As a businessowner your pay is, and always has been, based on pay for performance (and risk taken).  But you need to be wary and informed about the new considerations coming out of the Obama Administration that will limit CEO pay.  Right now the limits would pertain to executives in the financial industry – even those who don’t receive bailout money.
     The problem with executive compensation is twofold:  1) Pay has been pegged to some sort of measurable outcome, but not always the right one, and 2) Pay for performance has been structured so that even if the performance doesn’t happen the executives get paid. 
     Look at your company; do people get paid even when they don’t perform?  I’ve consulted with many mid-sized companies where there are plenty of managers who don’t perform, but still get paid.  Often, the non-performance is blamed on the underlings – which means the managers really aren’t held accountable.  And sometimes the managers are allowed to get paid without performing because there's a belief that the company can’t run successfully without them.
     The executives must be held accountable for their results, just as all those under them should be held accountable for the results that they have control over.  As businessowners, we need to make sure compensation is pegged to the right measurable outcome, and that we don’t pay when there has been no performance.

     Rule makers have suggested that companies separate “core” revenue-generating activities from investment activities on their financial statements.  While many companies are disconcerted with the direct cash-flow method of accounting, what is most amazing is that 63% of CFO’s haven’t even heard of the proposed changes!  We tend to think that people who rise to the level of CFO would read the financial publications that keep them informed of this type of proposal. However, they aren’t, and this should be of concern to you as a business owner.
     I was recently asked to review a company’s financial strategy.  They presented an elaborate plan to shelter taxes, avoid liability, and segregate ownership.  It was an impressive plan which took into account every financial strategy their CFO had ever learned.  While making small talk after the meeting I mentioned the proposed changes to the financial statements and was met with a blank stare from the CFO.  The CEO and the rest of the meeting participants watched in horror as the CFO sheepishly admitted he knew nothing of the possible changes.
     The point is that you and your CFO need to be informed.  A good piece of advice is to never turn your financial matters over blindly to anyone.  Ask questions, stay informed, and hold your financial advisors accountable.

     Businesses are always looking to keep expenses in line.  We ask our employees over and over to cut expenses, reduce spending, and be mindful of the return on every penny spent.  This is just good business, especially in today’s economy.
     However, you need to be careful that you don’t cut expenses too much, because you can’t continue to cut expenses while increasing revenues.  If that was the case, then businesses would just lay off all their people, turn off the electricity and phones, and cut expenses while trying to keep the profit margin growing.  Too deep a cut in expenses can also be demoralizing to employees.
     Here's a positive example of a business that involved the employees in it's cost cutting without demoralizing. Rather than be the “evil enforcer” of expense reduction, Primo Water decided to allow peer pressure to keep travel expenses in line.  They began disseminating a monthly report ranking company travelers by their per-day expenses while on the road.  The result was a 5% decrease in daily travel costs!

     When I hear people talking about how much better off they’ll be when the government implements the new programs they have planned, I feel pretty certain they don't understand how these new programs will be paid for.  These unfortunate people think that you and I, as businessowners, will be picking up the tab for these entitlement programs.  And they are partially right; the government will raise my taxes to pay for these programs.  But, I won’t be taking the hit alone, they'll feel it too. 
     Here’s how it really works.  If, as a businessowner, my taxes go up $30,000, then one of my employees will be let go.  If my taxes go up $60,000, then two of my employees will be let go.  The employees who still have jobs will just have to work harder. In addition to the job losses, I'll probably have to charge more for my product or service.
     So, the question is, “How much better off are they really?”

     We are a nation of brave men and women.  It is this bravery that has created the wealth we enjoy.  And our continued prosperity depends on brave men and women taking a chance and starting their own businesses.  Small and innovative businesses are the backbone of our economy.  Commerce Department data shows that small companies represent 99.7% of firms with employees and that small companies have generated 60%-80% of net new jobs annually over the past decade.
     Did you know that this bravery, this willingness to take risks and become entrepreneurs was evident at the founding of this great nation?  George Washington started one of the largest whiskey distilleries in the new nation.   Benjamin Franklin was an inventor, and Thomas Jefferson has his own business as an architect.
     There never seems to be a “good time” to start a business.  No one ever has enough money to start a business, enough time to start a business, and few have the good fortune of starting their business when times are booming.  Usually when times are booming it's easier to find a job than it is to take the risk of creating one’s own job by starting a business.
     However, being out of a job, not being compensated enough to provide for your family, or being underemployed may be enough of an incentive to start your own business.  Look at this list of start-ups that opened during a down economy:  Burger King, MTV, CNN, FedEx, Intel, and Microsoft.   I started my first business right out of graduate school – it was a down economy and all I had was debt.  So, I had nothing to lose (with the exception of opportunity cost of a regular salary).
     Recently the Kauffman Foundation disclosed that more than half of the 2009 Fortune 500 companies were launched during a recession or bear market.  Keep this in mind when you worry that now is not a good time to start a business.  If entrepreneurship is for you and you are one of the brave, then now might be a good time to start your business.  After all, your potential competitors might be hunkered down thinking that now is not a good time to start their business!

     The 9th U.S. Circuit Court of Appeals in San Francisco has ruled that three managers of a bankrupt casino can be held liable for employee’s unpaid wages under federal law.

     The CEO, the CFO (co-owners of the casino) and the manager of labor relations claimed that they had no duty to pay employees’ wages when the casino changed from Chapter 11 bankruptcy to Chapter 7 liquidation.  Under the State laws of Nevada they weren’t liable, but one of the former employees of the casino filed a federal lawsuit under the Fair Labor Standards Act and based on this suit the court ruled that the managers were liable under the federal law.  The court’s written opinion says the CEO, CFO and the labor-relations manager were “independently liable under the FLSA.”

     This ruling should send a message to all business owners.  As a business owner you should not run up payroll debt and then declare bankruptcy.

     It is always important to build credibility and trust with your prospective and current customers.  Here are some ideas that you can use to build credibility and trust.

Your Guarantee

     Think about the last time you decided to purchase from a company that you weren’t familiar with.  Chances are good that the deciding factor was their guarantee.

“If you’re not happy, return this product for a full refund - no questions asked.”

     Your guarantee should be simple and straightforward.  The worst guarantees are those the automobile industry puts out.  You’ve heard them. They tell you what a great price you’ll get on your new vehicle and then a voice comes on and rattles all the exclusions and attorney warnings so fast that you’re pretty sure it’s some kind of subliminal message meant to trick you into purchasing.  Those guarantees are no guarantee at all.

     A great place to start is to see what kind of guarantee your competitor is providing.  You don’t need to top that guarantee, but you do need to match it.  Feature your guarantee on everything – emails, web pages, packaging, statements, invoices, and even receipts.

Product Reviews

     Product reviews provide credibility to your product or service.  Product reviews help persuade buyers to purchase your product.  Use customer reviews as well as reviews by industry magazines, local newspapers, or nationally recognized organizations such as J.D. Power and Associates.

     Product reviews can include rankings and designations.  For example, if the FDA has said your product passes certain regulations, promote that fact.  If your product has been labeled Kosher, promote that.  If your product meets OSHA safety standards, promote that.

Customer Service

    When customers have questions how do they get answers?  If you have a toll-free number for them to call, that can provide a level of assurance that says, “We believe enough in our product to support it.”  Now days e-mail and instant messaging are also appealing ways to provide customer service.

Client List

     A list of clients can show depth and breadth of experience for service providers.  It can also provide a glimpse of credibility to show a list of those who have had a good experience with your product or service.

     You’ll want to make sure you have permission to publish your list of clients.  If you own a credit repair business, publishing your list of clients is not a good thing.  Some businesses must keep their clientele private.  In my coaching business I never reveal the names of the entrepreneurs I work with;  I never reveal the names of the executives I work with; but I sometimes can reveal the names of the companies that I provide coaching services for.
 
     If you can’t reveal your client list then use some of the other means listed here to help provide credibility and trust.

About Us

     Many web sites have a page devoted to information about the company.  If you have a specific target market that you are aiming for this can add credibility to your business.  If your target market is people concerned with holistic healing and your “About Us” page describes your philosophy towards holistic healing then you can garner credibility.  If you are a service provider listing your credentials, academic papers, keynote speeches this can also lend credibility and help develop trust.

     Be careful that the description of your business and who you are is beneficial and does not distract from your other marketing.  This is not the place to state specific political or religious views unless your target market will be attracted to that type of statement.

     A properly constructed message can assure your current customers and potential customers that they can trust you and that you and your business are credible.

What Bloggers Must Know to Avoid Fines

     The last time the FTC made any changes to the federal guidelines on endorsements and testimonial advertising was in 1980.  They have come out with a new set of guidelines stating that any connection between advertisers and endorsers must be disclosed.  These changes apply to comments on talk shows, blog posts, on social media, and in traditional advertisements.  Furthermore any “payment in kind” for endorsing a company’s products or services must be disclosed.

     So, you need to know that I, Cal Tingey, endorse this blog.  I also want to disclose that when I say I’m a good guy that this testimonial is being provided by me for me and that we are one and the same person.  I once took a dollar out of my wallet while writing my blog and set it by my computer.  The next day I “found” this same dollar while blogging about how good looking I am.  I just wanted to divulge this information in case the FTC thinks I’m paying myself to endorse myself.  Okay, I think I’m covered on endorsements and testimonials, now on to the next important change in the guidelines.

What Business Opportunity Tycoons Must Know to Avoid Fines

    The FTC will take a tougher line on testimonial ads that feature atypical results.  What this means is that the old rule allows for ads to post atypical results as long as the ad has a disclosure that states “results not typical.”  The revised rules require testimonial ads to state the results that can be expected from the product or service. 

     Watch the change in how infomercials present how much money you can make if you buy their product.  It used to be that these infomercial kings bounced up and down in their chairs exclaiming that you could easily make $6,000 to $12,000 per month.  Now they are showing real examples of specific deals.  For example, Charles from MO has doubled his net worth using the secrets in our program (and they show Charles standing by a stretch limo with a big old smile).  What they still don’t have to disclose is that Charles from MO bought a trailer home for $12,000 and it is worth $12,500.  The difference between what he paid for the trailer and what it is worth, $500, doubled his net worth.  They also don’t have to disclose that Charles from MO must pay $750 to have the trailer towed from the vacant lot it currently sits on to a properly zoned plot of land – effectively costing Charles more money than he made on the deal.

What Corporate Sponsored-Research Must Know to Avoid Fines

     Additionally, the FTC now requires corporate-sponsored research to be disclosed.  Fortunately for me the one research project I did sponsor didn’t provide me with any information I could successfully use in an advertisement.  The project I funded was to see if procrastination would produce better research projects.  Unfortunately I never got around to doing the research project.

     So be aware and be informed of these changes or you may be subject to fines from the FTC.

     As a successful business owner you’ll need to regularly analyze the financial performance of your business.  Unfortunately, as your business grows and you become busier the demands on running your business tend to take you away from the important task of analyzing the financial state of your business.

     I get many calls from worried business owners who get to the end of the year and wonder, “How did this happen?”  They get to the end of the year and discover that their expenses out of control, or that their tax liabilities are under funded, or that they are facing a cash flow crisis.

     Here are 3 basic actions you can take to ensure you are never caught asking “How did this happen?”

1. Ensure Accurate Information.  Many business owners make the mistake of not spending the time or hiring the expertise to manage their financial information.  Without accurate and timely financial information your management decisions will be inaccurate.  You won’t be able to budget accurately; you won’t be able to anticipate your cash flow needs; and you’ll lose credibility with third parties that rely on your financial information - such as your bank.

2. Have Account Reconciled.  Do you reconcile your bank statements, loan statements, and credit card statements as soon as they arrive?  Banks and other financial institutions make mistakes.  You may find out you missed making an entry that would materially change your financial situation.

3. Have Your Finances Reviewed by Someone Who Understands the Information.  If you have the expertise to review and understand your financial statements you are a rare business owner.  If you don’t have the expertise to understand your financial statements, then hire someone who can review your financial statements and assist you in making decisions based on your finances.  This might be your accounting firm, your banker, or a business coach.

     Taking these three basic actions will ensure that your financial information is an accurate reflection of your business’ performance.

     If I asked you why your customers leave, could you tell me?  Don’t worry, most business owners only speculate as to why their customers leave – and they are usually wrong about it.  Look at this list of the four reasons customers leave and see if you can determine which is the reason your customers leave:

1. They die, or are no longer buying your type of product.
2. They are unhappy with your price.
3. They are unhappy with the product.
4. They are unhappy with the way they were treated.

     Most owners and managers mistakenly think that their customers leave primarily because of reason #2.  “If we just cut our prices below our competitor's price and let everyone know, our customers will never leave,” they reason.  In reality however, focus groups and surveys have proven time and time again that most customers leave for reason #4 – they are unhappy with the way they were treated.

     What binds customers to your business is not price alone.  It is the totality of their expectations and their experiences regarding your business and your products.  Instead of looking at price to solve the problem of customer churn, look to the other aspects that make up your customers’ expectations and their experiences with your business and your products.  Here is a list of things, other than price, that you have control over:

• Customer recognition;
• Service;
• Information;
• Helpfulness;
• Friendly employees;
• Brand identity; and
• Product quality.

     Loyal customers know that they can shop around and save a buck here and a buck there, but they find the process wastes too much of their time and emotional energy.  Loyal customers are seeking friendly businesses with reliable products.  They are looking for businesses whose employees recognize them, remember them, do favors for them, and are serious about building a relationship with them.  Once customers find these kinds of organizations, they tend to give them all their business.

     One of my favorite business axioms is, “If they come for price - they will leave for price.”  In other words, if your customers are buying from you because your prices are the lowest in the market, then as soon as one of your competitors lowers their price - your customers will leave you and buy from one of them.

     Mistakenly, most business owners assume that their customers are price-sensitive.  They get this idea because when they have a sale more people buy.  When their product or service is not on sale, fewer people buy.  Many business owners challenge me by asking, “What more proof do you need?”

     Actually, I’ll need a lot more proof because The Retail Strategy Center did a study on this topic and produced some fascinating results that support my business axiom.  Many business owners regularly advertise deeply discounted prices in an effort to bring new customers into their stores.  Their belief is that, over time, they can convert these price-sensitive customers into regular, profitable customers.  This belief is a myth.  The Retail Strategy Center’s research shows that the majority of customers who were lured in by deep discounts are no longer customers within 12 months of their first shopping visit.

     You will be hard-pressed to yield an attractive return when you have to deeply discount your product or service to get the customer, only to have them leave within 12 months.  These price-sensitive buyers give you very little profit.  Since they generally buy only discounted products, the margin on their sales is much lower than the margin on the sales to your regular customers.  In fact, you may find that your regular customers are subsidizing the sales of your price-sensitive customers.

     Here is the most devastating aspect of conducting business as if your customers were price-sensitive.  By having discount sales, you gradually convert your regular customers into price-sensitive buyers.  You train them to check the prices of competitors’ offerings.  Their reasons for buying from you gradually shift from relationship, customer service, and dependability to the much weaker and less loyal reason of your product's price.

     Don’t compete on price!  Remember my business axiom, “If they come for price - they will leave for price.”

     If you don’t know who John Galt is,  then you haven’t read the book “Atlas Shrugged” by Ayn Rand.  It’s a large book and I joke that you need to take a weightlifting class before you attempt to read the book because of its size, but it will change your life.

     If you have ever read the list of most influential books as ranked by the captains of industry (CEOs) you’ll find “Atlas Shrugged” in the top five.  Amazingly, this fifty-two-year-old novel ranked #33 in Amazon’s top-selling books on January 13, 2009.

     Yaron Brook in “Is Rand Relevant?” from the Wall Street Journal, March 15, 2009 gave this great description of the book, “In Atlas Shrugged, Rand tells the story of the U.S. economy crumbling under the weight of crushing government interventions and regulations.  Meanwhile, blaming greed and the free market, Washington responds with more controls that only deepen the crisis.”  You’ll have to read the book to find out how it ends.

     Free enterprise becomes less free when government becomes involved.  The key to proper government intervention is intelligently informed citizens and government representatives.  (That’s powerful.)

     The Declaration of Independence states that “all men are created equal” and that each has “certain unalienable rights” which include “life, liberty, and the pursuit of happiness.”  It does not say that everyone is entitled to their dream, it says that they are entitled to pursue their dream.

     Our government can’t provide everyone his or her dream. And the reason it can’t provide everyone his or her dream is that our government doesn’t produce any wealth.  Only private enterprise produces wealth.  In order to provide anything, the government has to take some of the wealth created by private enterprise, in the form of taxes, and use that wealth to provide infrastructure and services for our citizens.

     “You can’t get something for nothing unless someone somewhere is getting nothing for something.” – I don’t know who to attribute that quote to, but it is a truth that those who want something for nothing need to understand.  The reason the government is able to provide the infrastructure and services it provides is that the people who are creating wealth – private enterprise – are willing to give up some of their wealth to benefit from the government provided infrastructure and services.

     Our government’s job should be to enable those who put forth effort (see my previous blog).   It is not our government’s job to provide every person his or her Great American Dream at the cost of those who put forth effort.

Here are a couple of principles that hold true no matter what:
You sow what you reap – the religious version
For every action there is an equal and opposite reaction – the scientific version

     Let’s make sure that we don’t let the government promise to achieve everyone’s Great American Dream at the expense of those who put forth effort.

     You’ve heard people talk about the “Great American Dream.”  We all know it exists because we see people coming from all over the world to the United States of America with the Great American Dream in mind.

     Everyone has a different twist on this dream.  Indeed, originally it was primarily religious freedom but since then it has taken on a different emphasis based on the circumstances of the people who have the dream.  For some this dream is still religious freedom, for others it is equality of opportunity, for others it is the dream of economic prosperity.

     Our free markets are amazingly open to equality for all.  An immigrant from Bosnia has the same potential as a native of Phoenix, AZ of being successful in business.  Taxes are applied the same across the board, market forces are the same for both, and solid business practices apply equally to both.

     There is one reason that some succeed and experience economic prosperity, while others don’t.  That one reason can be boiled down to the simple word: EFFORT.

     You’ve seen the privileged child - born with a silver spoon in their mouth, afforded every opportunity by their doting parents, dressed in designer clothes, driving the latest model sports car, attending the best colleges – who has all the trappings of success thanks to their parents or grandparents, but can’t produce their own economic prosperity.  And you’ve witnessed the immigrant - who speaks poor English, walks to work, wears the privileged kid’s cast-off clothes – succeed in reaching economic prosperity.  The difference is EFFORT.

     Without EFFORT nothing happens.  Waiting for a handout does not create economic prosperity.  For those who want economic prosperity, stop waiting for someone to hand it to you and put forth some effort.  For those who want your kids to experience economic prosperity, quit giving them everything, allow them to put forth some effort and earn it.  For those who are putting forth effort and creating economic prosperity, my hat is off to you.  You are living the Great American Dream.

     If you have been putting forth effort without seeing success, then check back regularly, because effort combined with the right knowledge can produce huge changes.  The Great American Dream is alive and well, it just takes effort to achieve it.

     It's the American dream right? Own your own business, set your own schedule, make your own decisions, make as much money as you want. All that can be true, but only if you own and run a successful business. I'm here to help you do just that. Each entry in my blog will address issues, concerns, ideas, and many topics that you have, or should have, thought about now that you have your own business.