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Why Today is the Right Time For Succession Planning by Business Owners

If you are the owner of or partner in a small to mid-sized business and you have been deferring succession planning, you need to adjust your thinking. If you are a partner in a professional services firm and you are allowing your clients to defer succession planning, you need to take action to change the thinking, of your clients. You need to understand why today, no matter what your age, is the right time for succession planning by business owners and you need to take action.

Many entrepreneurs do not start thinking about or taking action on succession planning until about five years before retirement. Although this is an understandable approach, it can put both the business and the individual’s family at significant financial risk. Without a succession plan, the company could be forced to find ways to wait out the probate process before making necessary changes or before selling the company or installing new leadership. Without a succession plan, the company could also experience a potentially damaging leadership gap.

If the average entrepreneur delays succession planning until five years before a planned retirement and there is nothing that spurs him or her to engage in succession planning sooner, both the business and the entrepreneur will fail to maximize the value of the business. Succession Planning is a key strategy in fully maximizing the value of the business, which can bring great results over time. It is hard to believe that any entrepreneur or business owner would knowingly forego opportunities to maximize the value of their business in any way. Yet failure to take the time for succession planning has unfortunate results for entrepreneurs every day.

Joe is a 36 year old accountant who is a partner in the accounting firm of Jones, Smith and Brown. Joe is single, but he is responsible for the support of an aging parent who lives on a minimal fixed income. His business partners are his best friends. They created the partnership and opened the firm when they finished school fifteen years ago. While on vacation, Joe was killed in a boating accident. He has no will and the firm has no buy-sell agreement. His parent and his partners are now faced with the task of sorting out a financial and legal nightmare.

Dianne is a 43 year old financial advisor and managing partner of a financial advisory firm. She is the widowed mother of 13 year old and 10 year old daughters. Dianne’s will states that her interest in the firm is to be shared in equal portions by her two children in the event of her death and that her mother is to act as guardian and financial advisor to the girls until they reach the age of majority. When the firm was formed more than twenty years ago, there was a buy-sell agreement which authorized the surviving partners to buy out the interest of any partner who left the firm for any reason on the basis of a stated value. Because the succession plan was never updated or revised, if Dianne dies today, her daughters will lose their interest in the firm and will receive in exchange only a small fraction of its current value. If Dianne should suffer a massive heart attack tomorrow and die, what will happen to her kids?

Frank owns a successful dry cleaning business. He has decided to sell the business so he can use the money to start a new business in the city to which he and his wife want to retire in fifteen years. Frank and his wife have managed the business by traveling back and forth between the six dry cleaning stores and relying on a customer service supervisor in each store. As a result, there is no strong management team in place to either buy the business or to help a new owner run the business. This failure will cost Frank hundreds of thousands of dollars in the sale transaction because it is causing the business to receive a smaller multiple. Frank’s situation represents the biggest threat to most small businesses.

When professionals or business owners are young and starting out, they (like most of us) believe they will live forever. Most of these people also have limited capital to invest in the business or firm. On the basis of reasonably good advice, they incorporate or create partnerships based upon limited growth expectations and average life-expectancies. Then they become busy building the firm or the business. They focus on managing work flow and growing the business and increasing revenues. Unless something significant occurs in the life of one of the original partners or owners they never quite get around to revisiting their succession plans. In fact, one recurrent theme in small business partnerships is creation of the partnership without ever getting the legal documents completed.

The kinds of events that most frequently lead to a revision or a review of succession plans include:

• Someone they know becomes ill with a life-threatening disease
• They become grandparents
• Issues or problems arise within the partnership
• New partners are joining the firm
• Someone they know dies tragically and unexpectedly.

Most strategies to maximize the value of a business need time to achieve optimal results. Unfortunately, too often business owners and partners discover that they should have revised their succession plans when it is too late. It is frequently very difficult, if not impossible, to purchase additional insurance on a partner after that person has been diagnosed with health issues. It is very difficult to build a management team in the 18 months before a sale. It is very hard to win a commitment from key employees when they know you are selling the business.

Succession planning is important for the firm or the business in terms of the organization’s stability in and after a leadership crisis. Succession plans clearly play a critical role in determining how business ownership issues are to be resolved when a partner leaves the firm. Succession plans also play a critical role in providing the guidance needed by the firm to train, prepare and position the individual who will assume the leadership role of the person leaving.

There are approximately 15 to 18 million privately owned businesses in the USA, according to a recent study by the Atlanta financial services firm White Horse Advisors. It is projected that 60% of those companies (9 to 10.8 million) are owned by Baby Boomers. Most of the Baby Boomer business owners will exit their companies in the next ten years. But only 10% of those who plan to leave have an up-to-date written succession plan.* The companies they leave need an orderly transition of leadership in order to remain stable in their markets. Further, new issues are arising in businesses and services firms, including those listed below. Succession plans that have not been revised in many years probably did not anticipate or address such possibilities as early retirement on the one hand or working well beyond traditional retirement age or changing valuations. More importantly, plans that were started but never completed and plans that were never started leave companies and entrepreneurs and their families at increasing risk. For example, if your accounting firm has a succession plan written many ago, there are probably several inadequacies in its terms:

• The valuation of the business is probably outdated
• The ownership proportions might be out of balance as the company has grown
• The buy-sell agreements might not reflect inheritance issues
• The buy-sell agreements probably did not anticipate the possibility that the managing partner, instead of retiring at age 70, might want to sell a portion of her share in the company and become a part-time member of the firm at age 50 in order to help her husband start a business.
• The preparation of the next generation of leadership has not been addressed
• The next generation of leadership has not been identified and brought into partnership in the firm.

As all of these considerations indicate, today is the right time for succession planning. Businesses change, people change, the world changes. Most businesses or firms cannot afford to wait until the owners reach a distant chronological age. Nor can these businesses afford to leave their future to chance. Every privately held business or partnership should immediately take steps to create considered and up-to–date succession plans. Once a plan is created and funded (many plans are created but never funded), it should be reviewed every three to five years to ensure that it is adequate, current and accurate.

*Laura Raines, “Owners Should Have Exit Plan,” Atlanta Journal-Constitution, Friday, November 14, 2008, R1.

How to Easily Generate Home Based Business Leads

As the current economic climate becomes more unstable, many are moving towards home based business opportunities. It is critical that these individuals learn to effectively generate home based business leads. The difference between thriving or dying in today’s competitive market hinges on the ability to consistently generate leads for the business. While advertising and marketing for a small business may share some similarities to that of a major corporation, the methods and strategies used are very different.

A home business owner should start with a thorough knowledge of their target market. For example, an understanding of the primary customer base would be critical for a cake decorating business. This target market might include: engaged couples, parents with young children and civic organizations who conduct regular fund raising dinners. A thorough understanding of the target market will help guide the rest of the lead generation process.

Determining where to connect with the target market is the next consideration of the home based business owner. In the example of the cake decorator, let’s assume the business owner has decided to target the wedding cake segment of the market. The business owner would look for points of connection where engaged couples would be researching wedding preparations. Some of these connecting points might include tuxedo shops, wedding dress shops, limousine services, DJ services and local churches.

The next element in the lead generation strategy is a creation of awareness. This would be accomplished as the cake decorating business is introduced to key people at each of the aforementioned connecting points, as a resource for couples planning their weddings. An offer to cross-promote the business of the other would be appropriate. As part of this cross promotion strategy, it would be appropriate to leave brochures, business cards and even photographs of cakes to give a sampling of the home business owner’s work. To put some real power to the home based business lead generation process, the owner would actually take a sample of one of their cakes as a “gift” for each of their connecting partners. Creating synergy with other business owners is the key to making this strategy successful. When a strong impression is made, these connecting partners essentially become a volunteer sales force to the target market on behalf of the home based business owner.

Offering exceptional value is critical for generating leads for your home based business. A small brochure on the top 10 mistakes to avoid when planning your wedding would be of great value to the target market. Distributing this brochure at the connecting points and including a tagline, showing the information being provided courtesy of the home based cake decorating business. Creates value and personal branding for the home based business.

The strategies mentioned above involve localized, face to face marketing techniques. Consider a variation on the previous strategies when dealing with a business that is using the internet for generating home based business leads. For example, a home based business that sells cleaning products would utilize the same principles for identifying a target market. In this example the business owner has chosen to those looking for environmentally friendly cleaning products.

The business owner would begin by finding online connecting points. A great starting place would be community groups that deal with “green” living. As the business owner interacts in the community, they would include their website in their forum signature. The business owner would become part of the life of the community by making regular informative posts that discuss the benefits of using organic cleaning products. Additionally, the business owner would want to create a small report listing 5 things to look for when choosing environmentally friendly cleaning products. The report would be offered freely to anyone interested in receiving it. This online report would have a tagline indicating that is being provided courtesy of the cleaning products business. Those participating in forum discussions with the business owner and those requesting the free report are all examples of home based business leads that have been generated from taking a few small steps.

Relationship building is the key to generating home based business leads in your marketing efforts. These strategies can be implemented for both online and offline home based businesses.

MLM Vs Cooperative Marketing – Which is the Best Home Business Opportunity?

If you are considering starting any new business venture, or getting into MLM/Network Marketing in particular, you owe it to yourself to read this article — particularly if you are a newbie.

These days, most people are familiar with MLM/Network Marketing. However, most have never heard of Cooperative Marketing. Those that aren’t may find the content herein to be shocking and amazing, if not revelatory and potentially life-changing.

Cooperative Marketing has been around for a long time in the mainstream business world, but it is relatively new to the “home-based business” world. The term can mean many things, but in general it means that the retailer is receiving marketing assistance from the manufacturer, supplier or other large-scale enterprise. Such advertising “co-ops” are common in many brick-and-mortar industries, including the grocery, insurance and publishing businesses.

In the case of a home based business, it means the company you are working with is taking on a major burden that normally would fall to you: the marketing of the product. In fact, the better Cooperative Marketing companies do much more than this, including actual selling, distribution and customer service. To date, only a relative handful of companies use this business model (compared to the hundreds of MLMs out there).

More’s the pity, because a growing number of “work at home” authorities consider it the far superior business model — both for the companies in question and for their individual representatives. Though the two business models have many similarities, they are more clearly defined by their differences, which are explored in this article.

MLM (MULTILEVEL MARKETING)/NETWORK MARKETING

As you probably know, the MLM/Network Marketing business is a huge industry. Many household names (Amway, Avon, Mary Kay, Herbalife, Shaklee, etc.) have had tremendous success using this business model, and many thousands of representatives (also called associates or distributors) have built profitable businesses in the industry. A smaller but still sizable number have built successful enough businesses to live very, very well indeed.

The MLM/Network Marketing business is based on the idea that reps are responsible for just about everything in their business, other than producing the product and handling commissions and bonuses. The company does these last chores, while the representative must undertake tasks which many find difficult and even onerous.

First, reps must find their own customers. Second, they must find new people to join their businesses with them. This is known as building a downline, and great success in the industry is predicated on having a large and thriving one. Specific business plans vary from company to company, but generally speaking you will not reach the top of the leader boards by selling alone. Third, reps may be required to order certain minimal levels of product every month, warehouse those products, distribute them, handle returns, etc.

While it is true many people have had great success in MLM/Network Marketing, it is also true that a far greater number have had little or no success. The plain truth is, not everyone is cut out to be an entrepreneur of this type and/or is willing to make the necessary commitments and sacrifices. It takes time, patience, money and lots of hard work. Beyond that, not everyone who gets started in the industry is suited to its business model, which requires a tremendous amount of social network building and maintenance, among other things.

MLM CHARACTERISTICS

  • Company produces the product: reps must sell it
  • Rep does the marketing: must find customers and sell to them
  • Rep does the warehousing: must often buy large quantities of product, store and deliver them, and handle returns
  • Rep does the customer service
  • Rep does the continuity: must keep in frequent touch with customers to keep orders coming in
  • Rep does the recruiting: must personally find and sponsor people for downline
  • Rep does the training: often involves hand holding, pep talks and panic calls at 3 A.M.
  • Size of business limited by ability to recruit and/or controls put in place by company

COOPERATIVE MARKETING

As stated, the home business version of the Cooperative Marketing business model is actually quite different from MLM/Network Marketing, though there are surface similarities. This probably explains public misconceptions and confusion. For instance, in Cooperative Marketing companies, one can sell, sponsor and build a downline. The lingo and terms involved are, in many cases, identical. However, it is at this point where the similarities end, and the superiority of the business model begins to become clear.

In Cooperative Marketing, instead of the the majority of necessary business tasks falling on the shoulders of the representative, it is the company that handles them. Instead of buying products, investing in training programs (books and tapes), attending conferences and suchlike, the Cooperative Marketing rep simply buys lifetime profit sharing rights to existing customers. It is the company itself that does the marketing, acquires the customers, sells to them and services them. This is nothing less than the difference between starting a business that may or may not succeed, and having a profitable one.

In this regard, the representative is really more of a business partner whose funds help defray the costs of R&D, marketing and customer acquisition/service for the company. In return, the representative benefits from being in business with a successful company. In short, the company does all the “heavy lifting,” and the rep reaps a share of the rewards.

By being able to obtain profit sharing rights to existing customers, the rep’s job is enormously simplified (not to mention immeasurably improved). In fact, in some Cooperative Marketing companies, the lucky rep is not even required to actively build the business — though this is of course encouraged! This means that one does not have to sell, recruit or sponsor in order to succeed! By comparison to the poor overtaxed MLM/Network Marketing rep, the Cooperative Marketing rep can simply sit back, relax and take care of an existing, thriving business.

COOPERATIVE MARKETING CHARACTERISTICS

  • Company produces the product, sells direct to consumers (reps can sell as well)
  • Company does the marketing: finds and sells to customers via traditional means (print, TV, etc.)
  • Company does the warehousing, shipping, delivery and handles returns
  • Company does the customer service (though rep may help too)
  • Company does the continuity: mail, email and even phone support (rep can too)
  • Company does the “recruiting”: places new reps into existing reps businesses (!)
  • Company does the training (though rep may help personally sponsored)
  • Size of business only limited by profit sharing commitment over time

MLM vs. COOPERATIVE MARKETING: OTHER CONSIDERATIONS

The Cooperative Marketing business model recognizes that for the new representative — who most likely has no background in sales, recruiting or marketing — the best use of his or her time is in doing something that is easy, direct and natural.

Conversely, the MLM/Network Marketing business asks new reps to engage in a long, difficult process of learning new skills and doing things many (perhaps most) people do not like and are uncomfortable with. These include the “most obvious” ones: recruiting and selling. In addition to all that must be learned and mastered, the typical MLM/Network Marketing rep may be additionally burdened with product warehousing and delivery, attendance at meetings and training events, travel to same, additional ancillary costs for training and travel, and much more.

The Cooperative Marketing model asks new representatives to simply work with existing customers. It is a perfect fit, because this is the one thing that is not only difficult for big companies to do, but virtually impossible. At the same time, as mentioned before, it’s something most people can do with little or no training. The reps main job is simply building and maintaining personal relationships. And since the new rep is playing in a “warm market” (with existing happy customers) instead of in a cold one, there is considerably less stress and no brutal learning curve.

MLM vs. COOPERATIVE MARKETING: CONCLUSION

The Cooperative Marketing business model addresses all the aspects of MLM/Network Marketing that are so problematic for most people. By allowing the company to do what large companies do well, and allowing individuals to do what they are good at, a natural synergy occurs that is best of all possible worlds for all concerned (including the customers).

While MLM/Network Marketing reps are scrambling to learn all that they have to learn — at the very same time they are trying to prospect and sell as well — the Cooperative Marketing representative simply enjoys the benefits of partnering with a large, successful company. Instead of taking on the considerable financial and time burdens of building a business from scratch — not to mention all the associated risks — the Cooperative Marketing rep simply “piggybacks” on success and reaps the rewards.

This article has shown the glaring differences between MLM/Network Marketing and Cooperative Marketing. They are considerable, and the conclusion plain for all to see. Will Cooperative Marketing ultimately doom traditional MLM/Network Marketing? It is hard to say. Much depends on whether new companies are willing to adopt the business model. But one thing is absolutely sure — Cooperative Marketing is clearly the superior home business opportunity for all concerned.