Don’t Underestimate How Much Capital You Need To Grow

I recently had the pleasure of speaking at the Craft and Hobby Association’s (CHA) Winter Conference in Anaheim, California. The CHA represents small businesses in the craft and hobby industry which together generate around $29 billion in domestic revenues. I was energized by many of the participants who attended my address as they told me about their plans to move forward “full steam ahead” with their growth plans despite difficult economic conditions. After my address, I spent about an hour speaking with attendees and identified a key concern which is shared by most business owners: how to figure out how much capital is really needed to grow. The overwhelming majority of small business owners that I have encountered always seem to underestimate how much money it really does take to grow.
Failing to prepare a proper growth budget can have catastrophic consequences on your business. It’s very painful to set out on a growth plan only to find that you have run out of cash when you are on the cusp of achieving your goals. This happens to companies of all sizes and is most prevalent among business owners who have never managed a process of rapid growth.
When preparing your growth budget, keep in mind the following recommendations.
Your best case is not your base case
Many small business owners prepare a single revenue projection for their growth plan and calculate their cash needs based on this scenario. Some wisely add a cushion to what their projections indicate they need and feel comfortable that this amount of money will allow them to achieve their needed growth. Unfortunately, many revenue projections aren’t realistic or assume that almost everything will go as expected, something that seldom happens. When I look at a revenue projection I always ask “is it realistically possible for you to do much better than this?” If the answer is no, then I tell them that they have just shown me their best case scenario. Their base case—the realistic one—needs to be less aggressive.
Run a cost sensitivity analysis
Scenario planning is also important for projecting the costs associated with your growth. If you have been running your business for several years, then you should have a good feel for your fixed and variable costs and your projections should therefore be defensible. This confidence can lead to overreliance on the projections. Surprises on the cost side can also kill a growth plan and for this reason you need to run a sensitivity analysis.
This analysis consists of modifying your assumptions for key costs and analyzing the impact of those changes on your overall projections. It’s important to run sensitivities on all important costs and combinations of costs. What would happen to your plan if you have to change suppliers and spend 20 percent more for your raw materials? And your liability insurance rates were to double? Or what if gasoline reaches $5 per gallon as some economists predict? Your model still needs to work under these new assumptions.
Work with someone with experience
Experience is the best teacher, but not the cheapest one. Rather than “learn from your mistakes” it’s better to work with someone who has already accomplished what you are setting out to do. Make sure that someone on your team (a partner, investor, advisor or consultant) has specific experience growing your type of business to the level you want to achieve. This is the best investment you can make towards your future success.
Executing a successful growth plan is very realistic for small businesses because there really is almost unlimited opportunity relative to your starting point. But make sure you do it right and follow these recommendations.

12:33 by Robert dawne · 0

How to Find Online Success Anywhere in the World

Let’s face it—we are only beginning to scratch the surface when it comes to the possibilities of Internet commerce. Every day businesses launch new products, programs, and platforms that they hope will be the next big thing. With the Internet touching so many lives, in so many places, it’s never been easier to run a business online. And in many ways, it’s even easier to run an online business from beyond the United States.
Low startup costs
Whether you’re starting an online drop-shipping business, launching an online system for business owners to use, or plan to build a popular design blog that functions just like a traditional business, startup costs are low on the web.
Here are the basics you’ll need to start an online business:

• Internet service
• Computer equipment
• Website domain and hosting
• Lots of time

The cost for each of these things will vary depending on where you live and the value you put on your own time, but generally speaking, you’ll spend less if you live outside of the United States.
Culture curiosity
It doesn’t matter where you live—people who don’t live nearby will find your life and business fascinating, so be sure to sprinkle that aspect of your life into your business.
Consider the gourmet sweet shop Ladurée, whose very name prompts fan girls everywhere to swoon with visions of delicious macaroons nibbled at romantic Parisian cafes. This company uses its beautiful roots to paint a strong brand image—from its website to the product photography—that people around the world know, trust and love.
You can do this by sharing a “day in the life” post on your blog, capturing your favorite local spot and sharing it on Facebook, or by going further and allowing the country you live in to influence the products you create and sell. Allow your fans and customers to get a glimpse into your wonderfully cultured life, and it’ll make them more eager to follow your company through and through.
If you live somewhere with ready access to great products people living elsewhere can’t get their hands on, why not set up an online shop filled with these goodies? South Korean company Jewelrism International set up an Etsy shop to promote and sell its products worldwide. In just two and a half years, they’ve racked up over 130,000 Etsy sales reselling craft supplies they source locally.
And if you’re a blogger with hopes of sharing your culture and building a blog business, Lucas Kleinschmitt of German Efficiency has written a must-read that explains Why International Bloggers Have an Unfair Advantage.
Affordable resources
Living in another country also means you’ll be able to tap into more affordable resources than those living in countries like the U.S. and Canada, such as lower employee costs and cheaper rent.
For example, recently I hired a small web developer for a short-term project, and I was stunned to learn that he had a team of five employees. When I asked how he was able to charge such a low rate for the project while covering his expenses and earning a profit, he explained that in India, where he lives, it only costs him $1,500 a month to pay five full time employees and rent space in a prestigious downtown building.
Is the developer running a sweatshop? No. He’s paying his employees standard wages for their city and is able to grow his business by concentrating on building clientele. If you live in a similar part of the world, consider hiring someone part time to help you tackle tedious parts of your business, so you too can grow the way plenty of other small businesses around the world are growing.
Justine Grey is a web entrepreneur who writes Work Life Joy for frazzled business builders who long to work vibrantly and live beautifully. You can find her on Twitter at @JustineGrey chatting about life, work and her pop culture obsession.

American Express OPEN Forum

10:55 by Robert dawne · 4