SCORE NYC Offering Free Entrepreneurship Programs for Veterans

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I was visiting the SCORE New York City chapter at 26 Federal Plaza earlier today, and learned that SCORE’s New York City chapter is offering free Entrepreneurship programs for veterans, including the following:

  • Help with Loan Applications
  • Business Plan Development
  • Management Training
  • Sales/Marketing Advice
  • Long-Term Mentoring
  • Business Workshops

For more information, contact marcia@scorenyc.org or call 646-493-4838.    Here is a flyer announcing the program (opens to a PDF.)

Final Exam Question to Merchants: Calculate your Groupon’s ROI

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Groupon spent $208 million in marketing for the first three months of 2011, this represented 77% of its $270 million of gross profit for the same three month period.   Groupon’s marketing spending for these three months was driven by customer acquisition in international markets it had recently entered.  International sales represented 54% of Groupon revenue for this period.

By comparison, Google spent $246 million in sales and marketing in 2004, the year of its IPO; this represented 14% of its $1,732 million in gross profit for the same twelve month period.  International sales represented 34% of Google revenue for 2004, up from 29% in 2003.

Even allowing for Groupon’s relatively faster penetration of international markets, one might ask: what is it about Groupon’s offering that is requiring it to spend such a high percentage of its gross profit?   After all, coupons have been around for decades prior to the launch of Groupon, while Google’s AdWords product was truly new to the marketplace.  Is there something about the range of possible financial results for merchants on a Groupon promotion that requires more convincing, leading to the need for a relatively high marketing spend by Groupon?

To further explore this question, I asked the students of my Managerial Accounting and Finance class at Polytechnic build a simple Return on Investment model for a hypothetical restaurant owner using Groupon for the first time.

In this hypothetical exercise, a restaurant owner had 1,200 couples per month visiting his restaurant prior to running a Groupon promotion which attracted 240 customers, entitling them to a $100 meal, one that cost the restaurant $40 to serve.   Assuming that half these 240 couples were existing customers, and half were new customers, I asked the students to calculate what percentage of the newly found customers had to become “regulars” for the restaurant to get a reasonable 15% Internal Rate of Return (IRR) on the cost of the Groupon promotion.

The answer…… nearly 25% of the newly found customers had to become regulars.

For a free copy of the merchant Return on Investment model described above, please send a request at David@RudofskyAssociates.com.   It provides an easy way for business owners to model what the Internal Rate of Return of a Groupon promotion might be for them, under a variety of assumptions and scenarios.   And for some more interesting perspectives on merchants’ results with Groupon, check out these articles in “Business Week” and “Harvard Business Review.”

 

 

 

SoundBoard Angel Fund Getting Closer to Launch Date

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Earlier today, I attended an informational meeting about SoundBoard Angel Fund, which is getting closer to its launch date.  The fund will build on the expertise of SoundBoard Consulting Group, whose members have extensive experience coaching entrepreneurial led companies.

Attorney Gregory Petroff, who is advising SoundBoard Ventures, told the meeting attendees that he believed that SoundBoard Angel Fund’s chances for success were strong, given its focus on a set of industries (i.e., consumer goods, education, health care services) that sets it apart from Arc Angel Fund, an extremely successful angel fund launched in August 2010.

Key to Small Business Profitability Improvement: “Create a Budget and Use it Effectively”

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On July 9th, I conducted a seminar – Small Business Profitability Makeover – for 25 exhibitors at the Fancy Food Show, in Washington, DC. Attendees learned how to:

  • refine their pricing tactics by checking out the competition
  • determine which product lines are profitable and which aren’t
  • save on purchasing by adopting tactics used by larger companies
  • determine when you need outside experts to cut costs, such as insurance, rent and utilities
  • tighten up their accounts payable process to improve cash flow
  • create an annual budget and use it effectively
  • manage expenses through accountability

When asked which item they thought had the most potential for their business, the majority voted for: “create an annual budget and use it effectively.”   Determining product line profitability, and saving on purchasing also were seen as valuable techniques by the Fancy Food Show attendees.

Does any of this sound like it would be valuable in helping you improve your business? Much of this same material is now available on line as an archived webinar at the Ventureneer website.

Willful Blindness – A Consultant’s Take

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I read Michael Gerber’s eMyth Revisited in 2003, the same year I started my consulting practice.  I felt that it gave me a roadmap to success as a consultant.  The book opens by describing a woman who loves to bake, and her friends all suggest “you should be running a bakery.”  So off she goes.   However, she soon becomes overwhelmed by the managerial responsibilities that come with owning a bakery, taking her away from her true love and passion: baking pies.

“Simple,” I thought, “I’ll help resolve this disconnect by assisting my clients on the managerial side of the business so they can continue to ‘bake the pies.’   And there will be an educational piece to my practice too: I will teach these bakers  enough about finance so they are better equipped to manage their businesses.”

But as the years have gone by, and I have gained experience as a consultant, I have come to realize there is something deficient about this model; some of my clients have a real aversion to learning how to manage the financial side of the business.  Some even avoid hiring anyone to do it for them!  There was the entrepreneur who did not file tax returns for numerous consecutive years, with the thin justification that these were loss years so they didn’t owe any money; but he put himself at risk of losing valuable tax-loss carry forwards.  Then there was the maker of high quality organic desserts who couldn’t persuade her partner to create a “bill of materials,” and consequently did not know if some products were being sold below cost.   And there have been numerous instances of people thinking about starting, or actually starting, businesses without having a clear idea of how much capital it would take them to get to positive cash flow.  This systemic avoidance went well beyond what was described in eMyth.

Fortunately, Margaret Heffernan has written Willful Blindness and I believe it provides a deeper psychological/sociological explanation for why business owners are blinding themselves from the positive results of proper financial management.  Figuring out whether the business is going to make a profit, what to do if it isn’t going to make a profit, where to find money to pay quarterly estimated taxes, etc. is not likely on the top of any business owners “to-do” list.  Avoiding these and other similar activities for a day or a week may seem acceptable behavior, but as Heffernan writes, “All of us want to bury our heads in the sand when taxes are due, but in trying to pretend the threat doesn’t exist, and we don’t have to change, we are… trying hard to avoid conflict.”

I’ve also recently had the chance to do join up with Richard Magid and his team at Soundboard for some important client work and to witness firsthand how effective they are in the areas of coaching, training and cultural assessments.  Their wide range of successful client work has made them highly sensitive to the discussions that are not taking place – but should be.    If you are looking for consultants who can help get your employees more engaged, you should give them a call.

Client education will continue to be an important aspect of what I do, and I will continue to ask myself whether individual clients are truly coachable in financial literacy or not.  I’m at a point when I can no longer keep my head in the sand when it comes to business owners who are not willing to get into the financials, because your business is too important not to look at the financials, and mine is too.