The Secret to Success? Low Overhead, Low Fixed Costs

Ok, maybe it's not that simple, but according to the recent Forbes study of the most profitable small businesses, low overhead, seen in professional services among others, can certainly help:

Two big perks with professional services: consistent demand (no matter what the economy is doing, people will still catch fevers and want to avoid paying taxes) and relatively low overhead. Little surprise that traditional industries--like manufacturing and retail, which are hard to scale--didn't make the cut. The top of that heap, including medical-equipment makers and wineries, clock 6% pretax margins; jewelry stores, 4.4%.

This compares with an impressive 17% margin for CPAs, who sit at the top of the list. The biggest insight from the report is that specialized knowledge pays off the most. As a result, professions like medicine or accounting which require years of study and deliver good value when the customer needs it most, are most likely to do well, irrespective of the current place of the business cycle.

Now, the Forbes analysis dealt with businesses making $10 million or less, which some would argue are not "true" small businesses. Still, how might your organization benefit from this kind of analysis? What kind of expertise or specialized knowledge can you offer to customers, with low overhead or minimal fixed costs, at a key time in their business or financial lives?

Ten Ways to Build Trust with Online Customers

By Darren Barefoot, Open Forum

1. Treat online customers as if they’re standing in front of you. The anonymity of the web sometimes makes us behave less personably to our fellow netizens. When interacting with others online‚ particularly when you receive criticism‚ ask yourself how you would react if they were in your office in a bricks and mortar business.

2. Abandon the superlatives and spin. The more intelligent your customer, the more heightened their distaste for unearned self-praise. Tell people what your product is, and why it’s good. Praise works much better when it comes from a third-party; that’s why media relations and user testimonials work so well.

   Click to read more

IRS to Target Independent Contractors – Protect Your Small Business

IRS to Target Independent Contractors; Protect Your Small Business

Money Management Tips

This Yahoo article is targeted toward women but, frankly, anyone can benefit from this advice. The issues are very relevant for many small businesses. Here is my favorite line:

What does it take to waste $10,000 a year? Just $27.40 a day.

Simple as that. Imagine how many more small firms, one-person firms and entrepreneurs would attain true success if they just paid better attention to that kind of detail. And the best part--attention to financial detail comes with a price tag of zero.

Small firms with big ideas

See this video from Business Insider for a reality check on the recent Facebook and Twitter valuations. The interviewee warns that those valuations may be excessively high. Whatever your opinion on the topic in question, I see an important takeaway for small businesses: it all comes down to dollars and cents. Even if, unlike the speaker says, the valuations of these companies are spot on, he raises the important issue of style vs. substance in the world of business.

Countless small firms have great, profitable ideas, but it can be difficult to see that value in a realistic framework, especially if positive confirmation from the market and from investors has accrued in spades. The entire dot-com bubble was born out of this kind of disconnect between style and substance. Chances are your small business has real value, and so does the idea underlying it, but if that initial seed of potential isn't watered with the adequate attention to detail (i.e. the "boring" stuff like cutting costs or marketing), and a commitment to an objective reckoning with its limitations, it will never realize it. A small businessperson shouldn't allow anyone to know the limitations of his/her own firm better than them.

Small needs vs. Big experience: Bigger isn't always better

An interesting article recently by Ben Horowitz in Business Insider analyzes the challenges that can arise when small companies--especially creativity-hungry ones--bring in managers from larger organizations. Suffice it to say it doesn't always turn out as planned. Here are some quotes that jumped out at me:

In fact, most skilled big company executives will tell you that if you have more than 3 new initiatives in a quarter, you are trying to do too much. As a result, big company executives tend to be interrupt-driven.

In contrast, when you are a startup executive, nothing happens unless you make it happen. In the early days of a company, you have to take 8-10 new initiatives a day or the company will stand still. There is no inertia that’s putting the company in motion. Without massive input from you, the company will stay at rest.

And more:

When you run a large organization, you tend to become very good at tasks such as complex decision-making, prioritization, organizational design, process improvement, and organizational communication. When you are building an organization, there is no organization to design, there are no processes to improve, and communicating with the organization is simple.

On the other hand, you have to be very adept at running a high quality hiring process, have terrific domain expertise (you are personally responsible for quality control), know how to create process from scratch, and be extremely creative about initiating new directions and tasks.

The reason these kinds of relationships can fail is because small businesses and big businesses simply have different needs. In the broadest sense, both are profit-seeking enterprises seeking to maximize return on investment. But there are an infinite number of ways to accomplish that goal, and different environments (external and internal) call for different strategies. And therefore different managerial and leadership styles.

It is not safe by any stretch to assume that an individual, team or organization that thrives in one environment will thrive in the other. Small businesspeople can avoid a lot of hiring headaches by simply taking a good look at what their environment is, and what skill sets are a best fit. Top-down management or bottom-up? Routinized, mechanistic administration or creative, spontaneous inspiration? Collaborative teamwork or individual initiative?

Not sure which approach your organization needs? Start by looking at your own tasks, projects, and daily routine, and go from there.