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Narrow your target market and differentiate your business for success

Specialization is key to small-business success, writes Rhonda Abrams in USA Today, who advocates choosing a specific customer niche to narrow your target market and make the most of your resources. She gives six ways to narrow your market by segments that include geography, industry, demographics work specialty, unique knowledge and style.

To me the two most important items are work specialty and unique knowledge. As it becomes increasingly easier to source specialists from around the world at ever diminishing costs, it is important for businesses to strongly differentiate the products and services. The more unique or specialized the skill or service, the greater opportunity to maximize revenue and build pricing power.

Tips on Starting a New Business Courtesy of "Mad Men"

Season four of the hit TV series "Mad Men" sees the opening of a startup ad agency. Rhonda Abrams in USA Today offers up some great points on what the founders of Sterling, Cooper, Draper, and Pryce—and new business owners like them—did well, and where they need to improve.

Here are a few key takeaways all new entrepreneurs should remember:

  • Pull together a team. You can’t do it all. They can't. You can't. Find people who balance your weaknesses.
  • Take chances.  Come up with fresh approaches and new thinking to differentiate company.
  • To quote John Wooden, “be quick but don’t hurry.” You have to make quick decisions. When opportunity arises to start the new agency, the principals didn't dawdle. They pulled the trigger and worked nonstop day and night to make sure they got the launch right.
  • Be flexible. They understood that they might have to expand or shrink staff quickly to meet their needs.
  • Be frugal. While they did a mixed job on this aspect of the launch, they didn’t spend the money on an expensive conference table. Remember, frugal is the new cool. Especially among startups.

Sun Belt Small Business Growth

According to a new study from Portfolio.com and American City Business Journals, Austin Texas is the best metropolitan area in the U.S. for starting a small business. The city's population growth, employment rate and burgeoning small-business growth helped it earn the No. 1 spot. It was followed by Baton Rouge, La., Raleigh, N.C., Charleston, S.C., and Portland, Maine.

Last place… Detroit.

Sad to see that my hometown of Nashville came in at #28, but that is an improvement over last year’s ranking of 33.

I Am The “IT” Department

Technology makes this a great time to be a small business. Rapid advances of technology have made it easier for small business owners to compete with the "big boys" on a newly leveled playing field.

From online postage to inexpensive accounting programs to easy web hosting and development, small businesses can operate nimbly, effectively and on par with larger competitors.

Want a great example? Barbara Heinrich, owner of Local Motion in Minneapolis, built her own mobile-phone application through BuildAnApp to display her hours, location and pictures of new arrivals. Several services have cropped up recently to help small businesses develop iPhone applications so that they can participate in the mobile market including:

If you are looking for a tool to maintain regular contact with customers that are on the go, you should probably check out one of these tools. Remember, you don’t have to be Southwest, CNBC or Amazon to have your own iPhone app.

Eating What You Kill

Chris Brogan, president of New Marketing Labs and the co-author of Trust Agents, offers up some great advice for new business owners.

  • Focus on what you need to drive the business, not the “trappings” of a company.
  • Keep your metrics simple, and focus on value.
  • Use sweat instead of credit.

In business for just one year, New Marketing Labs is not only profitable, they are growing. These three key are definitely part of their winning formula. For me, working within your means and staying very lean are keys for success.  It’s nice to see that others agree.

Do You Know What’s Around The Corner?

"Regardless of how you go about innovating, make sure you're continually pursuing the next thing, because a company's commitment to staying relevant must never cease," writes Steve McKee, president of McKee Wallwork Cleveland Advertising.

As McKee notes in the article, you must understand how customers view and interact with your brand or service to understand what’s next for your business. And knowing what’s next is the only way you can stay ahead of the competition.

Customers and markets are always changing and staying ahead of the curve is imperative if you want to stay in business.

Many businesses start out as innovators, win awards, and over time fall behind.

Just like mutual funds, past performance does not guarantee future results. Even if you have customers tied up in long term contracts, you will eventually have to convince them to renew. Will you have something new and innovative to share or will you be relying on your previous service and relationship?

Continually innovating and growing will not only keep a business relevant; it will also give customers another reason to stay.

Saying Goodbye Is Never Easy, But It Can Be Profitable

Letting someone go is one of the most dreaded and difficult tasks that a small business owner will encounter.

Firing a customer is doubly difficult.

In this tough market, many small businesses are cutting loose demanding, resource-draining customers who want deep discounts or pay their bills late.

Dropping these "high-maintenance" clients reduces frustration and allows entrepreneurs to devote their time to more profitable clients.

So how do you know if you need to fire a customer?

If you have customers that don't get the value that you are adding, don't appreciate your service, or have unreasonable demands, you should think long and hard about continuing the relationship. 

Not only do these types of customers eat up a lot of time, they do not create any positive word of mouth for your business. They also frustrate your staff. By forcing your employees to deal with these people, you are sending them a message that their professionalism, values or sense of quality don’t matter.

Letting a customer go is never easy, but sometimes it just has to be done.

Hope, prayer and a charge card

Credit cards have always been a source of credit for startups, but other options are disappearing as banks withhold traditional loans and fail to buy into the Small Business Administration's loan-guarantee program. The 22 big banks that received government-bailout funds have cut their lending to small businesses by $8 billion since April when the government made them start reporting it.

Almost 60% of small business owners have used a credit card in the past year for business capital, according to a recent survey by the National Small Business Association (NSBA). In contrast, 45% of those polled had a bank loan. As traditional loans dry up and lenders such as JPMorgan Chase hoard cash and build reserves or just file bankruptcy, business owners are doing what they always do. They are finding another to way to succeed and to make things work.

On Demand (Free Agent Society)

Face it, we are all free agents.

iTunes and iPods forever changed the music industry. You can use Shazam to recognize a song playing on XM in a restaurant and download it immediately.

We can go to Hulu and watch 30 Rock or Family Guy whenever we want.

We can download movies to our DVR from Direct TV anytime we desire.

Thanks to the Kindle, books are now on-demand and Apple’s tablet PC will only fuel the market for digital readers and book downloads.

And now, like Major League Baseball players, workers are now realizing that they too are free agents and on-demand.

The New York Times small business blog offers up some great advice on managing a career. In short, manage it like a small business. With so many people unemployed or fearful of being laid off, human resources experts are recommending that workers think of their careers as small businesses because the market for temporary and contract work has picked up.

Social-networking sites, "cloud computing" and mobile communications likely will produce a "surge of entrepreneurs," says Jim Jonassen, head of Jim Jonassen & Associates Venture Search.

Just like a baseball team in need of a left-handed hitter who can hit with power, employers in need of PHP programmer with banking experience or a sales team that needs a specialist in selling to government agencies are signing players who fit their needs for a finite amount of time and just when they need it.

In the new world order, growing and cultivating employees for the long-term is going the way of AOL. Developing your personal brand and product, is now the new norm.

For baseball players, salaries and revenues exploded especially for those with exceptional or specialized talents. The new job market along with everything we buy or consume is quickly becoming on-demand and at the whim of buyer.

It will be interesting to see if salaries increase and how much movement occurs as the economy improves. I’m betting it will for workers who find their niche and realize their true value.

Fighting The Resistance & Fulfilling Your Dreams

A would-be entrepreneur whose family and friends are not supportive of her plans to open a consignment shop should stop talking about it to them, writes USA TODAY columnist Gladys Edmunds. Unless the naysayers have succeeded in the same kind of endeavor, the negative energy is not helpful, she says.

One of the best books on this subject is The War of Art: Winning the Inner Creative Battle by Novelist Steven Pressfield (The Legend of Bagger Vance; Gates of Fire). The book aims to help readers "overcome Resistance" so that they may achieve "the unlived life within." Whether one wishes to embark on a diet, a program of spiritual advancement or an entrepreneurial venture, Pressfield says that it's most often resistance that blocks the way. To kick resistance, Pressfield stresses loving what one does, having patience and acting in the face of fear.

He also talks about ignoring the nattering nabobs of negativism and fighting the resistance within and that surrounds you. For those thinking of starting a small business, I can’t think of a better book to read.

Create Your Own Space

Two leading schools of thought on how to handle competition involve rallying to crush a rival or joining forces to combat a bigger threat. But this BusinessWeek post considers a softer approach: owning a small, but narrowly defined, unique place and, by definition, negating competition.

Creating your own niche, creates your own market and definitely limits the competition. It also allows you to own your market.

Keeping The Dream Alive

Great story of a quality product and persistence. Greg Snell developed the Winepod, a $4,500 contraption for making wine at home, which seemed like an idea full of promise just a few years ago in a very different economy. But then the recession hit, venture capitalists backed away and entrepreneur Greg Snell had to lay off all his employees and move the business into his home. It was a rude awakening for a company that once boasted $4 million in funding, but Snell expresses confidence that a less-than-$500 version, due out next summer, will keep the dream alive. CNNMoney.com

Some of the greatest qualities of entrepreneurs is self-confidence, determination and a belief in what they do. I have no doubt that one day; I will be buying a Winepod. It does illustrate the need for researching your market and preparing for storm clouds. In a great economy, $4,000 for a higher end market probably seemed achievable. In this market, a $500 price point and quality that is “good enough” will probably keep the dream alive.

Making Your Own Way To Happiness

Self-employed business and factory owners scored the highest in the most recent Gallup-Healthways Well-Being Index, a statistic that has psychologists touting the significance of personal freedom at work, control of time and ability to respond to hardships like the recession.

Seeking out enjoyable work and finding a way to do it on your own terms, with some control over both the process and the outcome, is essential to fuel satisfaction and contentment. This is one of the main drivers for entrepreneurs and business owners.

Now more than ever, this a lesson employers need to take into account.  With layoffs and longer hours, it is important for employers to take heed of these lessons and find ways to give their employees some sense of control. Next year, the employment situation will improve and your employees will be seeking these types of opportunities.

Preparing now to hold on to your talent would be a very wise move. They will remember how you treated them during the rough times.

Charge It And You Will Go Out Of Business! Really?

A lot has been made over the past few weeks about a study based on data from Ewing Marion Kauffman Foundation that has been interpreted by many as an indictment of using credit cards to fill a startup firms' equity gap. The study, by Robert Scott of Monmouth University (using Kauffman’s data) found that “every $1,000 increase in credit card debt increases the probability a firm will close by 2.2 percent.”

The study was based on a regression analysis of data from the Kauffman Firm Survey, which tracks a sample of new companies from the 2004 cohort of American start-ups.

Scott A. Shane, writing on the You’re The Boss blog on the NY Times site, correctly punches a few holes in this widely reported assertion, offering up another plausible meaning.

Another interpretation of the study’s results is that entrepreneurs whose businesses aren’t doing well tend to run up credit card debt faster than entrepreneurs who are doing well because they need to get cash somewhere. Because companies that aren’t doing well are also more likely to fail, we see a correlation between business failure and the size of credit card debt.

In research, things are rarely this easy, simple, or black and white. Shane correctly attempts to point out that correlation does not imply causation. Correlation can be a hint, but rarely are things as simple as saying that using a credit card for business financing will cause small business failure.

The misuse and misreporting of research and data continues to grow, and the lack of reporting staff and tight deadlines at most news outlets only contributes to growth in these misleading stories. And in this case, that’s a shame. I’m not a proponent of using credit cards for business financing, but in certain cases, it is a justifiable albeit expensive stop gap. Scaring small business owners away from what might be a valid solution to a short term need with pithy black and white axioms is both lazy research and lazy reporting.

American Express OPEN? Nope Closed

Talk about shooting yourself in the foot. Crain’s New York details American Express’s latest dumb move. Looking to shore up their risk and loss rates, Amex is freezing, lowering and closing the credit lines of many small business owners who have never missed a payment. And they are doing it without warning.

From Crain’s, Andreea Ayers, founder of Tees for Change, who says her profit has been undermined because she couldn't make a large purchase and she wasn't informed in advance that her credit line had been cut in half. "I understand that they're trying to protect themselves in a bad economy," Townsend says. "I just feel like they're lumping all their customers into one group, as opposed to looking at them individually." Crain's New York Business

American Express has invested a lot over the past few years in their American Express OPEN site. Targeting small business owners, the site provides forums and information for a group that generally dislikes American Express. For retailers and restaurants, credit card fees are universally hated and this is particularly true for small business owners. For small business owners, Amex is usually considered the worst in terms of fees and potential hassle.

So after courting the market and trying to make amends, what do they do? Completely undermine any good will that they might have earned and basically cement the view that they are unfriendly to small business. No amount of PR or marketing in an improved economy will undo this perception.  

Why Discounting Stinks

Having talked with many small business owners over the years, I can honestly say that pricing is one of the toughest challenges they face. There is always a sense among business owners that they are pricing themselves out of business or leaving money on the table.

Steve McKee, president of McKee Wallwork Cleveland Advertising, says discounting products destroys brand equity and profitability, but there may be times when discounting can be done wisely "to achieve a limited, well-defined objective." In his discussion of how to discount products wisely, McKee notes: "If you start playing the discount card too much, you're sending a signal that you don't believe your product or service is worth it. And if you don't believe it, who will?" Businessweek

Why Small Biz Prefers Local Bankers

One writer calls for banks to stand up and do what's right for small-business owners. "It's easy to understand why banks would push to recover whatever they can immediately from small companies facing insolvency, considering the cost and time involved in doing workouts with companies that may not be viable in the long term," writes John Tozzi. BusinessWeek/The New Entrepreneur

It is times like these that remind small businesses owners on the value of working with smaller local banks. Workouts are more common for small banks, and the officers of smaller banks tend to put more value on relationships. Larger regional banks spend a lot of time during good economic times on ways to pickup small business customers. Many of their actions today should make it abundantly clear why they find it difficult to penetrate and hold onto the SMB customers.

Divine Justice? Perhaps

Advanta, which has issued credit cards to nearly 1 million small businesses, announced it will shut down all customer accounts to new activity on June 10 because of growing losses and uncollectible debt. As Advanta's stock sank 30% Tuesday, analysts expressed doubt the company could survive. Nilson Report publisher David Robertson said Advanta's plan to offer investors 65 to 75 cents on the dollar was a "Hail Mary."

Based on some of the comments posted online by their customers, this is not a big surprise.

Advanta started out as a lender to teachers in 1951 and by 2001 was concentrating solely on credit cards to small businesses. It became the largest card issuer focused on small-business customers.

Advanta did have a couple of interesting sponsorships supporting entrepreneurs including IdeaBlob as well as Kiva.

But...I have heard a lot of horror stories about these guys. A quick search online for complaints indicates a penchant for raising rates to over 30% which as you might imagine has elicited a lot of comment online.

Credit cards are an important source of funding to small enterprises and small companies have been hit particularly hard during the credit crunch. Earlier this year, American Express shut down its small business credit card group area which included a small business line of credit product.

Getting reputable credit flowing to small businesses will go a long way in sustaining a recovery in the economy.

Why MBA’s Are More Suited For Suits (Or At Least Business Casual)

Research conducted at the University of Virginia's Darden Graduate School indicates that "entrepreneurial thinking" differs significantly from how MBAs think. Unlike MBAs, who start out with a goal, entrepreneurs use "effectual reasoning," which lets goals emerge over time as they imagine ways to bootstrap, prototype and market their products and services.

According to the research, MBA’s employ “causal reasoning,” focusing on how much you expect to gain; effectual reasoning is about how much you can afford to lose. Causal reasoning revolves around competitive analysis and zero-sum logic; effectual reasoning embraces networks and partnerships. Causal reasoning "urges the exploitation of pre-existing knowledge"; effectual reasoning stresses the inevitability of surprises and the leveraging of options.

Information about the research was posted to a Harvard Business Blog by Bill Taylor.

As you might guess, the article has elicited quite a few comments from MBA’s denouncing the research. Apparently they feel like they are being thrown under the "hyper-analytical & framework driven" bus. Having worked with quite a few MBA’s over the years, I can tell you that there is a lot of merit to the research. MBA’s typically view the world they see, not the one they can imagine. It is more about the allocation of resources rather than dreaming , taking chances, melding disparate concepts into a whole, and believing in mutuality.

A lot of creative people and entrepreneurs attain MBA’s and become very successful entrepreneurs. However, I think they are the exception, not the rule. I also would argue that they are entrepreneurs who got an MBA rather than an MBA who became an entrepreneur.

Most people who seek an MBA desire the prestige, upward career mobility and benefits afforded the bearer, not the opportunity to create or build something new. Those inclined to build something new, take chances, and bet the bank on an idea are not your typical MBA candidates.

Why Start Now?

When is the best time to launch a new business? Many would say the current climate is not conducive to starting a new business, but in reality, it is a great time to start a new venture.

In a downturn, labor, materials, office space and other things needed to start a business are cheaper. Employees in a startup are engaged, passionate and committed to solving problems and creating new products and services.

Existing businesses are too busy trying to keep staff engaged and focused. They have more to do with fewer people, and many of them are concerned about keeping their own jobs.

Existing businesses also tend to panic when the news cycle turns south and decisions made during crisis are often detrimental to the long-term health of their companies.

While others panic, the entrepreneurs are dreaming, planning and building the next great company. The current economic climate provides an opportunity for entrepreneurs to focus on what they do best, build something new.