The business financing and venture-capital unit of the Business Development Bank of Canada released recent survey results that indicated that over the past two years, 47 per cent of Canadian entrepreneurs polled invested to improve productivity. Of these respondents, 34 per cent invested to keep up with the competition while 30 per cent invested to seize market opportunities.

Moving forward, over the next 24 months, 59 per cent of respondents indicated they will invest in new machinery and equipment and 49 per cent said they want to invest in innovation, new products and services.

“It’s encouraging to see entrepreneurs intending to invest strategically in activities that will help them become more competitive,” BDC’s CEO Jean-Rene Halde told the Montreal Gazette in an Oct. 19 story, adding, “Their success depends largely on productivity improvements and innovativeness.”

The BDC survey also showed investment intentions in research and development and in foreign markets are up. A higher percentage of Quebec small and medium-size businesses (26 per cent) plan to expand in foreign markets. The biggest obstacle to investment by companies across Canada is lack of financing, BDC said. About 47 per cent of Quebec respondents cited access to new financing, while in Western Canada the comparable figure was 21 per cent.

Looking ahead, forecasting and planning for future growth is a challenge. Business Diagnostics authors Rich Mimick and Michael Thompson provide a step-by-step process on how to size-up internal business operation and how to plan a proper course for a startup, investment and hiring. This internal size-up drills down into a company’s performance, evaluating its relative health from different viewpoints – financial, marketing, operations, human resources, and technology. Meanwhile, Business Diagnostic’s external size-up examines the business environment (political, economic, societal and technological factors) along with prevailing industry conditions.

A great resource for business owners considering investing and expanding to meet the always-changing  economic times.

In a June 30, 2010 news article in The Ottawa Citizen, certified management consultant Tony Wanless writes that in a recent survey, one in three Canadians said they were interested in starting their own business in the next two years. Of that group, 35 per cent said they’re going to follow through with those plans.

According to Wanless:

If we extrapolate from the survey of 1,010 Canadians by the tax and accounting software maker Intuit, that means about 10 per cent of Canadians plan to start their own businesses soon. If half of those do follow their dreams, that is quite astonishing.

What will also be astonishing, however, is if those thousands of would-be Canadian entrepreneurs proceed as 21st-century entrepreneurs instead of blindly imitating the methodology of 30 years ago.

Anyone who takes up the challenge of business startup today would do well to examine how entrepreneurship has changed in this century.

The biggest change is that today, less is best. Starting a business now is all about less — as in less elaborate business planning; less imitation and more innovation; less step-by-step execution and more going with the flow; less one-way delivery and marketing and more conversation with customers.

This less-is-best concept generally goes against traditional business training, which is based on the old industrial/retail system. Business plans, for example, are about execution of known factors, so if you’re building a factory that is going to be around for 10 or 20 years, you’ll need a business plan. But in today’s world of continuing change, any plan that details steps further out than quarterly or semi-annually is unsuited for anyone starting a small business.

The top entrepreneurship method now is the lean startup, an application of Lean thinking, which is an organizational method of operation derived from the Toyota production system.

In Lean thinking, an organization attempts to eliminate all wasteful effort and cost. Lean thinking means new startups rarely use formal business plans in the beginning because in a rapidly changing world they cannot obtain the information they need to plan several years in the future.

In fact, in 2002, the magazine Inc. surveyed founders from its Inc. 500 list of fastest-growing entrepreneurial companies and found that only 40 per cent had written formal business plans.

Of those, nearly two-thirds said they changed their businesses considerably from their original plan.

The lean startup applies the Lean thinking approach at the crucial period when new companies often have a concept but really don’t know how their businesses are going to evolve.

Since most new businesses — even those in traditional areas such as retail or services — now primarily operate online, this learning process is much easier.

So, what makes a start-up “lean”?

According to Wanless,  a lean start-up features three characteristics:

♦It keeps costs low by using open source and free software. If those aren’t available, it uses low-cost cloud computing (renting software and other services online) instead of initially buying expensive systems and software. They also endeavour to “rent” as many business needs, such as personnel, as possible;

♦It applies agile development when creating products or services. In this methodology, product development borrows from new software-creation models. Agile development is perfect for startups in which the problem (the genesis for all business concepts) and the solution (the business’ answer to the problem) are still fuzzy;

♦It constantly talks with customers, existing or potential, to see how they can improve. It usually begins with a simple product or service and then change or expand it to answer customer concerns. Its main business process is continual customer research and development.

Wanless provides a good example of this modern form of small business development:

Stewart Butterfield of Vancouver, who co-founded with his then wife Caterina Fake a company that had developed a multi-player online game.

The game went nowhere, so they dumped it and began working on an instant messaging application that had features such as game-like experience and the ability to handle photos. That evolved in 2004 into a photo-sharing application that became Flickr, now the dominant photosharing site on the Internet.

Fake, who has since divorced from Butterfield, said the pair couldn’t write a business plan because they couldn’t do any research on where the company might go. “We weren’t planning on building a photosharing site,” she said. “If we had done our research, we would have said we shouldn’t bother because it’s all been sewn up (by competitors).”

Flickr’s story is a tech one, but that doesn’t mean other entrepreneurs can’t learn from it and apply it to their own industry.

The biggest lesson is that in the early years businesses often change as they attempt to find a market niche in which their concept meshes with customer needs.

Determining the most efficient design and composition of a start-up or small, medium or new business requires planning and insight.

Business owners and aspiring business owners must have a firm understanding and appreciation of their business’s capabilities, value and potential.

When the time comes to expand operations to meet changing market conditions and growing demand, owners should have all their business plans in place to allow for financing, if and when needed.

“Business owners have to get their houses in order,” says Mike Thompson, co-author of Business Diagnostics. “Many small and medium sized business owners are faced with growing a fledgling enterprise to meet growing market demand. To access the capital they require, owners should be performing an internal and external Business Diagnostic ‘size-up.’ To determine exactly what they have, what they need and what they qualify for.”

Within Business Diagnostics, business owners are provided a step-by-step process on how to size-up their internal business operation and how to plan a proper course for a startup.

The internal size-up drills down into the company’s performance, evaluating its relative health from different viewpoints – financial, marketing, operations, human resources, and technology.

Meanwhile, Business Diagnostic’s external size-up examines the business environment (political, economic, societal and technological factors) along with prevailing industry conditions.

A June 20 Associated Press article titled “Canada’s economy is suddenly the envy of the world,” goes so far as to suggest the rest of the world could learn from Canada’s prudent approach to debt management and long-term planning:

Canada thinks it can teach the world a thing or two about dodging financial meltdowns.
The 20 world leaders at an economic summit in Toronto next weekend will find themselves in a country that has avoided a banking crisis where others have floundered, and whose economy grew at a 6.1 percent annual rate in the first three months of this year. The housing market is hot and three-quarters of the 400,000 jobs lost during the recession have been recovered.
World leaders have noticed: President Barack Obama says the U.S. should take note of Canada’s banking system, and Britain’s Treasury chief is looking to emulate the Ottawa way on cutting deficits.
The land of a thousand stereotypes — from Mounties and ice hockey to language wars and lousy weather — is feeling entitled to do a bit of crowing as it hosts the G-20 summit of wealthy and developing nations.
“We should be proud of the performance of our financial system during the crisis,” said Finance Minister Jim Flaherty in an interview with The Associated Press.
He recalled visiting China in 2007 and hearing suggestions “that the Canadian banks were perhaps boring and too risk-adverse. And when I was there two weeks ago some of my same counterparts were saying to me, ‘You have a very solid, stable banking system in Canada,’ and emphasizing that. There wasn’t anything about being sufficiently risk-oriented.”
The banks are stable because, in part, they’re more regulated. As the U.S. and Europe loosened regulations on their financial industries over the last 15 years, Canada refused to do so. The banks also aren’t as leveraged as their U.S. or European peers.
There was no mortgage meltdown or subprime crisis in Canada. Banks don’t package mortgages and sell them to the private market, so they need to be sure their borrowers can pay back the loans.
In Canada’s concentrated banking system, five major banks dominate the market and regulators know each of the top bank executives personally.
“Our banks were just better managed and we had better regulation,” says former Prime Minister Paul Martin, the man credited with killing off a massive government deficit in the 1990s when he was finance minister, leading to 12 straight years of budget surpluses.
“I was absolutely amazed at senior bankers in the United States and Europe who didn’t know the extent of the problem or they didn’t know that people in some far-flung division were doing these kinds of things. It’s just beyond belief,” he told the AP.
The Conservative Party government of Stephen Harper that took over from Martin’s Liberals in 2006 broadly stuck to his predecessor’s approach, though he cut taxes and, when recession struck, pumped stimulus money into the economy, with the result that Canada again has a large deficit.
But it is recovering from the recession faster than others, and although its deficit is currently at a record high, the International Monetary Fund expects Canada to be the only one of the seven major industrialized democracies to return to surplus by 2015.
This month Canada became the first among them to raise interest rates since the global financial crisis began.
George Osborne, Britain’s Treasury chief, has vowed to follow Canada’s example on deficit reduction.
“They brought together the best brains both inside and outside government to carry out a fundamental reassessment of the role of the state,” Osborne said in a speech.
It’s a remarkable turnaround from 1993, when the Liberals took office facing a $30 billion deficit. Moody’s downgraded Canada’s credit rating twice. About 36 percent of the government’s revenue went toward servicing debt.
“Our situation was dire. Canada was in a lot of trouble at that point,” Martin said. “If we were going to preserve our health care and our education system we had to do it.”
As finance minister, he slashed spending. A weak currency and a booming U.S. economy also helped Martin balance the books. In the 1998 budget the government estimated that about 55 percent of the deficit reduction came from economic growth and 35 percent from spending cuts.
“The rest of the world certainly thinks we’re the model to follow,” said Martin, who was prime minister from 2003 to 2006. “I’ve been asked by a lot of countries as to how to go about it.”
Don Drummond, Martin’s budget chief at the time, says the U.S. and Europe won’t have it that easy, because the economic climate was better in the late 1990s than it is now, with large trade gains and falling interest rates.
“There’s a lot to learn from Canada but their starting conditions are worse,” he said. “Even though we were on the precipice of a crisis we weren’t in as bad a shape as many of them are.”

The same lessons learned on the international stage apply to the small and medium size business environment.

Proper planning, prudent budgeting and sizing up your business to determine health and wealth and future prospects is crucial.

If you do not know what you have now, how can your react to opportunities and challenges in the future?

The financial health of a company is the crucial component of the business’s survival and success. Without a clear picture, and proper planning, owners work themselves into a corner, eventually having nothing but debt and a diminished capacity to react to new business opportunities.

“Business Diagnostics was written to help business owners and business managers avoid scenarios such as this,” adds co-author Rich Mimick. “Business Diagnostics provides a pragmatic framework for sizing up the health of a company and proper financing and planning strategies.”

Business Diagnostics provides business owners a step-by-step process on how to size-up their internal business operation and assess its relative strengths and weaknesses. The internal size-up drills down into the company’s performance, evaluating its relative health from different viewpoints – financial, marketing, operations, human resources, and technology.

That is what the founders of Smiths Falls, Ont.-based Maple Lane Equestrian did when they launched in 2005.

“We did a financial business plan on paper when we set up our business, and we used a template from the Internet and one from a program I had taken,” Marsha Houlahan, co-founder and president of Smiths Falls, Ont.-based Maple Lane Equestrian, told reporter Alexandra Lopez-Pacheco. “It [the template] covered the financials as well as how to market and what products we should bring in at the beginning–that kind of thing.”

In the same article, Theodore Homa, managing partner in consulting at Business Development Bank of Canada, said the main purpose of a business plan is to obtain financing. The better organized, thoughtful and comprehensive the plan, the better the ultimate pitch the startup will make to the banker.

However, with free, boilerplate-style planning forms, you usually get what you pay for says Mike Thompson, co-author of Business Diagnostics, insisting that start-ups – and more mature operators – need to carefully plan and prepare their proposals using well-structured, professionals guides and advice. A poorly structured financing pitch can set a new business back and damage long-term viability.

In the same article, Mr. Homa suggests business owners focus on two core areas when preparing a business plan:
The first is a market analysis. “Have you done market research? Why is there a need for your product or service? Who buys it? What’s your position in the market and why would you have success in selling your product?” Mr. Homa said.

The second is cash flow and profitability. “So how much are you going to spend on developing this product? How much are you going to earn from selling it? What’s your expected profit and your break-even points?” he asked.

Mike Thompson says Business Diagnostics was developed to assist business owners in these specific areas. Business Diagnostics is a manual, guide and reference for current and aspiring business owners. The book provides a unique framework that helps small and medium size company owners and managers evaluate their corporate health while providing indispensable insight and reference for small business start ups.

Essential for everyone in the small to medium sized business sector, authors Rich Mimick and Mike Thompson are highly regarded management, accounting and commercial banking experts and have compiled a remarkable resource of information and guidance on raising equity, obtaining financing, implementing growth strategies.
Business Diagnostics can be reviewed and purchased here.

Canadian business owner respondents to the survey are confident on economic growth, capital investments and recruitment. However, the survey found Canadian business owners need to broaden their geographic reach for consistent, strong growth.

According to the report released the first week of February, in Canada, nearly 20% of respondents say they do business internationally, compared with an average 31% for the 20 countries surveyed. Thirty-nine per cent of Canadian business owners cited bureaucratic red tape as the chief barrier to operating globally, followed by lack of product demand (37%), lack of knowledge or contacts in overseas markets (35%), low profit margins (34%), high shipping and storage costs (32%), and unstable financial conditions (31%). More than 6,000 businesses across 20 countries were surveyed.

Meanwhile, Canada’s job market continued a six-month surge in January, creating 43,000 jobs even as payrolls in the U.S. kept shrinking. According to a February 6, 2010 Canwest News Service report, employment in Canada has grown by a total of 137,600 since bottoming out last July. The job market gain in January was strong, at 43,000 jobs, although nearly all were part-time ones, which generally pay less. Unemployment fell one tenth of a point to 8.3 per cent, the best reading since it peaked at 8.7 per cent last summer.

A market segment can be defined as … groups of customers and potential customers who have similar needs and desires, which are distinct from other segments and can be targeted as a group by adopting unique marketing strategies.

Here are 3 steps required to develop an effective segmentation strategy:

1) Definition

Market segments can be defined in many ways and can include:

• Geographical
• Industry
• Demographic
• Procurement based
• Operational needs

2) Measurement

The size of your market segments would normally be measured in terms of dollars and/or units and should also include their estimated growth rates over the next year.

Your percentage share of each market segment should also be estimated

3) Assessment

You will also need to carefully assess:

• Future trends for each segment and the respective customer needs and wants?
• The presence of primary, secondary, or even tertiary segments? In other words, who is the real customer?
• How or where do segment customers purchase your products or services and what is the profit potential of each segment?

Small firms are disproportionately represented in the construction trades and services, health care, environmental services, information technology and management consulting sectors. Accounting for almost 70 per cent of paid employment in these sectors, these areas expected to recover faster than others.

However, commentators such as Alfie Morgan, a retired University of Windsor business professor who for more than two decades has championed small business interests at the local chamber of commerce, says the lack of consumer confidence has caused lenders to be extremely cautious, unwilling to take chances on sectors dominated by small enterprise.

This why it is crucial for all small business owners to have contingencies in place and a firm understanding and appreciation of their business’s capabilities, value and potential. When the time comes to expand operations to meet changing market conditions and growing demands, they should have all their financing needs and plans in-place.
“Business owners have to get their houses in order,” says Mike Thompson, co-author of Business Diagnostics. “Many small and medium sized business owners will soon be faced with hiring and investing to meet growing market demand. To prepare, they should be performing an internal and external Business Diagnostic ‘size-up.’”

Within Business Diagnostics, business owners are provided a step-by-step process on how to size-up their internal business operation. Owners are instructed on how to assess their business’ relative strengths and weaknesses.
The internal size-up drills down into the company’s performance, evaluating its relative health from different viewpoints – financial, marketing, operations, human resources, and technology. Meanwhile, Business Diagnostic’s external size-up examines the business environment (political, economic, societal and technological factors) along with prevailing industry conditions.

This three-part-series covering the three phases (Start-up Stage, Growth Stage, Maturity and Divestiture Stage) answers some of the questions we often receive, can be read in our Business Insights resource centre.

For more comprehensive and incisive insight, visit Business Diagnostics and order Business Diagnostics – 2nd Edition.

Mike and Richard have now moved the discussion and forum to Business Diagnostics Blog. Feel free to ask Mike and Richard business development, planning, financing and `size-up` related questions in the new Questions forum.

Below is the second sampling of the some of the questions and insights during the highly successful September forum. Be sure to check back for further highlights from the Douglas Magazine forum:

Q Hi Mike,
We are an established company and are in the fortunate position of having retained earnings on our books. My question is what are your thoughts on taking them out verses investing them in other assets.
We do like not having to use our credit lines with our healthy cash position that we are in.
Nigel

A Hi Nigel,
Thanks for the question – the key concept here is that your company’s Retained Earnings are really derived by taking your total year end Assets (fixed + current) and deducting your Liabilities (current + fixed). So to ‘reduce’ your Retained Earnings, usually by dividends, you need to ascertain how much cash is sitting on your Balance Sheet.
If there is no offsetting cash to withdraw, then you would need to draw down on lines of credit.
Which brings us to the next issue – maintaining a reasonable balance of debt to equity on the Balance Sheet. Reducing the Retained Earnings is a depletion of your company’s equity base and would be frowned upon by your bank if you have credit facilities with them.In my experience, the sound way to build a company is to build the retained earnings year over year and take funds out by way of dividends from the current year’s earnings.
Hope this helps – I am attaching a link to my blog and the Business Insight section where there is a small side presentation that covers Bank Financing and touches on the issues of equity versus debt.
Best wishes!
Mike

Q Hello Mike,
A number of us have had discussions recently about the frequency of updating strategic plans for our businesses. Some suggest that once a plan is in place that minor tweaking is required while others take a contrary view and are adamant that strategic updates should be comprehensive and regularly scheduled. In light of recent economic turmoil what does your experience say?

A My answer lies ‘somewhere in the middle’
If a comprehensive strategic plan has been crafted, the last thing you want to do is to complete a laborious update or rewrite a year later.
That said, give the exceptionally challenging and ever changing times that we are experiencing, an annual ‘tweaking’ or fine tuning exercise is not enough.
My recommendation is that an ‘annual strategic review’ be conducted by the management team, ideally at an off site location, for one day if time permits.
Five key areas should be covered:

• Present Position – using an external and internal size up process
• Strategic Direction – review and assess the present pathway and an emerging alternatives
• Required Resources – internal and external
• Risks (Mitigation) – uncontrollable and controllable
• Future Success Indicators – where the organization will be in two years

This process has enough depth to be effective yet is time and resource sensitive,

Best wishes,
Mike

A If I can add one more comment here, when it comes to maintaining a strategic plan, I use frequently in my consulting work the S.M.A.R.T. tool, recommended in the book you co-authored Mike: the 2nd Edition of the “Business Diagnostics” (Trafford Publishing 2006).
So when it comes to conducting the ‘annual strategic review’ Mike was referring to in his earlier post, having Specific, Measurable, Achievable, Realistic, Time-framed articulated strategies makes the review process easier to track and monitor.Another tool I use quite frequently that has proven time and time again to be an effective tool to conduct a “quick strategic temperature check” is the Strategy Canvas by W. Chan Kim and Renée Mauborgne. The Factors of Competition used in crafting a company strategy provide a very concise picture to assess what is working and what is not.
Just my two cents.
Betina Albornoz
Argenta Business Solutions
Strategic Business & Marketing Management

Mike and Richard have now moved the discussion and forum to Business Diagnostics Blog. Feel free to ask Mike and Richard business development, planning, financing and `size-up` related questions in the new Questions forum.

Below is the first of a sampling of the some of the questions and insights during the highly successful September forum. Be sure to check back for further highlights from the Douglas Magazine forum:

Q Hey Mike,
As a management consultant and coach, I notice that a lot of companies could benefit from giving their employees more management training opportunities, however, they often put it off to save money. Do you have any advice or tips for companies who are facing this decision?
Thanks
Bert Zethof
The Surge Strategies Group

A Thanks Bert – the investment in management and leadership training is crucial to an organization’s success yet, often such expenditures are one of the first budget items to be cut as you recognize in your question.
In the perfect world the organization would send employees away to take high impact degree programs at a university and/or have a customized program designed, developed and delivered for them.
In today’s recessionary environment, a more incremental approach needs to be taken whereby having key employees test drive a series of one day workshops may be a good solution. Such workshops are offered by either private training companies or by established universities with a proven track record in meeting the learning and development needs of mid career professionals.

This approach is a good way to ‘test the waters’ and can lead to the hopeful decision to build a more formalized training strategy around sort but intense workshop/seminar offerings.
Best wishes!
Mike

Q Hi Mike,
For an established business they will usually have several years of experience in dealing with a particular bank or if they are really fortunate a banker who has able to look after them for some time and thus know and understand their particluar business and forge a relationship. What advice could you offer for a newer or even a start up business that has no banking relationship as to what to look for in finding the right banker for them, and what might they expect a banker to ask them in return.

A Thanks for the question!
In finding the right banker, here are some key questions to ask:

• What are your qualifications and length of business lending experience?
• Do you have a team approach to business banking relationships? Who provides ongoing support to you and to whom do you report?
• Provide an overview of your business/commercial loan portfolio. Which industries do you specialize in and where have you had the most success?
• How important is business/commercial banking to your bank?

Remember, if you are seeking a new bank; remember that the key to an enduring relationship will be the individual business banker.
The banker in turn, will want comprehensive personal and business financial information from you, which is provided in a timely and consistent manner.

Bankers also dislike surprises (the unpleasant variety) and so, if you are experiencing any set backs with your business, make sure that you meet with banker promptly to figure out the best, mutually advantageous, solution.
Best wishes,
Mike

Q We are about to hire our first salesperson who is expected to be ’on the road’ most of the time. What is your recommended compensation method e.g. salary, part salary with commission, full commission. We provide a light industrial product typically around 100 per month.

A Many companies fall into the trap of hiring a sales person on a heavily weighted commission basis and then wonder why that person burns out and quits after a short time on the job.
Your product offering will likely involve a somewhat complex sales process and so it is important to recognize that you have to make an investment in an individual who will be charged with executing this sales strategy.
The individual also needs to know that an investment is being made in their future success.
So, rather than jumping on the commission band-wagon, you may want to consider hiring the selected candidate on a salary (+ potential bonus) for the first year with the intent that they understand that they have a finite time frame (maximum twelve months) to develop their own sales and marketing plan and then implement it.
In most cases, the empowered sales person will generate the required first year’s revenue and margin targets and then will be amenable to moving to a limited commission split.
If they do not make headway, then it will be time for both parties to move on.
A key caveat here is the time and due diligence that has to be taken to ensure a strong and enduring candidate is selected.
Best wishes,
Mike

Q I recently attended a Royal Roads University sponsored seminar featuring Peter Robinson (CEO of the David Suzuki Foundation). The topic was: “What Does Real Sustainability Look Like for Business”
We often associate Sustainability these days with renewable energy and environmentally friendly initiatives. From my perspective, proper Succession Planning is a key component towards making a business “Sustainable” in the long run.
In addition to retirement age, Peter Robinson articulated this so well, leaders have “an expiration date”. Knowing and preparing for that “Best Before” date is crucial to the long term sustainability process of an organization.
I personally do not know any company that has a Succession Plan in place, certainly none of my clients, yet! While this is not an area I specialize in, I do encourage my clients to create and maintain systems that give the organization a certain degree of independence of who is at the top or at any level, really. When you have systems in place, (and maintain them) this gives continuity and consistency to a business operational strategy, not only internally but also externally, and this is key from customers’ perspective.
Mike: Can you recommend a couple of good resources on this subject i.e. internet sites, publications, companies that specilize in providing Succession Planning or even success stories of companies that have succeeded at putting Succession Plans in place?
Betina Albornoz
Argenta Business Solutions
Strategic Business & Marketing Management

A Hi Betina,
I am currently researching the whole field of succession planning and building senior management and executive capacity and capability and will post some useful resources as I seek them out – in the meantime, the Harvard Business Review just posted a very interesting article on Succession Development at the following link:
blogs.harvardbusiness.org/goldsmith/2009…-SEP_2009-_-MTOD0911
Best wishes,
Mike