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Monthly Archives: August 2016

7 Small Business Loan Myths

Obtaining a loan for your small business is no easy feat, but it doesn’t have to be an insurmountable challenge. Small business lending experts agree that the best way to avoid trouble is to prepare for the challenges that the application process may present.

“A lot of the frustration around obtaining small business financing can be eased by doing your due diligence,” said Michael Adam, founder and CEO of Bankmybiz, a site that connects business owners with business funders. “Be prepared, and have all your documents ready to present to lenders.”

Although low credit scores might have precluded you from getting a loan in years past, today’s lending environment is more open to subpar credit ratings.

“While traditional banks may be restrictive when it comes to obtaining credit, there are alternative options,” said Michael Kevitch, president and founder of Small Business Funding.

Alternative lending sites such as Small Business Funding tend to base lending decisions on the financial realities of a business rather than the financial history of business owners. Specifically, Kevitch said, alternative lenders take a close look at business performance, industry type, time in business and cash flow before handing out a loan.

Traditional lending institutions have been a mainstay of small business funding for many decades, and still are in some industries. But they are not the only sources of financing.

For business owners looking to borrow a relatively small sum (between $5,000 and $250,000), getting a bank loan is likely to be more trouble than it’s worth, Kevitch said. However, he noted that bank loans may still be appropriate for business owners who need to borrow a large amount of cash, over a long period, and still get a low interest rate. Kevitch advised business owners to make sure they fall under those categories before applying through a bank.

Kevitch noted that alternative lending sources often provide faster approvals; sometimes, businesses can obtain access to the funds in as little as seven days, he said.

Bank loans may not be the best option for every small business, but they’re far from the worst funding option out there. In fact, for established businesses looking to grow at a moderate rate, traditional bank funding is generally a great option, Adam said. It’s when a business doesn’t fit those criteria that business owners should consider shopping around.

“If you are a younger company, pre-revenue or low revenue — but plan to grow very quickly due to the industry that you’re in (e.g., health care, IT or software consulting) — then a traditional bank loan may actually limit your growth,” Adam said.

To decide whether a bank loan is right for your business, research both traditional loans and alternative funding sources. It’s also important to know your business inside and out.

“If you anticipate steady growth over the next few years, then a traditional bank may be best,” Adam said. “If you are growing like crazy and you know you will need to keep increasing your loan size by large increments each quarter, then entertain a nonbank lending partner, as banks may not be able to keep up with your needs.”

You may find this myth floating around online forums and perhaps even hear it from well-meaning friends and family members. It’s all right to ask for money, nonexperts will tell you; just don’t ask for too much. While this might be reasonable advice in personal circumstances, there’s not much truth to it in the business world.

According to Jess Harris, content and social manager of business lender Kabbage, a working paper from Harvard Business School revealed that banks actually prefer lending larger amounts because they make more profit from large loans in the long run. In turn, banks are cutting back on smaller loans.

Evan Singer, general manager at online Small Business Administration loan program SmartBiz Loans, said a business should apply for the amount it needs — no more and no less. He recommends considering both how much money you really need to grow your business, and how much money you can afford to pay back every month.

“Make sure that you have cash flow to make your loan payments,” Singer said. “That’s the biggest thing that a [lender] is going to check — that [the business owner] can actually afford to make their loan payments.”

There are multiple perspectives on whether a traditional business plan still has a place in the loan application process. Some funding experts believe that the method of using a business plan to measure the likely success and fundability of a business is a bit outdated. Singer said that although traditional banks might still require business plans during the loan application process, online lenders typically don’t look for it.

And although Adam agrees that most lenders won’t require a full-fledged business plan, he does think that having a plan at the ready is always a good idea.

“Every business should have some sort of business plan,” Adam said. “It’s just a good practice to anticipate growth, set milestones and keep yourself accountable. If you don’t have one, create one. You’ll be glad you did in the long run.”

Although interest rates are an important aspect to consider when choosing a lender, there are many other factors to keep in mind. Harris suggested asking how much it will cost, what the terms of the loan are, how soon you need to repay the money, and what you can use the loan for.

5 Business Plan Competitions for Entrepreneurs

 The entrepreneurial spirit is rooted in innovation and competition. Given this drive to succeed, it’s no wonder that competitions rewarding entrepreneurs for their business plans and pitches are popping up all over the country.

Throughout the year, schools and organizations allow early stage startups and aspiring entrepreneurs to present their new business ideas and plans to panels of industry-renowned judges, for a chance to win some much-needed funding. Even if these entrepreneurs don’t win the grand prize, the competitors still get the opportunity to network with leaders and innovators in their industries, and share ideas with fellow entrepreneurs and mentors.

Location: Waco, Texas

The Baylor New Business Venture Competition features current students and recent alumni of any accredited university across the nation competing in one of two tracks: consumer and internet technology companies, and nontechnology companies. Companies in the technology track must fall into categories such as internet security, social media and mobile commerce. There is a preliminary round, followed by three presentation rounds. The top teams from both tracks will compete against each other for the cash grand prize of $60,000.

Location: Savannah, Georgia

The Creative Coast’s FastPitch competition offers student entrepreneurs, service-based entrepreneurs and product-based entrepreneurs the chance to show off their innovative ideas via a 3-minute pitch. Local community leaders, academics and investors will assess the viability of each venture and provide coaching and feedback throughout the process.

Location: Austin, Texas

Since 2012, HATCH Pitch has been an official SXSW event. In 2016, it branched out to become an independent program and event. This competition is for startups using information technology to make life better. Finalists are chosen and receive coaching and mentoring leading up to their demo day, when finalists present their business plans to a prestigious judging panel of corporate, angel and venture investors. Panel members provide feedback and select winners in which they would invest a virtual $1 million.

Location: Multiple international locations

The Innovation World Cup Series is a collection of international competitions in a variety of technology categories like wearable technology (WT), theinternet of things (IoT), cloud technology and digital marketing. Entrepreneurs in each category get the chance to present their tech solutions to a panel of industry experts. With prizes worth over $300,000, the competition is designed to stimulate and inspire next-generation solutions with the potential for real marketable products. The next event is the WT Innovation World Cup, being held in Munich, Germany, in February 2017.

Location: Santa Clara, California

This Silicon Valley Boomer Venture Summit is geared toward business ideas that show potential for the baby boomer generation. Early stage entrepreneurs in all industries are welcome to submit 10-slide-deck business plans to the first round of judges at Santa Clara University. Finalists then present their slide shows in person at the summit to be considered for the top prize.

Way to Engage Your Board on Strategy

The amount of time board directors spend on strategy has been rising for at least the last decade. And most directors I work with want to commit even more time to this type of work. But in a previous post, I argued that CEOs need something other than the annual planning process and off-site to involve their directors in shaping strategies. They need what I call dynamic engagement.

Here’s how dynamic engagement works: Whether it’s monthly, bimonthly, or quarterly, the CEO and board carve out regular time to work together on an ongoing, prioritized agenda of strategy issues and opportunities. At any point in time, this entails one or more of the following:

• Deciding which particular issues and opportunities have potentially strategy-changing implications for the company, and which need to be addressed now

• Agreeing on how to frame each issue/opportunity (a well-framed statement, based on an agreed-upon set of facts, that calls for a rethink of the strategy in some important way)

• Generating alternative responses to each particular issue/opportunity (the ideal number of alternatives is two or four — an even number to prevent defaulting to a middle-of-the-road fudge, and no more than four to avoid getting bogged down when presented with too many options)

• Choosing the criteria that will guide how alternatives are evaluated

• Agreeing on whether the alternatives have been evaluated well enough

• Selecting the alternative that’s best for the company (the question is not “What is the right thing to do?” — it’s “What is the best thing to do?”)

• Deciding on how the company’s strategy and plans should change in response to the issue/opportunity, given the selected alternatives.

Working on these things together with the CEO is what it means for the directors to be actively engaged in strategy. Consistent, open discussion of each one minimizes the chances that directors and the CEO will hold different views on a company’s direction without knowing exactly why.

Dynamic engagement also operationalizes the practical reality that strategy is not a one-and-done thing. It is either dying or evolving. The right attitude is not “We set strategy and then execute like hell” — it’s “We execute like hell and never stop evolving our strategy.”

Adopting the latter attitude is critical, because technological innovations, competitive disruptions, changing customer expectations, political movements, regulatory shifts, and many other forces ensure that there will be an unyielding stream of challenges and developments that demand change to some aspect of your strategy. A strategy that is immune from such things is likely pitched at such a high level that it’s not a strategy at all, but just a series of big, sweeping statements.

Thus, the true work of strategy is never done — and it certainly doesn’t follow the tidy, annual rhythm of the typical strategic planning process and board off-sites. Strategically important issues and opportunities can occur at any time, and they can’t always wait for the next planning cycle or off-site to roll around. Nor can you do full justice to the biggest issues and opportunities within an annual planning process or off-site, given their practical limitations on time and agendas that are necessarily packed with other essential duties.

Moreover, the CEO and board’s work together on strategy should be kept separate from their all-important business on governance, compliance, finance, risk management, investor relations, compensation, succession, and other such matters. Strategy making is a creative act that benefits from an unrushed agenda with external inspiration, new insight, and collaborative iteration. It does not mix well with the typical board agenda.

Directors love the dynamic engagement approach when they experience it. They much prefer doing the real work of strategy, rather than rubber-stamping visions, mission statements, and plans. When they are actively engaged, it does amazing things for the metabolic rate of a company’s decision making and execution because of the shared commitment and understanding it produces. They recognize how it forces execution-sapping differences to the surface, makes subsequent agreements that much truer, and renders resulting decisions much less ripe for unpicking down the road.

Directors also discover that dynamic engagement creates a culture of trust and respect that fosters an environment in which they and company leaders can challenge each other in ways that move the ball forward, benefiting not only the company’s strategy, but also their other duties as a board. And as directors become increasingly involved in investor relations (thanks to growing shareholder activism), they feel much more confident communicating and supporting the company’s strategy, as well as soliciting shareholder feedback on it. Finally, an added bonus: Directors find their annual off-sites are much better because they are so deep into the company’s strategy throughout the year. And they see more clearly the essential purpose of the annual planning process, which is to plan the implementation of a dynamic, living strategy, not to create it.

To be sure, dynamic engagement demands a lot from a CEO. He or she needs an effective chairperson or independent director to help run the strategy meetings well, prepare the directors between meetings, and generally herd the cats. Even then, it’s not easy to come to your board with issues and opportunities for which there are no obvious answers. In the school of management, we are taught never to bring forward problems without a recommended solution. It’s only human to jump to a conclusion and latch on to it. It can be nerve-racking to invite critical thinking, disagreement, and creativity from your directors. And it can feel burdensome to set aside time on a regular basis for shaping the strategy with your board.

However, the best CEOs I know recognize that you get out of your board what you put into it. That strong leaders are willing to say “I don’t know” and ask “What do you think?” That having your directors actively shape the company’s strategy, versus just reviewing and approving it, greatly increases your ability to execute because of their ownership and appreciation of it. And that directors are more confident in the company’s strategy and the CEO because they are working with each other (and the CEO) in a fashion that is not only deliberate, disciplined, and decisive, but also open, dynamic, and creative.

Basics Right to Getting LeaderShip

 In addition to the everyday challenges of being a CEO, each leader wrestles with making a product composed of multiple commodity ingredients subject to fluctuations in price and availability. Each faces tough competition that requires striking a balance between cost and quality. Each has intricate distribution channels where things can go awry. And both are succeeding by getting these five often-overlooked fundamentals of leadership right.

Hire people who can find meaning through your business. You may think that because everyone loves chocolate, everyone wants to work for a chocolate company. But it is Divine Chocolate’s social mission, not its product, that makes it distinct and draws talent. Tranchell said she seeks to work with people who are “passionate and curious” and want to change the world for the better. She looks for an entrepreneurial spirit and the desire to see “the mission impact along with the business impact.”

Conversely, you may think that it is tough to find top talent longing for a career in concrete. But in an increasingly digital world, working with a tangible, durable product has appeal, said Sandbrook. He tries to find people who “like to build things and spend time outside.” Sandbrook said that he wants people to grow to love the industry and the company. And that’s how you make concrete as sexy as chocolate.

Provide clear, compelling goals. Sandbrook explained that concrete is “a business of small, incremental improvements. You don’t run it with 100 metrics — focus on the key ones.…If you can get your team excited about achieving a goal, what the business is isn’t actually that important.” Tranchell noted that as the CEO of a relatively small business, it is incumbent upon her to ensure that everyone knows what they’re doing. “You have to get good at telling stories so that people know why we are doing what we’re doing. I learned that from my work as an activist,” she said. “Then, be open and transparent with information so everyone knows where we are and where we are going.” She sends employees to Ghana regularly to see how their work affects the farmers with whom they work.

Give people a path for growth and impact. Tranchell said that for many young people, “student debt makes it difficult for them to put their money where their mouths are” with regard to bringing their values to their work. Social enterprises can help fill that gap by paying a wage that allows young people to recognize their impact while still being able to make ends meet and pay off student loans. Furthermore, she hires people in all stages of their careers in each of the geographic areas from which the company distributes, and gives those employees freedom to build that local business.

Sandbrook said that U.S. Concrete lays out a clear map for maturing into management. “Expect to make decisions early and be rewarded for performance,” he said. He wants people at all levels to be strategic “chess players,” willing to make decisions and be innovative and creative in the “basic blocking-and-tackling” in the business. Strategic thinkers at a concrete company may have a different kind of impact than they would at a social enterprise, but it can be just as motivating to make a difference in how a company does business as it is to affect society at large.

Foster a positive, supportive culture. Sandbrook said that he encourages an environment of collaboration and respect where “egos are checked at the door” and expressed a high tolerance for low-consequence mistakes as learning experiences. “If you cut people off at the legs for making a mistake, they will work to be the one not to decide,” he said. “That hurts the business.” He also noted that the company’s performance focus means that no one has to watch a clock. “You can succeed here and still have a life.”

Similarly, Tranchell spoke of a culture that is “fair and inclusive that emphasizes sharing,” one in which “we try to stay nimble and have fun.” As a small business, “we can still get everyone in the same room once a month to celebrate success and solve problems.”

Lead with a higher purpose. Tranchell told me that she has trouble with the notion of leadership as an end in itself. “You don’t [run an organization] to ‘do’ leadership,” she said. “You do it because you see change that needs to happen and you can make a difference. I believe we need accountable and transparent companies that are willing to address social injustice.” Tranchell clearly draws heavily on her experience as an activist, a time she describes as one in which people wanted to change the world and, in the case of apartheid, actually did. She aims to pass on not simply the passion but also the belief that collective action can have impact. “Lots of people thought Divine Chocolate wouldn’t work,” she said. “We believed it would and it has.”

Sandbrook came into the private sector after cultivating an ethos of service in the military. His higher purpose — “having that team accomplish things they might not have even known were possible” — reflects that heritage. He described his greatest satisfaction and self-actualization as team building. “It’s the intangible rewards, not the tangible,” he said. “I thrive when I can motivate them to a higher level.”