Are you are looking ahead to expand or buy new equipment or thinking about getting a loan for your company at some point in the future?  Do you spend much time on social media?  Use social media to grow your brand?  Use social media to take a picture of what you had for breakfast?  You may never think that your social media activity could one day have an effect on your ability to get a loan, but it might.  Lenders and credit bureaus are looking more and more at potential borrowers’ social media activity as part of their credit decisions.

I’m talking here about business loans, not personal.  There are still questions about the legality of using personal social media posts in making credit decisions, but one major credit reporting agency has already dipped its toe into the water.  If at some point in the future looking at peoples’ personal social media posts becomes legal for companies such as banks, it is going to open a dramatic new look into your personality online, and may be opening a very large can of worms depending on what you do when you’re online.

Getting back to your business, your presence online could be a problem, or it could an asset. Think how many people turn to social media and other sources for things like reviews.  If your company is receiving a lot of positive reviews it potentially be an unintended bonus.  Your behavior online can be a tremendous benefit to your company and your brand.  The more positive attention you attract to your company and your products or services on social media the stronger your chances could be of a favorable opinion of your company by a lender at some point in the future.  Like it or not, your social media profile is going to become a more widespread data point in your business activities.  It is already being widely used in things like hiring decisions and now insurance companies are getting in the game tracking data on you from things like your Fitbit.  Where do you fit in?

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More and more businesses are coming up for sale creating excellent opportunities for people who want to be their own boss.  There are several reasons to buy an already operating business rather than starting from scratch.  You have historical financial statements and business tax returns to analyze the past performance of the business in order to determine its future prospects.  Something else very important is that there is already a salary for the owner in place.  If there isn’t it raises a big red flag.  If the business can’t or doesn’t pay the owner, what would it be for you?  Another plus for an existing business is that the day-to-day infrastructure is already in place.  In a startup obviously you have to build it from scratch with the attendant costs, and usually the owner is the last to get paid.

There are as many ways to finance a business purchase as there are businesses for sale.  Every deal is a snowflake.  But often the best way to finance is a bank loan, and at the top of the list would be SBA loans (which are bank loans underwritten just like commercial bank loans but with an SBA guarantee).  And the biggest benefit of an SBA loan is the long amortization allowed, as much as 10 years which can be a significant benefit to the monthly cash flow of the business by keeping payments lower.

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AI is seeping into more and more things, including your Big Mac.  McDonald’s just paid over $300 million for Dynamic Yield, an Israeli company that provides retailers with algorithmically-driven “decision logic” technology.  Bite down on that one.  McDonald’s has a lot of data on their customers and their buying habits.  Every day McDonald’s serves around 68 million customers.  That’s over 2 billion customer touches a year.  The majority of those customers stay in their cars.

Over the last several years displays at McDonald’s – both inside and outside have gone digital and are continuing to do so.  Just suppose someone drives up to the menu and orders two Happy Meals at 5 o’clock.  That’s probably a parent ordering for their kids.  The menu might then highlight a coffee or snack for the parent who might decide to treat themselves to a pick-me-up.  You can see the possibilities generated by AI using customer buying history.

Some other things that AI can do are improve your customer service, or gain customer insight and product behavior.  You could also get better results from your marketing.  Way too much to go into here, but be sure that you will be seeing more.

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No More Rate Hikes
March 26th, 2019

Pedal to the metal.  As of right now (March 2019) the Fed is projecting no more rate hikes this year.  Because of that rates on bank loans are not likely to be going up as opposed to what everyone thought six months ago.  So if there is any thought of possibly borrowing for some purpose for your business (New building?  New equipment?) the next several months might be the time to consider it.  And what this reprieve gives you is time to get your financial statements up to date and accurate, particularly your balance sheet if they already aren’t.  If you approach a bank for a loan your financial statements are the two of the most important things they are going to ask for, the other being your last two or three year’s business tax returns.  If you haven’t filed last year’s taxes, don’t bother to go.  The bank isn’t going to move forward until you get them.  And also, if you approach a bank for a loan and your financial statements are not current it tells the banker that you are not managing your business as you should.

Current rates are still historically low.  If you have credit card debt that has been used for your business or other short-term debt that may be coming due in the not-too-distant future there may be an opportunity to get an SBA working capital loan to refinance all of them into one loan.  And here is one of the greatest advantages of SBA loans – long amortizations.  An SBA working capital loan carries a term of seven years, offering the borrower the ability to stretch out payments over a longer period thus helping to enhance cash flow.

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In 1911 Irving Berlin wrote a song titled “Everybody’s Doing It.”  That could very well become the theme song for what’s happening now in the world of microloan-sized small business loans – loans under $50,000.  More and more nonbank lenders – fintech lenders, are getting into that market because of the reluctance of banks to make them.  But even some banks are beginning to stick their toes in the water for the same reason that the fintech lenders are – the availability of massive amounts of data, much of which comes from social media posts, allowing them to create algorithms that make lending decisions almost instantly.

Another sign of the changing times is that the insurance giant – Nationwide, has recently partnered with one of the major fintech lenders – Blue Vine, to start tapping into that market.  There is much more coming.  The outlook for small business microloans is continuing to look improve.

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That’s the famous sound of a Harley Davidson at idle – iconic, known world-wide.  Screeeeeeech!  That’s the sound of the new Harley LiveWire electric motorcycle.  It sounds very much like a Skilsaw cutting through a piece of wood.  Why?  Is nothing sacred?  The primary reason is that Harley’s longtime customer base – Boomers, are having more and more trouble getting on and off their bikes, so a lot of used Harleys are beginning to show up in the market.  Another factor is that today’s younger, urban and female riders are looking for smaller lighter bikes.  So here you have a 115 year-old company needing to pivot or continue losing market share.  Startups are not the only ones that sometimes need to pivot. 

So Harley’s answer, introduced in 2018 was the LiveWire, carrying a hefty price tag of $30,000.  The potatoes are fading.  The screech is coming.  Companies of every kind and description can get complacent.  One of the best all-time examples is the railroad passenger industry.  At the beginning of the 20th century almost all passenger traffic was by rail whereas by the year 2000 almost all passengers were going by car or plane.  The railroads believed that nothing could replace passenger rail.  They were complacent.

They didn’t pivot.

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We are not ever going back to the pre- 2008 recession type of consumer spending because Amazon was just beginning to dramatically change the way consumers buy things, and in 2019 people want fast and easy (i.e. not leave home in most cases).  More and more things can now be ordered online and delivered to your door.  Rather than go to the grocery store, just order it online and go sit in the reserved spaces in the parking lot and have someone bring it out to you and help you put it in your car.  So why would a consumer want to buy from you?  What do you offer that your competitors don’t?  Obviously if what you are selling can be easily bought online it is going to be harder to compete without running into Amazon and all its siblings.  But, a high percentage of products are still purchased “brick and mortar.”  Consumers are doing more research online but then still going to the brick and mortar to purchase. 

 So what is the value of what you are selling?  What is your unique value proposition?  Is it price?  Quality?  Service?  Experience?  Location?  If your business is still reasonably successful, should you assume that since no customers are complaining that they are happy?  Maybe there are customers who have left because they did not get what they wanted or expected and their wants were ignored.  Back to the question of why a customer buys from you.  If you haven’t taken a serious look at it, stop and think what it might be if you were forced to describe what you sell in 25 words or less, and don’t say service.  Everyone expects good service.  So what is the real reason people buy from you?  A perfect illustration of that 25-words-or less description of why customers buy might be Federal Express – “When it absolutely, positively has to be there overnight.”  9 words.

It might not hurt to give this some thought in regards to your business.  Maybe your competitors haven’t.  Some of your competitors may be gone or about to be.  Maybe if you really hone in on what you do best you can not only compete in today’s world, but come out growing.  It could be a unique opportunity.

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Banks have never been particularly fond of lending to small and startup businesses.  Probably the primary reason is that many early-stage businesses have not built up the strength and cash flow to make them less risky borrowers, and a lot of startups fail in the first year.  The perceived wisdom has generally been that about half of startups do fail in the first year.  But according to numbers from the SBA Office of Advocacy’s 2018 Frequently Asked Questions, roughly 80% of small businesses survive the first year, and a new report form the Kauffman Foundation – “2017 National Report on Early-Stage Entrepreneurship” comes to the same general conclusion – that approximately 80% of small businesses do survive their first year.  And getting back to banks, one of the other reasons that they shy away from high-risk small business lending is that they are heavily regulated.  During and as a result of the 2008 recession regulators came down hard on many banks for making risky loans, and that fear by banks of being beaten up by regulators has not yet completely gone away.

So even though online lenders were around at the time of the recession they were not a significant force in the lending marketplace.  But now with the dramatic rise in computing power over the last five years, massive amounts of data on consumers have become available and allowed online lenders to create algorithms that can analyze data in seconds to create a risk profile of a potential borrower.  And a great amount of that data comes from mining consumer behavior online.  We have been witnessing the birth of BIG DATA.  There is enough information about you out there everywhere to create a pretty accurate profile that an algorithm can analyze for many purposes, not just lending.

Since most small business owners don’t think about or plan to borrow money in the near future, depending on how urgent the need is, an application to a bank is likely to take somewhere in the neighborhood of 30 days give or take to make a decision, although this is beginning to change as some bankers wake up to the fact that the same data that the online lenders use can be used by a bank.  Fancy that.  So if a small business owner suddenly needs a working capital loan or a loan to buy a piece of equipment that could substantially improve their profitability, the online lenders are there, and they make decisions fast, and if the result is approval you can often have your money in a few days or less.  As is always the case, there is a cost to be paid.  Online lenders are more expensive than banks – often much more.  But if you need money fast or something bad could happen, you pay it because the consequences of not getting the money could be serious.

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I Can Do That Better
February 19th, 2019

The most important aspect of the lean startup model is finding a customer pain that you can alleviate with your product or service.  If you can – i.e. do it better or faster or cheaper, you may have something significant on your hands.

Let’s start with one of America’s biggest problems – getting old.  The percentage of the American population over the age of 65 is continuing to grow – on a nonstop pace.  Medicare is using technology – telemedicine, in a pilot program to give seniors more options than going to a hospital emergency room.  An example of using telemedicine is that ambulance crews might be able to use certain treatments at home working under the supervision of a doctor in a remote location.  This could potentially free them up to focus on more serious emergencies.  If the pilot program proves successful Medicare projects that it could ultimately save as much as $500 million dollars a year.

On the local level a startup is providing through a technology platform a way for seniors to sign up for assistance from neighbors or others with many of the simple things in life that most of us take for granted – picking up or returning books to the library; shopping trips; help with pets; even just companionship.  To create a wide network of people interested in helping seniors would be extremely difficult under normal circumstances.  But with the benefit of technology to create an app to do it, a major pain for seniors can be eliminated.

Using technology another startup created a peer-to-peer mobile payment service to help merchants without the necessity of having things like point-of-sale systems or physical presence.  It could open up sales opportunities for many businesses that are in places or at events where they could sell but don’t have the infrastructure.

And one more – for young people finding affordable car insurance can be a little time-consuming and more than a little pain.  Suppose you could just scan your driver’s license with your phone and bypass the time it takes to answer the many questions on insurance applications and have quotes from three insurance companies within a very short time, all with just your phone using the company’s proprietary software.

I can do it better….


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The Business Model Canvas
February 12th, 2019

The business model canvas shows the logic of how you are going to make money.  It takes the four main areas of the business: customers, offer, infrastructure, financial viability, and shows how they all relate in achieving the desired goal.  The current gold standard of developing a business model was created by Alexander Osterwalder, and set out in his book, Business Model Generation – a wide-ranging introduction and discussion of the canvasHe shows the nine building blocks that it takes to deliver your product to market and make a profit – all on one page. 

A business plan involves a mission statement, problems, solutions, data and forecasting all used to show how a startup would execute success in the future.  It defines why you are in business and what your company does.  What it does not describe is how company does itIt is generally a one-time static document that winds up filed away and never looked at again.  Its most practical use is when pursuing financing. 

The business model canvas is a perfect example of visual thinking.  Business models are complex concepts composed of various building blocks and their interrelationships.  In a business model one element influences another.  It only makes sense as a whole, and capturing that big picture without visualizing it is difficult.  Looking at the nine blocks of the business model canvas allows you to do that. 

One of the most effective ways to use the canvas is with Post-it notes.  When I have taught the canvas I took it and blew it up to 11 x 17 and gave everyone 1 ½” x 2” Post-its, and as we discussed each block they could use the notes to put in information pertaining to that block.  Just one example – the Customer segment.  One Post-it might have been “I’m solving this customer pain.”  By the time we were finished some peoples’ canvases were almost completely covered with Post-its.  It is a great tool with which to study how your company makes money, and it is especially useful for startups.  Even the best-planned startups sometimes don’t realize all the interactions that different parts of the business have on each other.  The business model canvas enables them to see all the relationships as they interact with each other to make a profit.

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