10 Words Entrepreneurs Should Use With Caution

by Jay Goltz

Recently, I did a workshop with some young entrepreneurs — mostly, I would say, between 24 and 38 — and I soon realized that in this new and enlightened age, every conversation about entrepreneurship seems to include the same 10 words, words that have become a new jargon. At the same time, one very important but old-fashioned word seems to have been all but forgotten.

Don’t get me wrong. Most of these words have some value, but many of them are misunderstood, or are euphemisms, or are overused. So here is my Top 10 list. Sprinkle them through any conversation about entrepreneurship, and you will sound progressive and “in the know.” But think about what you are really saying.

Passion. You hear this all the time, usually in a sentence like this: “If you follow your passion, the money will follow.” While passion is clearly important, this is probably the most destructive and misleading cliché about starting your own business. Lots of businesses fail, and most of the people who started them had plenty of passion. What they may have lacked is business acumen, or money, or customers who were willing to pay the right price. And here’s a related thought: It’s great to hire employees with passion, but they should also be competent.

Team. I’m sorry, but just because you insist on calling your employees a team does not necessarily mean they work well together or get the job done. Personally, I think teams play sports, and in sports there are a lot of missed plays, fumbles and mistakes. And most sports teams lose about half of the time. Business should be about flawless execution and getting the job done. But then again, I am old. I do understand that the term is well intended.

Corporate Culture. This notion of parties, Ping-Pong tables, dress-up days, bringing your dog to work and emphasizing having fun may be a good way to find and keep staff members, but it says nothing about how the company treats customers. I think corporate culture should also be about how far the company will go for customers, how much is expected from employees, how employees are expected to treat other employees, and what results are expected. I believe in a customer-driven culture.

Transparency. There are many times when transparency is valuable and constructive. There certainly should be more of it in government, and it can be helpful in finding, training and developing a staff. Customers can appreciate it. But it is not the be-all and end-all. Is it anyone else’s business if the owner decides to lend $10,000 to a valuable employee who gets in trouble? Not everything should be transparent.

Challenges. Back in the old days, we called them problems. Today, that sounds too negative. And we certainly don’t want to be negative! But there is a difference between a challenge and a problem: Trying to improve your website’s conversion rate or to find good people is a challenge. Losing your house or having to fire your brother-in-law is a problem. Both words have their place.

Scale. Will this business scale? Listen to you sounding like a venture capitalist! But I don’t know if that means growing to two stores or 10,000 stores, going international or going public, making you a billionaire or finding one crucial employee to help you do some of the work. But it is such a big word that it doesn’t need any more conversation. Checkmate! If a business can scale, no one dares to ask any more questions.

Funding. “I’m looking for funding,” sounds big time and sexy. But the question is, do you have a viable business plan, or better yet, have you had any success? The fact is, most businesses are started with savings, credit cards, and money from family and friends. Very few people get venture capital — at least outside of technology companies. I admit it. I am not a big shot. I have never raised investment money. But I have built my business to more than 100 employees with my own — and sometimes the bank’s — money. Maybe I am a medium shot.

If you don’t already, watch “Shark Tank.” It is a good show for starting to understand business. It often features entrepreneurs, and I use the term loosely, who have no clue what they are doing. And after they get beaten bloody by the sharks, often for good reason, they leave the shark tank and look into the camera and say, “No one is going to stop me from reaching my dream!” I cringe, because you can see that they didn’t hear a word. I wish they would say, “I’m going to go back and rethink my plan.” There is a thin line between vision and delusion.

Accountable. For many years, I have seen this word spread like kudzu. Yes, politicians should be accountable, companies should be accountable, and employees should be accountable. But in business, especially if it is your business, people should be held responsible. It is not the same thing. Do you want to hire a babysitter who is accountable or responsible? Holding someone responsible means that person has to fix the problem or pay consequences. Accountable is responsible without a response. Maybe it is thatnegative thing again.

Motivation. People always ask me what I do to motivate employees. I always tell them the same thing. There are many ways to motivate people: money, promotions, titles, trips, awards, parties and more. But before I worry about any of those, I would consider the hundreds of ways that people can be demotivated: being yelled at; not being reviewed on time; having to work with people who are abusive, incompetent, or lazy; not being given clear directions. There are many more.

Business Model. I actually like this term. It really does have meaning, and it covers everything people should pay attention to, including that word I mentioned that has been all but forgotten. And what is that word? Profit. I believe that we are living through a period in which growth is wildly overemphasized and profit is frequently ignored. How do I know? When I talk to entrepreneurs who throw around all of the above terms, as I frequently do, they look startled when I ask whether they are making a profit. But then again, as I told you, I’m old!

Can I Afford to Be Optimistic?

by Jay Goltz

It is time to complete the budget for 2013. I now have the final numbers from 2012 to help in the planning/forecasting/guessing game that I have been playing for 35 years. My comptroller reminds me that every year, for as long as she can remember, she has had to reduce my projections by midyear. Great. Is it a shortcoming to be optimistic if you own a company? The answer is yes, and no. At the moment, more yes.

This year did not turn out as I had planned, or perhaps as I had hoped. There was no big recovery in either the economy or in my industry (home furnishings). We did make some progress, but I had budgeted and spent money as if we were going to be in a recovery or growth mode: more people, more inventory, more advertising.

I have lived and navigated through many recessions, and I can tell you that this has not been a normal one. In the good, old recessions, you would have a down year and then recuperate slowly over the next one or two. We are now in year five, and while things have clearly gotten better, we are hardly back to where we were in 2008. The unemployment rate is still high, and most small-business owners I know are still struggling.

And it’s not just the economy. The whole business environment is constantly changing, and it can be especially difficult for a small business to keep up. It is harder to borrow money, Web sites demand attention and dollars to keep them up, inexpensive imports continue to change the dynamics of the marketplace, and the government sideshow of perpetual crises – election, fiscal cliff, debt ceiling — continues to make people nervous. And none of it helps the unemployment rate, which should be of concern to everyone.

Still, it is hard to get anywhere as an entrepreneur without being optimistic. If you’re like me, you eventually begin to develop something of a split personality. When I am playing sales manager, I have to encourage my employees to shoot for ambitious but realistic numbers. I told one of my managers that I feel good about our prospects for next year, and she reminded me that I say that every year. Oops. Another colleague has seen through my rosy glasses. But what am I supposed to do? Ask people to strive mightily for mediocre results? On the other hand, it is also my responsibility to sign off on budgets and then make sure that the numbers are reached. That job is not nearly as much fun, and that’s where the split personality comes in.

So here is my conclusion. We need to make two budgets: one that is reasonably optimistic and another that is reasonably pessimistic. The optimistic one is for sales meetings. But, human nature being what it is, it is important not to surround yourself with yes-men who will sign off on whatever you say when you are feeling good. Send in the accountants! The second budget is the one to use for financial planning and spending.

This year, in my reality-based budget, I’m not factoring in any big turnaround in the economy, and I have reduced expenses in an attempt to ensure an acceptable profit. To me, this represents one of the most important things I have learned from the many ups and downs of building small businesses: the difference between setting goals and making a plan. Goals mean nothing without a plan.

I have also learned that whining and pity parties have no place in entrepreneurship. Misery might like company, but it does nothing to help build a company. Yes, the business environment has gotten more difficult for many small businesses, but that just means that we all need to pay more attention. In sports, when you finish a disappointing season and go home, you have six months or so to ruminate about what went wrong.

When you run a small business, you don’t get time off to think, but you also don’t go home a loser. Instead, you get to hit a reset button on Jan. 1. You get to start the new year with new wisdom, a clean slate, a new plan, perhaps even a new sense of optimism (but mostly a new plan!).

So, my fellow entrepreneurs, I encourage you to do a 360-degree analysis of what you could and should be doing better — and then make a plan to do it. No goals. A plan.

Is It a Mistake to Pick an Employee of the Month?

by Jay Goltz

I recently met a management consultant and business author who asked me if I had an “employee of the month” program. I said I did, at which point he reprimanded me for the error of my ways. His argument was that it was a waste of time and was actually counterproductive; only one person wins, and the rest are resentful. My managers and I actually considered that before we started the program, but the conversation with the consultant, Aubrey C. Daniels, got me thinking about it again. As I have gotten older, I have become more open-minded about recognizing that my way might not be the best way.

We name an employee of the month in only one of my companies, the custom framing factory, where I have the most employees working together in the same place at the same time. I have about 30 employees at the factory who do everything from making frames and cutting mats to working in shipping and receiving. We have a meeting every Friday morning for 10 to 15 minutes to announce birthdays and anniversaries, review the progress of the week and discuss what is happening in the company. On the first Friday of the month we also give out the employee-of-the-month award.

Here is how it goes. The manager announces the three people who have been nominated and explains why. Typically, the nominees are an employee who was heads-up enough to catch a significant mistake, someone who filled in for a co-worker or supervisor, someone who went beyond the call of duty to get a job done or someone who did an extraordinarily good job on a difficult project.

Then the ceremony begins, and Alex, one of the supervisors, hits the button on the boom box and the “Rocky” theme song comes blasting out: “BUM-bum-bum-BUM-bum,  BUM-bum-bum-BUM-bum.” And the winner is … !

A small Rocky statue is handed to the winner, who also receives a free framing certificate and use of the employee-of-the-month parking space. In addition, a photograph of the winner is taken with the big boss (that would be me) and displayed with the statue in the cafeteria for the month. Everyone applauds. People seem happy, but the question I now ask myself is, Is it all a front? Do the employees really seethe and grumble and leave sad and rejected? I do not want to be naïve or delusional — at least not thatdelusional. (A little delusion, I’ve found, works for me.)

So I did three things. I asked my managers, I asked a few hourly employees, and I read Mr. Daniels’s book (“Oops: 13 Management Practices That Waste Time and Money”). After what I believe to have been a thorough analysis, I concluded that the program is in fact worth doing. People seem to look forward to it. They say they like it, and I think it helps reinforce the mission of paying attention and trying to operate in a quality-driven, efficient manner. Are my employees just telling me what they think I want to hear? I don’t think so. Two reasons: First, this is not some pet project of mine, and I have made it clear that if people don’t appreciate it, we should stop doing it. Second, my “corporate culture” is very noncorporate. People tell me all of the time if they think there is a problem — even if they think am the problem.

Even so, can I be sure that no one is resentful that he or she hasn’t won the award? Can I be sure that there are not some employees who really don’t care if they ever win or not? Actually, I wouldn’t be surprised if there are people who feel that way — but I still think that, on balance, the program has a positive impact.

Has everyone won the award? No, but probably 80 percent have. And here is the harsh and nice reality: I do believe that the best employees have won, and I would rather not punish them by trying to avoid bothering others who have never done anything special to be acknowledged.

The final part of my analysis was an attempt to reconcile the consultant’s view with my experience. That was easy. After I read his book, it was obvious why Mr. Daniels had such disdain for employee-of-the-month programs. The examples he cites all have obvious flaws: they aren’t clear about why someone wins or they just give everyone a turn. He offers one example where he asked someone why he or she won, and the employee had no idea.

In those cases I would agree. A bad or meaningless program is worse than no program. But that doesn’t mean that a well-run program can’t have a little magic: “BUM-bum-bum-BUM-bum,  BUM-bum-bum-BUM-bum.”

Besides, who doesn’t love the “Rocky” theme song? O.K., maybe that’s me being delusional again.

Jay Goltz owns five small businesses in Chicago.

The One Task I Can’t Seem to Delegate

by Jay Goltz

The other day, three yearly license plate renewal stickers arrived in the mail for three of my company vehicles. This meant someone would have to put the stickers on and replace the registration card in each of the cars. Normally, that someone would be me. While I have become quite adept at delegating almost everything else, the combination of vehicles and stickers has long been a surprising source of grief, education and humor for me. I have given speeches about my failures to manage this process.

It started about 25 years ago. I had been in business almost 10 years, and I was trying my best to master the art and discipline of delegation (I had read a business book or two). Back then, in Chicago, car owners needed to buy a new vehicle sticker and attach it to the windshield every Jan. 1. I decided that this was a task that could easily be delegated, so I handed a razor blade to one of my employees and asked him to do the honors. Convinced that I was on my way to management enlightenment, I moved on to more important matters.

But when I got in my car that night, I was surprised to find that the sticker had been placed halfway up the windshield instead of in the lower right corner, where it would be out of the line of sight. I had to live with it there for a year — a constant reminder of my poor delegation skills — because getting the sticker off is next to impossible.

By the time that year had passed, I owned a car and a van, so there were now two stickers that needed attention on Jan. 1. Should I handle it myself? No! I had learned a lot about leadership in the past year. Specifically, I had learned that you have to delegate and give instructions. “Put the sticker two inches from the bottom and two inches from the side,” I directed as I handed the razor blade to my trusted accomplice.

Thirty minutes later, he came back. “Are you done?” I asked.

“Yes,” he said. But it was a hesitant yes, and I could tell there was more. “What do you mean, yes?” I asked, mimicking the hesitant tone.

Well, the stickers were on, he said, but he couldn’t find the razor blade. What? You mean it might be floating around in my car or the delivery van? He shrugged. We never did find it.

Year 3: Would I give up and do it myself? No! I am a manager. Again, I had learned more over the previous year. Delegate. Give instructions. And follow up! Besides, the temperature was near zero, which is another strong motivation to delegate.

“Here is the first sticker,” I said. “Put it two inches from the side and bottom. Don’t lose the razor blade! When you finish the van, come back to me and I will give you the sticker for my car.”

Ten minutes later he returned. Victory! In fact, he had managed to get the sticker off in one full piece, something I have never been able to do. The right guy with the right instructions; I was becoming some kind of guru of delegation. I gave him the second sticker for my car. I moved on to more important things, the whole purpose of delegation.

Half an hour went by, and I realized that he had not come back for a final victory lap. I started to go toward the door, when I saw him coming out of the bathroom. He looked as sick as a frat boy the morning after a night of drinking.

“Did you get the sticker on?” I asked.

“No.” It was a weak no, almost an “I am about to cry” no.

“Why not?” I asked.

“I broke the windshield,” he said. “I used a blow-torch to get the sticker off, and the windshield exploded.”

Years $4 through 25, I put all of the vehicle and license plate stickers on all 11 of my cars, trucks, and vans myself. I enjoy it. It doesn’t take long, I get to make sure the registration and insurance cards are all in order, and I do it with pride. I am a picture framer at heart. I make sure that all of the stickers are straight and in the right place. I clean the glass professionally. And I don’t break the windshields. Luckily, Chicago has changed the replacement date from Jan. 1 to July 1 (maybe the city administrators felt sorry for me). Which gets me back to what happened the other day when the three new license plate stickers arrived.

I had these three stickers in front of me. Two of the vehicles were out on deliveries, but one was sitting in my parking lot. My assistant drives this vehicle, and I asked her for the keys, so that I could get into the glove box to change the registration card. “I can do it,” she said. “The plate has one of those plastic shields on it, and you have to take it off with a screwdriver.” And then she looked at me with a look that only someone who has worked with you for 20 years would give you, a look that says, “Get over it. Really. This is not brain surgery. I can do it.” But? But? I stood there for 20 seconds thinking. And then I broke. After all of these years — and probably 300 stickers — I decided to believe again. I gave her the sticker and I went home. What could go wrong?

The next morning, I pulled into the parking lot. I walked past her car, and there it was. The renewal sticker was on the plate — but in the top left corner (see photo above). The little indentation for the sticker is in the top right corner, along with five years of half-peeled-off stickers. NOOOOOOOOOOO! What had I done? I walked into the office and looked at her the way you look at your dog after he eats your favorite shoe.

“I know!” she said. “I was changing it this morning, and George” — our delivery and installation guy, who has been with us 17 years — “walks up and says, ‘Let me do that.’ I was scraping off the old stickers and he grabs the new sticker off the ground and says, ‘You can put it on either side.’ And before I can react, he slaps it on!”

Of course, the card clearly says to put the new sticker over the old sticker, and since these stickers are not intended to be removed, I’m going to be looking at this for the next year. And that is my sad, tortured story of failed delegation. Now, let me assure you, again, that I have successfully delegated far more difficult tasks. And I’m sure I could delegate this one, too, if I really wanted to. The truth is, I’ve come to enjoy handling this myself.

So, I have two questions: What lesson do you think I should take from all of this? And am I alone in this — or is there anything you do that you know you could or should delegate, but you choose not to because: a) it’s just easier to do it yourself, b) it’s too easy for someone else to mess it up or c) you have some other anal-retentive reason.

Jay Goltz owns five small businesses in Chicago.

Speed Counseling for Struggling Business Owners

by Jay Goltz

Recently, I was invited to a new effort to help aspiring entrepreneurs in the food business. It is being spearheaded by Jim Koch, founder and president of the Boston Beer Company, maker of Samuel Adams beer. He teamed up with Accion, a microfinance organization, to create a new program called Brewing the American Dream.

Part of the program is something they call speed coaching — an interesting process they are doing all around the country. It works like this: Tables are set up with signs like operations, finance, marketing and so forth. Each table has a sign-up sheet with 20-minute time slots. Each table is staffed with either an employee of one of the sponsors or a local expert or business owner. Every 20 minutes a new session starts, and participants change tables.

This whole thing seems to work on several levels. First, it is inspiring to hang out with aspiring entrepreneurs. And 20 minutes seems to be long enough to assess the situation and get someone pointed in the right direction — or to at least keep the owner from going in the wrong direction. It also works because building a successful business requires being competent in many areas, so being able to cover six topics in one night can be critical to assessing weak spots and opportunities. This addresses a big problem for entrepreneurs, which is that many either don’t know where to go for help or don’t think they need any — an occupational hazard of being optimistic, confident and driven by passion!

I  helped out at the marketing table for a couple of sessions and was able to see first hand how it works. One woman wanted advice on how to market her packaged baked goods to a major grocery chain that she was already selling baked goods to in bulk. She and her mother were doing all of the baking, using premium ingredients. She wanted to start selling them packaged goods because she hoped the gross profit would be better.

The use of the word “hope” raised two red flags. “What is your gross profit?” I asked. She said it was about 10 percent. “Isn’t that low?” I asked.

“Yes,” she said. “I am told it should be about 40 percent.”

That made more sense to me. But I asked another important question: “How much are you paying yourself and mother per hour?” Eight dollars, she said.

“Did you figure FICA taxes, workman’s compensation and unemployment compensation?” No, she had not.

That means that when she has to pay someone else to do the baking, there will be no gross profit, and she will be losing money on every sale. Or, she and her mother will continue to work for next to nothing. She explained that she wanted to further develop a relationship with the store and its people told her the price that they were willing to pay. (I recently had an extended conversation with a woman who makes cookies and has had similar issues.)

My colleague at the marketing table, a Boston Beer marketing person, explained that she either needed to get them to pay more, or find stores that will. I explained to her that great marketing will not make up for bad math — in fact, if she gets better at marketing a product that is losing money, she will go out of business even faster. She seemed to accept that. She seemed appreciative and enlightened, and my partner and I certainly felt we gave her valuable advice. Will she take the advice?

I hope so. I am confident that there was a lot of good advice given out at the event and that many of the participants will be successful. The loan programs and guidance that Accion offer are helpful, and their default rate is low. It is not a cure for all issues entrepreneurial, but it is a good start. It would be great if every entrepreneur could find a mentor to help navigate the difficult waters of growing a business, but they are not easy to find. And maybe they aren’t always necessary.

Successful entrepreneurs are by nature resourceful and quick studies, and a 20-minute conversation on a particular subject might be all they need to get over a hurdle. In reality, the biggest problem starting a business is not knowing what you don’t know, which can often be revealed in 20 minutes. Gaining the skills to surmount what you don’t know will take longer, but there are many resources out there that can help. There is one catch. You have to ask.

You know how when some guys are lost they will resist asking for directions and keep driving? It is something like that, but instead of staying lost or finding their way, there is a third possibility — they crash.

Will This Business Ever Make Money?

by Jay Goltz

I recently had a conversation with a woman, Leah Rosch, who has been asking herself the kinds of questions that many business owners ask after a few years of struggling: Will this business ever make money? Do I have what it takes to succeed? Is it time to quit?

About six years ago, Ms. Rosch started a company called “What a Cookie!” It is an artisanal, decorated-cookie business, specializing in party favors — holidays, birthdays, corporate events — and gift arrangements. She told me that she had never owned a business before and has been “spiraling slowly downward” of late, ever since her accountant told her that her cookies were too labor-intensive to build a business around — one that will pay a living wage, in any case. As a last-ditch effort, she e-mailed me her “assessment for the future” along with some questions.

I have found that most people who start businesses are talented, passionate, and experienced at doing something, whether it’s writing software, cleaning houses, selling clothes or making cookies. If their businesses fail, the reasons generally have little to do with that talent, passion, or ability to make their product or provide their service. More often, the problems have more to do with marketing, management and finance, but they come disguised as a lack of cash, a lack of customers and a lack of good employees.

Because Ms. Rosch is struggling with the kinds of issues that many owners encounter, I wanted to share our exchange, and she graciously agreed. I hope the conversation, which has been condensed and edited, will be helpful to other owners facing similar problems.

Me: Your accountant is telling you what your financials say, and have been saying — that you can’t make money doing business the way you are doing business. That is just an accounting conclusion. Now you need an accounting solution, changing the business so that the numbers work.

Ms. Rosch: I understand about my accountant, but I think he’s looking at my bottom line the past several years and sees no significant income, and he figured he needed to warn me! Fact is, it’s hard not making any money, but easy — especially when the business is young — to get caught up in the mindset that money will come in eventually.

Me: I understand. My point is, you need to look at whether the business can be fixed. There is no question that continuing what you are doing is not going to all of a sudden start producing a profit. Let’s talk about your prices. Do you know your cost per cookie?

Ms. Rosch: I did a painstaking cost analysis several years ago and keep extrapolating upwards to keep up with costs. So now, with everything — ingredients, printed labels, cellophane bag, ribbon and labor per average one cookie — the real cost per cookie is about $2.25 per, for which we charge between $3.85 and $5.

Me: How did you figure how long it takes to decorate one cookie?

Ms. Rosch: We ballpark it at 10 cookies an hour, which is on the high side for the typical styles.

Me: Better to start high. What are you paying?

Ms. Rosch: Highest is $15 an hour to the top cookie decorator.

Me: Which means, with FICA, etc., it’s at least $16.50 an hour. So $16.50 divided by 10 per hour is $1.65, just for labor. Add in everything else, and it is probably costing you more than $3 per cookie. Which doesn’t leave you enough to cover your fixed costs.

Ms. Rosch: No wonder I am going broke!

Me: Exactly. That’s a rookie mistake. You’re underpricing to attract business — or at least not to discourage business — and you are not making any money. You need to stop this cold. There are three things you need to figure out: What does it really cost to make a cookie? What margin do you need? And how much do you need to live on, or what kind of profit do you need? For example — and  let’s keep numbers easy for the sake of figuring this out — if you determine that you need to have a gross profit of $120,000 to cover your all of your fixed costs, including advertising and your salary, and your gross profit margin is 60 percent, you need to have sales of $200,000 per year.

Can you do that? Can you command a 60 percent margin, or more, selling specialty cookies to a corporate market? Can you make $200,000 worth of product out of your existing facility? That is $800 per day. That is a lot of cookies. My guess is that you can’t do this making a commodity product. You need to find a business model that works. These numbers are just examples, but is there a market for high-end specialty cookies?

Ms. Rosch: I don’t know. That’s what I’m trying to figure out! Maybe I need to change the direction of the company, streamline our offerings and better target the corporate crowd. For instance, I love the concept of creating highly custom corporate cookie gifts …

Me: I don’t want to know you’re in love with a concept — you need to be objective, but I like how that sounds. You need to sit down with a blank piece of paper and figure out how to build a business that would net you the money you need.

Ms. Rosch: I’ll try to figure out costs and stuff for this. But I’m not sure I can do the business as we’ve been doing it, producing this line. I think it would need volume …

Me: I think you keep this very high end. It’s corporate gifts — law firms, Realtors, all kinds of businesses need some novel thank-you gift to send clients. Who wouldn’t want a knockout really good tasting cookie with a clever saying? I’m talking, make one killer cookie that’s in a great box. It’s all about presentation.

Ms. Rosch: O.K., well, maybe. But I still have the whole thing about being out of my element running a business. For example, in the past year, I’ve gone through four cookie decorators. It’s exhausting to keep training people only to have them leave for a better-paying job.

Me: You’re not hiring the right people.

Ms. Rosch: So how do I hire the right people?

Me: How are you finding people?

Ms. Rosch: Ads on Craigslist, mostly. Because newspapers charge a minimum of $100 to run an ad for two weeks, which can add up to a small fortune, after a while.

Me: I don’t know … I think hiring the wrong person is what can really add up to a small fortune. My business has actually had some success with community newspapers. Are you requesting culinary degrees or experience?

Ms. Rosch: No, in fact we often do better with non-culinary types because we’re not “culinary” enough. Decorating cookies is more like a craft, so it’s often easier to train people with artistic ability. But it does help if someone has had some bakery work experience in that they get the production end of things — how to work efficiently. The decorator I just lost went to a private bakery where she’s getting $25 an hour, which of course I couldn’t begin to compete with. But she has worked in big production settings and so was helpful with setting up efficiency and prioritizing and speeding people along.

Me: Well, no reason you need to be paying $25 per hour. You need to look at who you are hiring. No offense, but this isn’t brain surgery. You don’t need someone with a college degree. You need to hire people who are good with their hands, and expect to get paid a production wage that will work for the business.

Ms. Rosch: I’m not looking for college degrees, but because it’s a small artisanal concept, I do think I need people I can communicate with. And if I’m paying less than a competitive rate, it’s like a quote-unquote sweat shop …

Me: Stop! Stop with these preconceived notions. Why is it a sweat shop? Will you have 60-hour work weeks? Bad working conditions? You certainly are not paying minimum wage. You need a paradigm shift. You need to hire people who need and want the job; they are less likely to leave if you treat them well. You told me that the other bakeries you have talked to have the same problem, finding and keeping employees. But I can tell you that talking to other people in your industry is like a self-fulfilling prophecy. It’s not where you get solutions; maybe commiseration, which can be useful in a different way. And if you want people to “communicate with,” make some friends! Look, every business has challenges and problems and puzzles, and you need to address each one. And just because you’ve tried something one or two ways with no success doesn’t mean the third way won’t work. Running a small business is puzzle-solving. I think you have the raw ingredients — if you can make the math work.

The bigger question: Are you willing to do what it takes? Or to put it another way, how bad do you want this?

Ms. Rosch: Well, I’m certainly willing to try to figure this out.

Me: There is no try! There is either do or not do. That’s from Yoda in Star Wars. Success is about your resolve and persistence — and, of course, whether there’s enough of a market for what you want to do. And again, some of the problems that you have been having, like not understanding your true costs, are common mistakes among rookies.

Ms. Rosch: How long is one a rookie? I’ve been at this for more than six years!

Me: In some ways, we’re all rookies if it’s a new venture or we’re targeting a new market. But you’ll stop being a rookie when you start learning from your mistakes and stop repeating them. In learning-business years, six years is not that long. Do everything you can to fix your problems before you decide to quit: cost accounting, a budget that works, a doable marketing plan, a better hiring and management strategy. You can do it. I think.

Jay Goltz owns five small businesses in Chicago.

The Top 10 Rookie Mistakes for Entrepreneurs

The Top 10 Rookie Mistakes for Entrepreneurs
Jay Goltz

Many people who start businesses, including me, have little or no experience and just jump in. Over the years, I have compared notes with many fellow entrepreneurs, and I have seen them make the same mistakes over and over again — I recognize them because I have made them all, too. Here is my list of the biggest rookie mistakes:

1. Keeping your rent as low as possible. The key to business is to keep expenses low, right? Wrong. Sometimes it is worth paying more rent if it will generate more customers, if it gives a better image and inspires confidence, if it helps attract the right employees or if it makes it easier to deal with suppliers. In retail, this one mistake can determine success or failure.

2. Hiring someone you know and trust. Competence is more important. While hiring friends and relatives can work, it severely limits the pool from which you choose, leaving out people who could be much more qualified. Friends and relatives can also carry baggage. They can also be very hard to manage, which leads to my ultimate advice: if you can’t fire ‘em, don’t hire ‘em.

3. Buying used equipment to keep expenses down. This, too, works sometimes, but it is often shortsighted. For example, buying a used truck with 100,000 miles on it will guarantee that you will spend valuable time and money fixing the truck when it should be out taking care of customers. Can you really afford downtime with any machine?

4. Keeping your prices “reasonable.” How about picking a price that will allow you to make money? Many entrepreneurs underprice their products or services in an attempt to attract business. They either have no understanding of their costs, or they are too busy to think about them. At some point, they have to hire an employee, and that low price will leave no profit after the employee is paid. It may even cause a loss. This starts a very bad chain reaction of cash flow problems, profit problems and stress. Perhaps the biggest mistake is thinking that these problems can be solved by attracting more business.

5. Saving money on professional advice. There is nothing more expensive than a cheap lawyer or accountant. Good lawyers and accountants make good livings, just like anyone else who is good at a job. You don’t get what you don’t pay for — in this case professional, intelligent advice. And here is the worst part. Most lawyers and accountants are not qualified to be business consultants. For that matter, many business consultants are not qualified to be business consultants. Join a business group, talk to successful entrepreneurs, and get referrals from people who know what they are talking about. How do you know if they know what they are talking about? No one said this was going to be easy.

6. Considering borrowed money a last resort. Maybe it should be, but maybe not. Sometimes it is better to borrow money to do things right than to just do them wrong. Borrowing money is not necessarily stupid, irresponsible, or reckless. But it could be. Knowing the difference is, well, the difference.

7. Picking a bank that knows you and that you have a relationship with. Again, it can work. But it can also be naive. Some banks are known for lending to small businesses. Other banks are not. First, find a competent, experienced accountant. Then, ask him or her to assist you in finding a bank. Good accountants should know from their experiences with other clients which banks are in the game. Ask other entrepreneurs who they bank with. In Chicago, there are probably only 10 banks that are really interested in servicing small businesses (that means lending money). And here is the big tip. The people writing the ads for the banks are not the ones giving the loans. You might consider it false advertising. Yes, they do want your business account — they love the noninterest-bearing balances you deliver. But that doesn’t mean they want to lend you money. If you get in a bind, the difference between having the right bank and the wrong bank can be the difference between success and failure.

8. Thinking you have your advertising figured out. It is very important to know whether your advertising is working — and good luck with that! You certainly need to try to figure out whether your advertising is working, but this can be very difficult. Why? Because even if you are trying to track your results, it’s easy to get bad information: Your advertising may be reinforcing the behavior of existing customers. People may tell you they were just driving by when in reality they were influenced by your radio ad. Many times even your customers don’t know what got them in the door. My advice: Accept that it’s impossible to know everything you’d like to know, but don’t stop trying.

9. Treating your employees fairly. Well, yes, absolutely: do treat them fairly. But what is fair? Is it fair to fire someone after two months because you realize you made a hiring mistake? Or are you supposed to give it everything you’ve got, including four more painful months of hope and delusion, while your customers, your bank account, other employees and even the failing employee pay the price? I have probably hired close to 1,000 people over the last 34 years. I have never succeeded in saving, rehabilitating or dramatically changing the behavior of a bad hire. It might not be the employee’s fault; frequently it isn’t. It could just be the dreaded bad fit. It might even be the boss’s fault, but unless you are going to fire yourself, it is what it is. The rookie mistake is to let the situation go on too long. Often people who are not rookies — just bad managers — make the same mistake.

10. Falling blindly in love with your product or service. Fall in love, certainly. But a wonderful product or service won’t make up for bad decisions and deficiencies in marketing, management or finance. Being a successful entrepreneur means being a competent entrepreneur, in addition to being the best baker, computer programmer, picture framer, hairstylist or whatever it is you are.

I hope this list gives some new entrepreneurs a little insight, or even keeps some wanna-preneurs from getting in over their heads. And one more thing. In sports, you are a rookie for one year. In entrepreneurship, it can last many years. When you learn from your mistakes, you are no longer a rookie. Better yet, learn from someone else’s.

The Dirty Little Secret of Successful Companies

The Dirty Little Secret of Successful Companies
Jay Goltz

How many times have you heard the head of a company say it’s successful because of its great people? You hear it in speeches and you read it in interviews, books, and other company propaganda. And it sounds great — gracious and humble and nice. It may even be true, but it is not the whole story.

What these people don’t tell you in those interviews and books — and I’ve read quite a few — is that great companies may be great at a lot of things, but they do not always hire the right people. And that leaves them in the same place as the rest of us (but probably less often). It’s a dirty little secret that even great companies have to fire the people who don’t work out. You don’t read about it very often, because firing people doesn’t make for great public relations. It doesn’t seem gracious or nice. But that can leave a false impression.
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There Are Two Kinds of C.E.O.

There Are Two Kinds of C.E.O.
Jay Goltz

I recently had an interesting conversation with Rafael Pastor, the chairman and chief executive of Vistage, a leading organization for chief executives. He relayed a story that one of his members had told him. This particular C.E.O. has a school-age son who came home one day and asked if his father would call himself something other than a C.E.O. It seems that the boy’s classmates were giving him a hard time about the fact that his father runs a company — as if it were something to be embarrassed by. My first thought was, “What?” Maybe I could understand it if his father were a politician! But then I started thinking.
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Top 10 Reasons Small Businesses Fail

Top 10 Reasons Small Businesses Fail
Jay Goltz

One of the least understood aspects of entrepreneurship is why small businesses fail, and there’s a simple reason for the confusion: Most of the evidence comes from the entrepreneurs themselves.

I have had a close-up view of numerous business failures —
including a few start-ups of my own. And from my observation, the reasons for failure cited by the owners are frequently off point, which kind of makes sense when you think about it. If the owners really knew what they were doing wrong, they might have been able to fix the problem. Often, it’s simply a matter of denial or of not knowing what you don’t know.

In many cases, the customers — or, I should say, ex-customers — have a better understanding than the owners of what wasn’t working. The usual suspects that the owners tend to blame are the bank, the government or the idiot partner. Rarely does the owner’s finger point at the owner. Of course, there are cases where something out of the owner’s control has gone terribly wrong, but I have found those instances to be in the minority. What follows, based on my own experiences and observations, are the top 10 reasons small businesses fail. The list is not pretty, it is not simple, and it does not contain any of those usual suspects (although they might come in at Nos. 11, 12 and 13).
Continue reading Top 10 Reasons Small Businesses Fail