Comments on: Money Making Machine http://www.rencarlton.com/Blog/2009/12/money-making-machine/ Ren Carlton's Business Reality Blog Fri, 13 Jan 2012 15:36:51 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Gene Bushuyev http://www.rencarlton.com/Blog/2009/12/money-making-machine/comment-page-1/#comment-135 Gene Bushuyev Thu, 15 Apr 2010 14:46:51 +0000 http://www.rencarlton.com/Blog/?p=86#comment-135 About three quarters of all U.S. business firms have no payroll. The number is around 20 million. Most are self-employed persons operating unincorporated businesses, and may or may not be the owner's principal source of income. Those nonemployers account for only about 3.4% of business receipts. That's statistical explanation why MOST cannot make REAL money. There are also market rules that play against small businesses. The laws of highly competitive (efficient) market work such way that the median margins are always close to zero. Small business environment is fiercely competitive market due to easy entry. The only time business with low margins can make REAL MONEY is when it has many workers. In that case it wouldn't be a small business. So there are only two ways to make real money, grow your business large (the more people you employ the more income they will generate for you,) or find inefficient market with low competition that would allow increasing your margins. Again, there can be several reasons why there is low or no competition in a particular market segment. It can be because too few people care about what business has to offer, and that is a dead end some small businesses find themselves in. For example, if you open a convenience store on the top of Mount McKinley, you will have no competition and ... no customers. The market may also be inefficient because there are barriers for entry, e.g. high cost, security clearance, licensing, government restrictions, etc. Another possibility is that market doesn't exist yet and business has to create it first. Most hi-tech startups are in this high risk category, and therefore most of them must fail. About three quarters of all U.S. business firms have no payroll. The number is around 20 million. Most are self-employed persons operating unincorporated businesses, and may or may not be the owner’s principal source of income. Those nonemployers account for only about 3.4% of business receipts. That’s statistical explanation why MOST cannot make REAL money.
There are also market rules that play against small businesses. The laws of highly competitive (efficient) market work such way that the median margins are always close to zero. Small business environment is fiercely competitive market due to easy entry. The only time business with low margins can make REAL MONEY is when it has many workers. In that case it wouldn’t be a small business.
So there are only two ways to make real money, grow your business large (the more people you employ the more income they will generate for you,) or find inefficient market with low competition that would allow increasing your margins. Again, there can be several reasons why there is low or no competition in a particular market segment. It can be because too few people care about what business has to offer, and that is a dead end some small businesses find themselves in. For example, if you open a convenience store on the top of Mount McKinley, you will have no competition and … no customers. The market may also be inefficient because there are barriers for entry, e.g. high cost, security clearance, licensing, government restrictions, etc. Another possibility is that market doesn’t exist yet and business has to create it first. Most hi-tech startups are in this high risk category, and therefore most of them must fail.

]]> By: Chris Maresca http://www.rencarlton.com/Blog/2009/12/money-making-machine/comment-page-1/#comment-134 Chris Maresca Wed, 14 Apr 2010 18:24:31 +0000 http://www.rencarlton.com/Blog/?p=86#comment-134 @rahul I don’t think we are talking about the same things. Personal success is not business success. They may be related for some people, but they certainly don’t need to be. Whether or not you choose to judge your personal success using metrics is a very personal choice… In businesses, however, you need metrics and benchmarks in order to measure performance over time. They are also essential in figuring out opportunities, improving performance and diagnosing problems. As Michael Sherrill once said in a business meeting we were both in: “If you can’t measure it, it doesn’t count”. I would note that, in the context above, the term benchmark refers to an internal reference point – a baseline if you prefer – rather than against comparable peers. Besides, I’m not sure how you measure ‘Excellence’ – I’m wondering how you propose doing that? On a side note – I’m not a worshiper of metrics, but I have come to understand that numbers tell stories and that listening to these stories can guide you to a better understanding of business fundamentals. However, if you don’t have the numbers, they can’t tell their story…. Chris. @rahul

I don’t think we are talking about the same things. Personal success is not business success. They may be related for some people, but they certainly don’t need to be. Whether or not you choose to judge your personal success using metrics is a very personal choice…

In businesses, however, you need metrics and benchmarks in order to measure performance over time. They are also essential in figuring out opportunities, improving performance and diagnosing problems. As Michael Sherrill once said in a business meeting we were both in: “If you can’t measure it, it doesn’t count”.

I would note that, in the context above, the term benchmark refers to an internal reference point – a baseline if you prefer – rather than against comparable peers.

Besides, I’m not sure how you measure ‘Excellence’ – I’m wondering how you propose doing that?

On a side note – I’m not a worshiper of metrics, but I have come to understand that numbers tell stories and that listening to these stories can guide you to a better understanding of business fundamentals. However, if you don’t have the numbers, they can’t tell their story….

Chris.

]]> By: Terra Kinder http://www.rencarlton.com/Blog/2009/12/money-making-machine/comment-page-1/#comment-132 Terra Kinder Wed, 14 Apr 2010 18:21:26 +0000 http://www.rencarlton.com/Blog/?p=86#comment-132 I think a lot of the discrepancy is that in small businesses people often get involved because of personal reasons, for example; they like to cook. Being a great pizza artist has nothing to do with managing customers, clients, employees, competition, etc...a lot of business owners that I have met are drowning in quickbooks and everything else involved in operation. Undercapitalization is horrible and very common these days, but I genuinely believe that small businesses don't make as much money because the owners have no idea how to actually "run a business"...let's get together and open a school for them! =D Academy of Small Business Owners...ASBO! Yay! I think a lot of the discrepancy is that in small businesses people often get involved because of personal reasons, for example; they like to cook.
Being a great pizza artist has nothing to do with managing customers, clients, employees, competition, etc…a lot of business owners that I have met are drowning in quickbooks and everything else involved in operation.
Undercapitalization is horrible and very common these days, but I genuinely believe that small businesses don’t make as much money because the owners have no idea how to actually “run a business”…let’s get together and open a school for them! =D Academy of Small Business Owners…ASBO! Yay!

]]> By: Rahul Magan http://www.rencarlton.com/Blog/2009/12/money-making-machine/comment-page-1/#comment-131 Rahul Magan Wed, 14 Apr 2010 18:20:53 +0000 http://www.rencarlton.com/Blog/?p=86#comment-131 Chris - Do you think any one needs a benchmark to get success in his life . The only Benchmark one needs is the Excellence and the talent to Create and Innvoate . Won't you think Benchmarks are created not followed Chris – Do you think any one needs a benchmark to get success in his life . The only Benchmark one needs is the Excellence and the talent to Create and Innvoate . Won’t you think Benchmarks are created not followed

]]> By: Chris Maresca http://www.rencarlton.com/Blog/2009/12/money-making-machine/comment-page-1/#comment-130 Chris Maresca Wed, 14 Apr 2010 18:19:38 +0000 http://www.rencarlton.com/Blog/?p=86#comment-130 A few weeks ago I was doing a consulting engagement with a small business to help them understand why their growth had stagnated. In talking to the principles, it became clear that they had not captured any performance metrics and didn't really understand how to benchmark their business. While I've seen this a bunch of times, it's been fairly rare as I usually work with VC-backed business, where metrics are required in order to even get funding. I suspect, and my experience in several non-investor backed businesses bears this out, that most small businesses are not tracking performance and don't understand how to do this. Most (all?) the people on this thread seem to be fairly well versed in business financials, metrics, performance analysis and using spreadsheets, but I think that most small business owners are not. Sure, they can probably do an adequate job of maintaining books and accounts, but they lack the understanding and tools to analyze their performance. This, in turn, leads to poor decisions on using business resources (whether cash or people), a general lack of focus on what makes the most money and no understanding of where to invest for growth. Probably the single most significant thing that could be done to improve small business performance is to teach owners how to instrument and analyze their businesses performance from quarter to quarter. As an aside, channel Five in the UK has a great series on improving business performance: http://www.five.tv/programmes/documentaries/the-business-inspector - the problems highlighted are pretty much what I have found in helping over 60 small businesses.... Chris. A few weeks ago I was doing a consulting engagement with a small business to help them understand why their growth had stagnated.

In talking to the principles, it became clear that they had not captured any performance metrics and didn’t really understand how to benchmark their business.

While I’ve seen this a bunch of times, it’s been fairly rare as I usually work with VC-backed business, where metrics are required in order to even get funding. I suspect, and my experience in several non-investor backed businesses bears this out, that most small businesses are not tracking performance and don’t understand how to do this.

Most (all?) the people on this thread seem to be fairly well versed in business financials, metrics, performance analysis and using spreadsheets, but I think that most small business owners are not. Sure, they can probably do an adequate job of maintaining books and accounts, but they lack the understanding and tools to analyze their performance. This, in turn, leads to poor decisions on using business resources (whether cash or people), a general lack of focus on what makes the most money and no understanding of where to invest for growth.

Probably the single most significant thing that could be done to improve small business performance is to teach owners how to instrument and analyze their businesses performance from quarter to quarter.

As an aside, channel Five in the UK has a great series on improving business performance: http://www.five.tv/programmes/documentaries/the-business-inspector – the problems highlighted are pretty much what I have found in helping over 60 small businesses….

Chris.

]]> By: Rahul Magan http://www.rencarlton.com/Blog/2009/12/money-making-machine/comment-page-1/#comment-129 Rahul Magan Wed, 14 Apr 2010 18:19:06 +0000 http://www.rencarlton.com/Blog/?p=86#comment-129 The Buring question is why Most of the small Biz Houses are not be able to convert themselves like MS / Apple / Yahoo / Google / Wallmarts ? , though the fact is that all the said companiesare established by set of people and they lead it so well that today they are governing the Technology & Retailling of the world Are they Really lacking Excellence /Fire of Success / Creativity and Innovation ? The Buring question is why Most of the small Biz Houses are not be able to convert themselves like MS / Apple / Yahoo / Google / Wallmarts ? , though the fact is that all the said companiesare established by set of people and they lead it so well that today they are governing the Technology & Retailling of the world

Are they Really lacking Excellence /Fire of Success / Creativity and Innovation ?

]]> By: 3D Financing http://www.rencarlton.com/Blog/2009/12/money-making-machine/comment-page-1/#comment-128 3D Financing Wed, 14 Apr 2010 15:49:45 +0000 http://www.rencarlton.com/Blog/?p=86#comment-128 Excellent discussion. Each business is unique. Some small businesses are meant just a job for the owner. I created a job or two for myself through the years! To make real money, an owner would have to get beyond that mentality. More money is not the solution to small business problems. We have worked with small businesses for years and most try to get money when they are "out of runway" instead of when they are ready to fly. Most business owners panic too late. Excellent discussion. Each business is unique. Some small businesses are meant just a job for the owner. I created a job or two for myself through the years! To make real money, an owner would have to get beyond that mentality. More money is not the solution to small business problems. We have worked with small businesses for years and most try to get money when they are “out of runway” instead of when they are ready to fly. Most business owners panic too late.

]]> By: Rahul Magan http://www.rencarlton.com/Blog/2009/12/money-making-machine/comment-page-1/#comment-126 Rahul Magan Thu, 08 Apr 2010 19:06:09 +0000 http://www.rencarlton.com/Blog/?p=86#comment-126 Peter - We are having the example of the one of the foremost Asian SWF called Chinese Investment Corporation (CIC ) of China with Just principally approved capital base of $ 200 Bn and started the operations in 2007 and in just 3 yrs , this SWF has dominated all the Deals accross the world and today just completed the deal of $ 40 BN with Australia LNG Player ... CIC is having the competitors like SWF from OPEC ( Dubai /Kuwait / .... ) but he is continously securing the deals and he is doing bez the vision of that entity even in the largest mkts of the world is very clear and clean and CIC is totally aware that what he is doing and with what vision .... so what matters even if yu are in the big fishes but you are having the capability to think something concrete and innovative then there is no point of the demographic advantage your opponent is enjoying ... Peter – We are having the example of the one of the foremost Asian SWF called Chinese Investment Corporation (CIC ) of China with Just principally approved capital base of $ 200 Bn and started the operations in 2007 and in just 3 yrs , this SWF has dominated all the Deals accross the world and today just completed the deal of $ 40 BN with Australia LNG Player …

CIC is having the competitors like SWF from OPEC ( Dubai /Kuwait / …. ) but he is continously securing the deals and he is doing bez the vision of that entity even in the largest mkts of the world is very clear and clean and CIC is totally aware that what he is doing and with what vision ….

so what matters even if yu are in the big fishes but you are having the capability to think something concrete and innovative then there is no point of the demographic advantage your opponent is enjoying …

]]> By: Rahul Magan http://www.rencarlton.com/Blog/2009/12/money-making-machine/comment-page-1/#comment-125 Rahul Magan Thu, 08 Apr 2010 19:05:54 +0000 http://www.rencarlton.com/Blog/?p=86#comment-125 Richard - If you are having the control over the term called Value of Control while having your biz and at the same time you ae looking for the Equity or debt partner then there would not be any point on suh issue , but to maintain the value of Control one has to be very innovative and talenetd and all the ideas that he is putting in the mkt must realize the value of control .... , that is the only and best solution to prevent from the Control... Richard – If you are having the control over the term called Value of Control while having your biz and at the same time you ae looking for the Equity or debt partner then there would not be any point on suh issue , but to maintain the value of Control one has to be very innovative and talenetd and all the ideas that he is putting in the mkt must realize the value of control …. , that is the only and best solution to prevent from the Control…

]]> By: Chris LaCroix http://www.rencarlton.com/Blog/2009/12/money-making-machine/comment-page-1/#comment-123 Chris LaCroix Thu, 08 Apr 2010 14:14:24 +0000 http://www.rencarlton.com/Blog/?p=86#comment-123 One more before I go, for the night; suppliers are doing much better than Internet right now. Sure AR is a bitch, but that's the business, and tthe chain knows it. But Retail is hurt real bad and string can be lengthened if you need it. Adding Value in the supoply chain is good business and will improve. TCO, ROI, low entry, and expect limited capital. Demand is there. Both Enterprise and SMB. One more before I go, for the night; suppliers are doing much better than Internet right now. Sure AR is a bitch, but that’s the business, and tthe chain knows it. But Retail is hurt real bad and string can be lengthened if you need it. Adding Value in the supoply chain is good business and will improve.

TCO, ROI, low entry, and expect limited capital. Demand is there. Both Enterprise and SMB.

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