What does it cost to reject The Age of the Customer shift? Jim Blasingame reveals that the only thing that costs more than converting to Age of the Customer practices is not converting.
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In previous columns I introduced three crowdfunding sources including donation fundraising, startup transactions, and lending. Now let’s talk about the fourth and most problematic method: raising capital from investors.
Historically, small businesses acquired investor capital from two sources: venture capital and angel investors. So when crowdfunding popped up on our radar, many in the entrepreneurial universe got excited thinking the Internet could be used as a lever for investor capital as it has for other business applications. Here are four reasons why I was not among this group.
1. Securities Laws
Remember those two crowdfunding markers identified in my previous columns, “innumerable and anonymous?” Well, they’re the most problematic in raising investor funds because, by definition, the public (people you don’t know) has access to Internet offerings. U.S. securities laws are enormously restrictive about selling investments to the public, and the approval process is prohibitively expensive for most startups. Plus, even as part of Obama’s 2012 JOBS Act, the Securities and Exchange Commission (SEC) has yet to approve crowdfunding for investors and won’t say when rulemaking will happen.
2. Financial reporting
One of the essential markers of investingis financial reporting. Alas, one of the markers of the small business sector is poor financial recordkeeping. When small businesses learn the level of disclosure required for crowdfunding investment, most will not pursue this path.
3. Minority shareholders
Investors become shareholders. A crowdfunding offering is likely to create many shareholders. When small business owners understand the maintenance expense and effort to comply with mandated reporting to shareholders, most will seek other capital sources.
4. Exit strategies
Small business owners love their businesses, but most don’t have an exit strategy. Since capital is not romantic, it’s unlikely that a small business owner’s idea of an exit will align with that of crowdfunding investors. And with no after-market for these shares, crowdfunding creates an inherent exit expectation conflict, which will be a non-starter.
When and if SEC rulemaking occurs, crowdfunding equity will benefit some entrepreneurs. But I predict this capital source won’t be a high percentage option for most small businesses. Crowdfunding is part of the future of small business capitalization, but it’s not for everyone.
Write this on a rock … Don’t count on crowdfunding to replace your banking relationships.
Jim Blasingame is the author of the award-winning book, “The Age of the Customer: Prepare for the Moment of Relevance.”
In my last column I introduced the concept of crowdfunding — the new word and online methods of fundraising and capitalization. The two crowdfunding examples I described were contributions and business transactions doubling as fundraising.
Let’s continue with the third type, which is, crowdfunding structured for loans.
Crowdfunding debt, AKA peer-to-peer and social lending, is like traditional borrowing: a request for funds comes with the promise of repayment with interest over a specific term. But the former is done online, and the latter is not. Individuals use crowdfunding for personal loans, but our focus here is for business borrowing, which typically involve four crowds:
1. Business borrowers
2. An online crowdfunding platform aggregating loan requests
3. A funding and underwriting source, likely a hedge fund
4. Individuals who invest with #3, knowing it’s for loans to small businesses
Remember the innumerable and anonymous crowdfunding factors from the previous column? These two are also in play with crowdfunding debt, because a large crowd is required to provide a pool of loan funds and dilute the risk, and investors are only known to the funding source aggregator.
Regardless of the funding source, crowdfunding or traditional, small business loans are expensive for the borrower because this sector is considered high risk for two primary reasons:
1. Most small businesses are undercapitalized and operate on a thin survival margin
2. Too many small business owners don’t track financial performance well enough to know how they’re really doing.
And since crowdfunding loans are unsecured, taking the risk to an even higher level, crowdfunding business loans are doubly expensive.
So is a crowdfunding business loan right for you? Here’s some context: If you can borrow from your bank, this year you’ll probably pay an average of about 6% annual interest rate. A crowdfunding loan APR will likely be 15% or more. Any questions?
Crowdfunding business lending has achieved some level of critical mass and is growing. As I’ve said before, the future of small business capitalization will look a lot different than it does today largely due to this emerging alternative.
Next time we’ll wrap up this series with a tour of the good, bad, and improbable of investor equity crowdfunding. And more tough love.
Write this on a rock If you can borrow money from a bank, don’t borrow from a crowd
Jim Blasingame is the author of the award-winning book, “The Age of the Customer: Prepare for the Moment of Relevance.”
Crowd funding is not new, but crowdfunding is. Completely intuitive, both terms mean funds conveyed by a crowd to a solicitor.
It’s largely due to those two words, innumerable and anonymous, that crowdfunding has caught on to the point where several online platforms now aggregate funds seekers with funding crowds. Now with crowdfunding, the Internet simultaneously facilitates and disrupts our experiences with what I call the Four Cs of Modern Society: Connect, Communicate, Communities and Commerce.
So far, crowdfunding fits primarily into two categories:
This is where an emotional connection motivates members of a crowd to give to a cause, project, idea, ideal, etc. Besides the emotional motivation, merchandise like a T-shirt or first album, for example, are likely to be involved as a token of thanks. This crowdfunding form is nothing more than donations.
This money goes to a commercial venture, often a startup, with the expectation of receiving a first-of-its-kind product or future discount. The crowd knows the funds partially pay for the merchandise and partly capitalize the venture to which this crowd also has an emotional connection. This is business funding in the form of a commercial transaction, not investment.
Recently, crowdfunding has nudged closer to debt and equity capitalization. Peer-to-peer lending is an emerging form of crowdfunding, while the investment model still has legal and practical hurdles.
It’s clear that the future of small business capitalization will look a lot different than it does today. But for most small businesses the jury is still out on how the crowdfunding options will be part of their capitalization future.
In my next column I’ll use a practical approach and some tough love to reveal the challenges facing both the debt and equity sides of crowdfunding. Ironically, those two advantages of crowdfunding mentioned earlier, innumerable and anonymous, will manifest as potential barriers as we discuss the more sophisticated forms of crowdfunding.
Write this on a rock…
Crowdfunding is just new tools to accomplish traditional fundraising and capitalization.
It has happened to all of us: You’re being waited on at a restaurant, buying a product or returning something to a merchant, and as an employee is delivering some kind of service you say, “Thank you.”
Good for you; your mother would be so proud. But she wouldn’t be impressed by what has become an unfortunate response to thank you. After you say thank you for having your water refilled or your order completed, there is sadly a good chance the employee will say, incredibly, “No problem.”
So, from this response are you now to think that simply allowing service to be delivered is some sort of problem you’ve created, for which forgiveness should be granted? Should you feel relief that you’ve been redeemed by this person with “No problem” absolution?
Clearly, American English has devolved to a level that makes many of us nostalgic for casual. It’s difficult to pinpoint where things ran off the rails. But somehow the sublime “it’s my pleasure” has deviated into the subpar “no problem.”
Well, my friends, let’s get one thing straight: No problem is a problem. When small business employees say no problem to a customer instead of you’re welcome, it’s a serious problem that over time could be the equivalent of a business death wish.
Think I’m overreacting? How much money do you spend getting a customer to do business with you? How much energy and resources do you invest into making sure your products, pricing, display, etc., are just right? How many sleepless nights do you spend worrying about how to compete with the Big Boxes?
Now that we’ve established the enormity and consequences of these answers, are you sure that no employee of yours ever causes one of your customers to think — even subliminally — that the mere fact that they do business with you could be some kind of problem?
In The Age of the Customer, the only thing unique about your relationship with a customer is the experience they have with you — how they FEEL about doing business with you. Everything else is a commodity. Everything!
So, pray tell, in what universe does “no problem” help your business maximize the positive emotions of an excellent customer experience? Stop saying it, and train your employees to stop saying it. If success is your goal, this is non-negotiable!
There must be 39 different ways in the English language to express your delight in serving a customer without saying “no problem.” Use one of them.
Write this on a rock… In The Age of the Customer, “Thank you” is golden, “No problem” is a problem.
In the old days, when someone would call or come in the door of your business for the first time, you would ask them how they found you. And since it’s not your customer’s job to catalog such things for future retrieval, you probably had to help them a little by reciting examples of where you might have spent your marketing budget: an ad on the radio, TV, newspaper, Yellow Pages, a Little League uniform, etc.
Here in the second decade of the 21st century, asking how customers find you is still important, but with one new element: For the past 10-15 years, you should also include, “or did you find us online?”
Not too long ago, saying “our website” instead of “online” would have been appropriate. Today, online is best because customers can find you in other places on the Internet, including the social media and customer review platforms, even if, Heaven forbid, you don’t have a website.
The question is not whether your company is “out there” online today, but rather to what degree and – this is so important it will be on the test – what is being said about your business.
We wanted to know how much small businesses are attributing sales performance to the Internet, so recently we asked our radio and online audience this question: “How much of your 2011 sales do you think will result from some kind of Internet activity, even as simple as people just finding your business mentioned online?” The results made me very happy. About 90% of our respondents said they would be able to attribute some sales in 2011 from the Internet.
Breaking the numbers down, over 50% said less than half of 2011 sales would be attributed to online activity. The next number is really exciting: About one-fourth said they would see more than half of their sales from the Internet. And finally, the bookends: Those who said all of their sales would come from the Internet were almost the same – around 10% – as those who recorded a goose egg because (read this with a nasal whine), “We don’t have a website.”
As the Age of the Customer™ becomes the marketplace norm, your customers are increasingly demanding more connection and support from you with online resources. Any company that is not making at least some effort to meet the growing online support demand will experience the painful death of irrelevancy.
Write this on a rock … You don’t have to win the online race to be successful, but you do have to show up and compete.
What would you pay for a small business silver bullet to win the fight with Big Boxes and online competitors?
Before you get overwrought about how you would come up with the cash for something so valuable, here’s good news: It’s free and you already possess it.
There are several versions of this silver bullet, each to be used at an appropriate time and engagement, but here’s the default version and the most important one: “Thank you.” I promise, if your customers never leave behind their hard-earned cash without hearing a heartfelt, “Thank you,” your business would become a competitive force to be reckoned with.
Here’s an expanded version: “Thank you for your business.” Long after this sentiment enters the ears of customers, when they’re considering the next purchase of what you sell, they will remember that you looked them in the eye and lodged these words in their heart: “Thank you for your business.”
Here’s one more, in response to a request or when a customer thanks you first: “It’s my pleasure.” And if you really want to pull off the silver bullet hat trick, say, “Thank you. It’s our pleasure to serve you. We really appreciate your business.”
Saying thank you – and making customers believe it – forges what I call the “Customer Goodwill Alloy.” Just as steel is created when you forge iron with other elements, customer goodwill is created when values, commitment and engagement are forged in the crucible of training, practice and execution, causing your employees to say “Thank you.”
We all know what happens when steel is left exposed and unmaintained: Corrosion causes it to revert to its base elements as rust. But do you know what happens when the “Customer Goodwill Alloy” is left unmaintained and exposed to the elements? It sounds like this, “No problem.” Or, “Here you go.” Or, “Have a good one.” Or even worse – nothing! Not even eye contact!
If you want to compete in The Age of the Customer, you can’t allow your business to revert to customer service rust. More than a means to an end, it must become a way of life to forge and maintain the “Customer Goodwill Alloy” every hour of every day of every year.
If your door is open, if your phone is ringing, if your website is working, customers must know how important they are to you. Otherwise, save yourself a lot of money and anguish and close up your business now. The Big Boxes have beaten you.
Paraphrasing Paul Simon so customers don’t leave you, there must be 50 ways to express your delight in serving a customer instead of “No problem.” Use them! Words matter!
Write this on a rock …“No problem” is a big problem that can be solved by simply saying “Thank you.”
Blasingame’s 2nd Law of Small Business states: It’s redundant to say “under-capitalized small business.”
Growing small businesses operate in the narrow danger zone between the leading edge and the bleeding edge of the marketplace. And since our capital reserves and options are limited, every small business CEO makes decisions every day that are at once as much about survival as success.
Here are four “operate for survival” things to do that will serve you well this year, followed by four “plan for success” ideas.
- Cash used to be King, today it’s the Emperor. Ask employees to find and cut waste. Get them involved in reviewing operational processes and eliminate or tighten up inefficient ones. What’s their motivation? How about job security? Watch the pennies and the dollars will take care of themselves.
- Stay close to accounts receivables and cash management. Many tasks can and should be delegated, but in a small business, whether you’re growing or just holding on, cash management is not one of them.
- Declare war on excess inventory. Inventory is cash you can’t spend until a customer pays for it. Practice Just-In-Time (JIT) inventory management, not just-in-case.
- Stay close to customers. This isn’t complicated: Ask customers what they want and then give it to them. We’re in the Age of the Customer – know your customers’ expectations.
Since opportunities will present themselves over the next year, here are four “plan for success” thoughts to consider as you take risks:
- Eyes wide open. The marketplace we’re entering is going to look different than last year. That means opportunities – and threats – will look different, too.
- Measure twice, cut once. Before taking a big growth step, apply the carpenter’s rule. Don’t scrimp on due diligence: check your assumptions, recheck your assumptions and then proceed with the best information you have, which might tell you to stop.
- Mistakes are expensive. Can your capital picture support inevitable mistakes and/or surprises? Remember, there is a very fine line separating opportunity at the leading edge and the cash-eating bleeding edge.
- Make your banker your partner. Keep him or her informed whether the news is good or bad – especially the bad. Remember this: An uninformed banker is a scared banker and no one ever got any help out of a scared banker.
Write this on a rock –Successful small business CEOs operate for survival while planning for success.