a small set of key dimensions that together explain the variations in human faces.

The best book ever
written on how to
write advertising. 
Click on image
The authors used eigenface method to extract and represent facial features in ads with a limited set of eigenface weightings. In an experiment with 989 participants, the authors used real models' faces and real ads with minimal modifications to elicit participants' natural reactions to print ads. Their results show that different faces affect ad effectiveness substantially and people show substantial differences in their facial preferences across product categories.

"An 8% increase in effectiveness could produce a substantial gain for the $600 billion ad industry," says author Li Xiao.

"These methods can substantially increase sales in individual industries," add the authors. "For example, there is a potential for up to $5 billion additional sales for the automotive industry in the U.S. alone."

Ad agencies would use four steps to employ this technique in ad design:
  1. create a single database containing perhaps a thousand or more faces of professional models;
  2. represent each face in the database with a set of eigenface weightings;
  3. measure the facial preferences of target customers in a product category; and
  4. identify the top faces that best match target customers' facial preferences for the specific product category.
These steps can be automated once enough data about characteristics of various product categories and facial preferences have been collected.

I know the average small business person hasn't the money for this type of research, however, knowing how the effect having the right face in your ads is good reason to do some split run advertising tests.  It's actually pretty easy.
  1. Develop one ad - headline, copy, offer, expiration date and so on.  If you've never written advertising professionally, the best book ever on creating effective ads is "Tested Advertising Methods," by Advertising Hall of Fame member, John Caples.  
  2. Use two different model face shots in a split run of the ad.  That's the only difference between the two ads you're testing.  You don't want to add any other elements to the test.
  3. Track response to each ad by the simple technique of coding each ad separately.  You can use different telephone extension numbers.  Ad one could be extension 101, ad two extension 202 (you don't need extensions to do this.) When a caller says, "Extension 101, please," you or whoever answers the phone puts a tick mark in the ad one box.  The same for ad two.
    • Be sure each ad appears the same number of times.
    • Make sure the only difference between the two ads is the face.
  4. At the end of a week or a month, you'll have a clear idea which face is attracting more business, and the winning ad becomes your standard against which you test future ads..
I used this technique to determine which tags on my blogs get the most response.  The winning tag results in nearly three times as many hits, so it works, and I've done something similar for dozens of clients.  Best of all its cheap and easy.
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Story Source: Materials provided by Institute for Operations Research and the Management Sciences. Li Xiao, Min Ding. Just the Faces: Exploring the Effects of Facial Features in Print Advertising. Marketing Science, 2014