TGroup Marketing

Great Article

I was reading the Advisor Garage blog this morning and found this article that I think is interesting. It's all about choosing the right business partners. I am extremely fortunate in that my business partner and his wife are also my closest friends in the whole world. We've been working together now for more than two decades. We've worked with different people over the years, partnering with them on various projects--sometimes it has gone well and others have been a complete disaster. Anyhoo...here's the article:

Choosing the Right Partners…

OK, so you’re all fired up! You’ve just been hit in the head by a sledgehammer of an idea for a new business and you just can’t stop thinking and talking about it. Friends, family, the dog…everyone has to be subjected to your new, world-shaking idea - you just can’t hold it in. Your passion just overflows…

The idea stays - buzzing around in your head when your not dragged from it by more mundane things like earning a living, studying or whatever else you did before the idea came along and lets face it - everything is more mundane than your idea! Anything that takes time away from thinking about it becomes an aggravation, an annoyance. You wake up in the morning and there it is - poking up at you (Yes - still talking about that idea!).

Anyway - you get the picture. The eureka moment that’s the beginning of a new company is like falling in love and its needs to be - because tough times are ahead and you’ll need that passion and commitment to see it through.

What happens next? If you’re lucky, you’ll start thinking about how to make your idea real. If this is your first start-up you’ll probably be nervous…wow, this is a big step - what if it fails? How will I pay the bills? I have some skills but not all that this is going to need…and then it hits you - you’ll need other people. Hey, if I can convince someone else to do it with me then I’ll be sharing the risk and they’ll be two of us so it’s more likely to succeed right?

The short answer is ‘maybe’.

Choosing the right partner is critical. They need to:

• Bring something to the table
• Be completely comfortable with the risk of being in a start-up
• Want to see this idea become real just a badly as you do but perhaps most important…

They have to work well with you no matter what the situation or pressure. Being in a start-up can be a more intense relationship than marriage! Yes…honestly!If you can’t answer a strong positive to all of the above then this may not be the right partner and don’t think it doesn’t matter - it does.Being in a start-up, especially during the early days is daily challenges and pressure - its true that its probably the most enjoyable ‘career’ you can have (at least I think so!) but if you choose the wrong partner then it soon becomes a nightmare for everyone. Don’t make the mistake of choosing to pursue a start-up with someone because somehow it’s more reassuring to have someone in there trying to make it happen with you. That’s just not a good enough reason.

As founder’s you will have to deal with all kinds of pressures, not least of which is:

• Who is the ‘face’ of the company?
• Who makes the key decisions after all the discussions and debates have come to an end?

…basically, where does the buck stop?

Two people trying to be joint CEO is often a recipe for not making decisions and for getting stuck in the quagmire of all talk and no action. Entrepreneurialism IS action because the clock is ticking - every day is more money spent until revenue, is another day closer to when your competitors notice you or the market you’re pursuing…there’s only so much gas in the tank so speed is everything.

That’s not to say two CEOs can’t work but what usually happens is they divide the territory - each owning a set of responsibilities and deliverables - clear areas where one person calls the shots after the debates have ended.One last thing - even founders should have shares in the company which they have to EARN over time based on their initial and ongoing contribution. Coming up with an idea or being the second or third person to walk through the door is not a good enough reason to instantly own a big chunk of the company. If the first few in instantly own a big chunk then they can effectively disappear or not contribute and still get just as much equity as the other founders. Not fair! Everyone has to earn it every day - that way everyone contributes and keeps contributing all the way through until the business becomes more than just an idea…until it lives and breaths…and with enough passion and perseverance - it will, just like http://www.AdvisorGarage.com

“Copyright © 2007, Andrew D. Ive, Advisor Garage.

A great resource

The Small Biz Survival blog is an excellent small business resource. Their focus is on small businesses in small and rural towns. It's a well-organized site with tons of useful information, small business tools, podcasts and resources. Be sure to check it out, you'll be glad you did.

Small business failure rates

There have been lots of studies of small business failure rates over the last 30 years or so but from what I've seen, the results have been either contradictory or very vague. I remember reading somewhere once that more than 90-95% of small businesses fail within the first five years, but they didn't have any real data to back up the claim. The latest statistics from the Small Business Administration (SBA) though, show that "two-thirds of new employer establishments survive at lease two years, and 44 percent survive at least four years."

Brian Head, Economist with the SBA Office of Advocacy, noted that the latest statistics are a much more accurate assessment of new business success rates, and that "as a general rule of thumb, new employer businesses have a 50/50 chance of surviving for five years or more."

Now those numbers are a lot more encouraging than some of the stuff I've seen in the past. Although from the number of new business startups every year, the unsubstantiated claims of 90-95% failure rate didn't seem to deter very many folks from going into business for themselves. Even if those numbers were true, I doubt that it would stop many people because for a lot of us, it's in our nature to think, "Oh, that will never happen to me. I'm smarter than that."

Dun & Bradstreet and mass merchants

Here is some more detailed information about the sort of things that mass merchandisers such as Wal-Mart look at when they review a firm's D&B report before determining whether or not to do business with them. Like I mentioned before, big chains need to know that a potential supplier has the financial stability to do business on a mass-scale. That's why they review what's called a Supplier Evaluation Report. This is a rundown of what this report contains:

• Risk Summary: A rating of a supplier's financial strength based on financial, public record, and operational information. The risk rating is on a scale of 1-9 with a 1 being the lowest and 9 being the highest.
• Risk Commentary: Details the important factors used to determine the rating. Includes sales, net worth, payments, UCC filings, financials, and operations.
• Financial Profile: Shows key solvency/profitability. Ratios of supplier versus industry. This section also includes the financial appraisal ranking scale of 1-4.
• Operation: The description of the business and SIC codes, number of accounts and terms, number of employees, description of facilities and location, number of branches, and identification of subsidiaries.
• History: Displays the management's business background and any corporate relations. It also includes the date and state of incorporation (if applicable), and the date the business started.
• Federal Government: The description of any activity with the U.S. federal government as well as if the company is a possible candidate for socio-economic program consideration. Also details classifications showing minority ownership.
• Payment Trends:  Compares the monthly payments of the supplier with other companies in its industry for up to a two-year period.
• Payment Summary:  Learn the company's high credit, number of trade experiences, and how bills are paid in relationship to terms.

At least for Wal-Mart, the risk summary is going to be the key factor that determines whether or not a company makes the cut. A company with a risk factor of 7, 8 or 9 has no chance of doing business with Wal-Mart. A risk factor of 6 puts a company on the margin--it could go either way but unless there's a real compelling reason for them to do otherwise, they'll probably decide that the risk is too great. Obviously, the lower the risk factor the better but anything between 1 and 4 will generally be approved without a problem, while a 5 might require additional information from the potential supplier to show that the company is indeed viable.

Some more retail terms defined

Here are some definitions of retail terms that you might run across:

• Advertising Allowance: An advertising allowance is money that the manufacturer provides to a distributor or retailer for advertising a specific product or brand.
• EDI (Electronic Data Interchage): A system that enables retailers to integrate their purchasing and accounts payable/receivable activities with their stores and/or vendors.
• End-cap: The shelves at the end of an aisle--they are perpendicular to the shelves in the aisles (see photo below).
  
• Power Panel: Another way in which to display goods (see photo below).
  
• SKU (Stock Keeping Unit): A number assigned to a product by a retail store to identify the price, product options and manufacturer of the merchandise.
• Turnover: Used to determine how quickly merchandise is selling during a given period.

This is an example of an end-cap

This is a power panel

A few tips for the new year

Well, it's a new year so what better time to get started on the right foot. Here is my first tip of the year: Whenever you can, learn from others' mistakes. Why go out and make them yourself when you can let someone else do it for you? When you see someone run out into the middle of a busy freeway and get flattened like a pancake, learn from their mistake and instead of doing the same thing (because you'll probably get squashed too), find the overpass and cross safely. That was a tough lesson for me to drill into my thick skull. I always figured that I was smarter (or craftier or whatever) than the rest of the world and that regardless of the situation or the lesson, it didn't apply to me because I could take care of it myself. So having said that, here are a couple of simple ways to avoid some potentially monumental (and costly) mistakes:

1. Always have a lawyer review contracts before signing them. A sentence--or even a few words--can make all the difference in the world. Once, we were negotiating a very complex contract (28 pages) with a large company. The contract kept going back and forth and we didn't have the lawyer review every single version because we were under the gun to get this thing finalized. Well, in the final version that we did sign, three little overlooked words cost us nearly $50,000. Because we were in a hurry, we didn't notice the addition (but our attorney did after the fact). Now, our attorney reviews everything before we sign.
2. If you are not a financial expert, don't pretend to be one. Instead, hire someone who is. Entrepreneurs in general tend to think of themselves as self-made persons who are capable of handling everything themselves. Do yourself a favor and make a list of areas where you're strong and areas where you're not.

Getting your stuff on the floor

I talked about how important it is to follow up to make sure that once your merchandise is delivered, it also makes it on to the selling floor. A couple of recent incidents made me think of a few more things that are good to know so that maybe you won't have to deal with the same headaches:

1. Pre-load your display with your product before you ship. I was just talking with someone who shipped merchandise to a couple hundred drug stores (to the distribution center). The merchandise was on two pallets and the displays were on the third. The displays didn't make it to the stores so the product went on the shelf without the display. This was bad because it's a new product and the display tells the story very nicely. It was a big hassle to get the displays out to the stores but there's still no guarantee that they will make it on the shelves. A LOT of times, even if you ship the displays along with the merchandise you can't count on them being used. These folks are extremely busy and if it's not something that they can just open the master carton and put on the shelf, they usually won't go to the trouble.
   
   • Speaking of displays, don't invest a ton of money into making long-lasting ones. You can plaster "DO NOT THROWAWAY-PLEASE REUSE" in a hundred places on the display but it's still going to end up in the garbage. Most displays are disposable and a new one comes with each shipment. Again, these folks are busy and are used to getting disposable displays. Unless it's just too big or too heavy to haul off to the trash, there's a pretty good chance that your display is going in the garbage when it's empty.
2. If shipping a hanging display (sidekick) make sure to stick a few extra hangers in the box. Clips have a habit of getting lost somehow. If the clips aren't right there when they go to put out your display, then it's probably going to end up on the floor.

The point is that if you want your products to make out to the selling floor in a particular manner, then it is your responsibility as the manufacturer to do whatever you possibly can to make sure that it happens. That means no assembly, no complex instructions, no having to make two or three trips to the back room, no putting shirts on hangers, etc. Big manufacturers might be able to get away with shipping unassembled displays or whatever but I can tell you from experience that 99% of the little guys can't. So, do yourself a favor and do whatever you can to make it a short, quick trip for your goods to go from the back door to the selling floor.

A few retail terms defined

Here are definitions of a few common terms used in the retail industry.

• Planogram-this is a schematic drawing of store fixtures that illustrates the placement of each product. If your product is in the planogram, that generally means that it is a regularly stocked item and will be on the shelves (or whatever type of display they are using) along side similar products. Getting in the planogram has its ups and downs but more about that later.
• Mark down dollars-I mentioned this recently but here it is again: This is when you offer the retailer a discount on the wholesale price of merchandise that they don't sell (so they can pass the savings along to the consumer) instead of a guaranteed sale.
• Sidekick-this is a display that hangs in the metal cages that you see at the ends of aisles in mass merchants, grocery stores, drug stores, etc. This is usually flexible space but not always.
• POP (Point of Purchase)-this is a merchandise display. POPs come in all sorts of shapes and sizes. They can sit on a counter, be free-standing, hang on the wall or go just about wherever.

There are lots more (power panel, power wing, etc.) but these are a few of the more common ones that you might run across.

Moving at the speed of a giant

Becoming a vendor with a chain or mass merchant requires a lot of patience because these large companies typically move at the speed of drunken snail (unless you're in the hot seat, then they want it NOW). Generally, the time it takes to get vendored ranges anywhere from one to six months (or sometimes more), but it depends on the retailer, their policies and their bureaucracy. For example, there are seven layers of approval to navigate before a company completes the process at Wal-Mart. It can be done in as little as a month but it generally takes a little longer. At least at Wal-Mart everything can be done online, which speeds things up a lot.

At K-Mart, they're still doing things by hand (literally). I received a K-Mart vendor application in the mail recently that weighed about four pounds. Every single page had to be filled out with a pen and in order to be able to fit everything in the allotted space, I think you have to be one of those artists who can write someone's name on a grain of rice. I soaked my hand in a bucket of ice when I was finished. Luckily, I had the good sense to make copies before loading the application and all of the required attachments onto a pallet and hoisting it all into the back of a semi for its trip to their home office because after it arrived, they promptly lost it and needed another copy. I just received a vendor application for JC Penney in the mail too and it looks to be about the same size as K-Mart's.

In any case, the point is that becoming a mass merchant vendor requires patience, determination and tenacity. Be sure to read everything carefully and have a clear understanding of what they require before you get started. A simple mistake (for instance, the Wal-Mart system doesn't accept commas in address lines) can kick out your application and send it to the back of the line where it might linger for eternity.

Alternative to guaranteed sale

If faced with a situation where a buyer is insisting on a guaranteed sale in order to close the deal, you might consider offering markdown dollars (MDD) as an alternative. While each retailer has its own system for managing MDD, here is basically how it works when offered as an alternative to a guaranteed sale:

• After a specified period of time (six - eight weeks, etc.), rather than sending the unsold product back to you the manufacturer (or distributor), the retailer reduces the selling price of the item(s). With MDD, you are offering the retailer a specified reduction in the price paid for the goods should they have to reduce the price to clear out the remaining inventory.

An advantage of offering MDD is that you are getting some money for unsold goods rather than having them sent back to you. Here's an example: A manufacturer sells a shirt to a mass merchant for $7.25 who in turn retails it for $14.99. At the end of six weeks the selling price of any unsold shirts is reduced to maybe $7.99. In offering MDD, the remainder of the shirts are billed to the retailer at $4.00 (or whatever the manufacturer and retailer negotiate). This way, you are able to cover your costs and the retailer is happy because they sell the rest of the goods and are still able to get a decent profit margin.

Here are a couple of potential disadvantages of offering markdown dollars:

• There are lots of ways for retailers (usually at the district or store level) to manipulate MDD and some have been known to do so in order to unfairly take advantage of it at the expense of the manufacturer or distributor;
• Usually, the retailer will want to withhold payment of some or all of the invoices for up to 90 days.

This is by no means a comprehensive overview of markdown dollars but it should at least give you a general idea of how the system works.