Business failures – reasons

According to Forbes, these are five reasons 8 in 10 businesses fail.

  • Leadership breakdown at the top
  • Not really in touch with customers through deep dialogue
  • No real differentiation in the market (lack of unique value propositions)
  • Failure to communicate value propositions in clear, concise and compelling fashion
  • Inability to nail a profitable business model with proven revenue streams

I would have to say leadership is an enormous part of how successful a business is.  The leadership team needs to create direction and effectively communicate the strategy throughout the organization.  It does not matter if you are just a small pizza shop or a fortune 500 company.  Without great leadership, the risk of your business failing is high.

Secondly, not being in touch with your customers is a huge mistake.  At the end of the day we are in business because of our customers.  If we are not able to truly understand their needs, then we are just shooting at our targets blindly.  Our customers want to know that we care enough to get to know them and sell them products that meet their requirements.

Third, selling products that are no different from our competitor’s products does not benefit us.  Our customers want to know why our products are better.  This could mean we are better priced, have better quality, provide better performance, and so on.  Our customers want value for their money, which is understandable.  It is our job to provide the value they want to gain their business.

Fourth, even if we do develop a product that meets our customer’s needs, are we properly communicating it to our customers?  For example, if you are selling an energy drink that can boost someone’s energy by 50% for 10 hours, is this being properly communicated?  If this is what is most important about the product and your biggest selling point, you need to make sure the label reflects that.  It would not do you any good to add a bunch of claims on the label that may not matter as much as this priority highlight.

Fifth, we all need profit to stay in business.  It can be difficult to turn a profit if you have a lot of overhead and small margins.  It is crucial to make sure your P&L makes sense and will allow you to take home a profit.  It can pay to do a few paper exercises before you get too deep into the business.  We want to lower our risk of failure whenever we have the opportunity to reduce risk.

These are the five reasons 8 out of 10 businesses fail according to Forbes.  This does not mean there are not anymore.  It is interesting to see what others say about business failures.  There could be 1,000s of reasons for different circumstances, but these are most definitely common reasons.  It does make sense to learn as much as we can about our businesses, customers, strategies and so on.  Education is key to reducing risk.  Nobody likes to think they can fail, but it is very possible.

34 gigabytes of information for our brains daily

The internet if filled with so much information (good & bad).  Our brains are also filled with so much information.  There is an article titled the-human-brain-is-loaded-daily-with-34-gb-of-information, which talks about how our brains take in 34 gigabytes of information daily.  This is an astounding amount of information.  In a 5-day work week, we are absorbing 170 gigabytes of information.  This would fill up an average hard drive of a computer.  We are not retaining all information we absorb because this would be too overwhelming for our brains.  However, we are using the information and experiences to mold who we are.  This means, we will want to absorb good information that will positively impact us and motivate us to be better people.  For example, I would not recommend watching too many extremist videos online that will contribute ‘nothing’ to our future successes and only provide potential harm to the way we think.

As a civilization, we are possibly the smartest we have ever been because we have so much information at our finger tips.  Internet was not widely accessible twenty years ago at the speeds we are using it today.  If I want to find out how fast a cheetah can run or how much horse power is in a certain type of Ferrari, I can easily search on the internet and have an answer within seconds.  If I am working to make a decision for my business, the internet is a great tool to help out with that.  Imagine if this was no longer and we had to go to the library for all of our answers?  Or what if we had to call the Ferrari manufacturer for the answers we desire?  The speed at which we work would significantly decrease.

I am thankful to live in the times we are because we can work so efficiently and effectively with all of the tools we have.  As each day passes, new technologies come out and we are able to work even faster.  The key is to stay up to date with the latest technologies.  These are a few thoughts I had while I wait at the airport on my airplane to show up.  Until next time!

%Efficiency – Financial Monitoring

Earlier today I took a flight from Philadelphia to Rochester, so I had some time to kill.  I pulled out a notebook and started writing down some thoughts on monitoring my financials.

A) Income
B) Expense
C) Income – Expense = Theoretical Savings
D) Year starting funds
E) Year ending funds
F) Year ending funds – Year starting funds = Actual gain
E) Actual gain/Theoretical Savings x 100% = % efficiency of savings

Here is some explanation to what I’ve written above (A to E).  The income is your salary over the course of a year.  The expense is your expenditures over the course of a year.  We would subtract expense from income to get theoretical savings.  If your number is a negative, you are spending too much money off the back and need to reexamine your spending habits.

Next, look at your starting funds (total) and your year ending funds (total).  Again, if you are receiving a negative, you are obviously doing something wrong (not in the calculation, but in how you are spending/saving).  These funds will include your savings, 401K, other investments, and so on.  We are looking for total value of your cash and investments.

Next, you divide theoretical savings by actual gain and multiply by 100% to get %efficiency savings.  The %efficiency savings will tell you how well you utilize your income.  If you get 80%, you are losing 20% somewhere.  It is your job to identify where you are spending this and does it make sense?  If you are up to an 80% efficiency this year, strive for 85% next year.  Each year, we should learn how to manage our money better.  The point of this exercise is to track our financial performance and set goals based on that.

Cost of children

In setting my financial goals, there is nothing exempt from review and this includes the cost of children.  I did a quick web search and found some good information on the cost of children from wikipedia.  There is a table called Dual-Parent Family – USDA Average Spending per Child.  This data was based on a survey by the United States Department of Agriculture that focuses on average spend per child at different ages.  Depending on how much a child’s parent earns, the average spend on a child can vary.  For example, those parents who earn less than $59,410 before-tax will spend an average of $169,080 on one child in 17 years.  Parents who earn between $59,410 and $102,870 before tax will spend an average of $234,900 and parents who earn between $102,870 and $180,040 before tax will spend an average $389,670.

The factors that come into play are housing, food, transportation, clothing, health, child care/education, and a group titled miscellaneous.  For those who have multiple children, we would simply multiply these averages out to figure out average spend per multiple children.  Obviously, it can get very pricy once you start having multiple children.  There is also another table that shows data on single-parent family average spending per child, which is not much lower than a household with dual-parents.  This makes sense because a child still needs the bare necessities to live.  The factors ranked greatest expense to least is as follows- education (46%), housing (19%), entertainment (12%), clothing (6%), food (5%), transportation (5%), healthcare (4%), and others (3%).  I am surprised food and healthcare are not much higher on the list.

We all want to give our children the best, but we also need to make sure we are not living above our means.  Additionally, if we are in the higher salary range we should manage our money in such a way that we can get ahead.  I typically see the people who make more money, do spend more and this does not need to be the case.  12% of spend on a child is going to entertainment, which is significant and 7% more than the spend on food.  I think we need to take a step back and understand exactly what we are spending our money on.  Does it make sense?  Should we do things differently?  Even clothing comes in higher at 6% versus food at 5%.  In my mind, food is much more important than entertainment and maybe even clothing.  Air Jordans or some other luxury clothing is not necessary for life.

I am satisfied with seeing education at the top with 46% of total spend on a child.  Education is extremely important and will help our children realize their full potential.  As mentioned in a previous blog post titled Level of education and salaries, I talk about the connection between education and salary.  The more education one gets seems to correlate with larger salaries.  Of course, it is not always one for one, but there is more opportunity for better educated individuals.  We should all keep this in mind.

Don’t let fears hold you back

All too often, it feels as if the cards are stacked against you and you have very little chance to succeed.  You feel closed in and are letting fears hold you back from embarking on an adventure that you really do want to take.  In your daydreams you are reaching your goals and living the life you want to live.  I am here to tell you to stop letting your fears take control of your life.  It is up to you to take the bull by its horns and live out your dreams.  I am also here to tell you to manage your expectations and understand not all dreams are possible for everyone.  This does not mean you cannot be happy.  It just means, don’t go thinking you are going to walk on water or fly around the world with superpowers because we all know that is just not going to happen.

In my younger years, I was never the top of my class or the best player on my sports teams.  I always gave it my best, but knew I would need to advance in other ways.  I pride myself on the fact that I will outwork anyone to the best of my ability and this is how I’ve made my dreams come true.  Later in life going for my masters degree, I ended up being a top student due to the effective hard work I put in.  The key word here is effective.  Over the years, I’ve learned to be effective and create strategies that work for the direction I want to go.  In my younger years even though I worked hard, I did not have a strategic mindset.  Other players on my team that were not as talented physically could out perform me because they knew the game better.  Other students who did not work as hard as I did, could out perform me because they knew what was important and focused on that.

I am much older now and would like to think I am much wiser than my younger years.  I have greater responsibilities with less time to get things done. It isn’t simple to juggle my career, business, gym workouts, family time, and everything in between. In each bucket (i.e. business, gym, family) I set goals.  Basically, what is most important to me in that focus area?  I prioritize that goal for the year and do not let the other insignificant activities get in my way.  In using this method for the past year or two, I have seen greater results.  Specifically, in my career I stopped chasing the many small carrots and focus on the larger carrots that give me more positive exposure to many cross-functional groups at multiple levels.  What projects are going to return the largest results and are most beneficial for my career?

There are times I need to enter uncharted territories that make me feel uncomfortable.  In time, I’ve become more comfortable with these types of situations.  I have come to realize it is rare to have an opportunity lead to a bad experience.  Just recently, I transitioned to a new role in a new department.  It was something I was not 100% comfortable with, but determined it would be a great move for my career.  It has been a few months since I transitioned and it did really turn out to be a great move.  Can you think of an opportunity you took that ended bad?  Or can you think of an opportunity you took that had nothing good come out of it?  I would be surprised if you could think of many of these.  If you can, you should really question your decisions.  What are your thoughts on all of this?

Success by repetition

I have never been the sharpest tool in the shed, but somehow I have managed to do better than average.  I can promise you this was not by luck or by accident.  I have worked extremely hard to get to where I am today and I have never given up on my dreams.  Today, I am still far away from reaching my ultimate goals and I am completely fine with that.  I love the fact that I have something to look forward to everyday.  One of my secrets is repetition.

As a student, it was necessary for me to study the same materials over and over again to make sure the information stuck.  In my career, it is necessary for me to review materials over and over again to make sure the information sticks.  If I am going to give a presentation, I need to make sure I know my stuff because I do not want to end up looking dumb.  Of course, practice makes perfect and studying is necessary to succeed in school.  I have always felt, I required a little more than most and I am fine with that.  I do not mind putting in extra effort prior to an exam or presentation, so I can be confident on the day of.

Repetition is crucial to my success, similar to consistency with minor improvements a long the way.  Although many of our goals are similar, the methods we use may be different.  Not one method to achieve success is going to be suitable for everyone.  The quicker we understand this, the faster we can effectively work on a plan to reach success.  It is unfair to put everyone in the same category and say, “this is exactly how you are going to succeed”.  Take a step back and understand your personality, strengths, weaknesses, and so on.  Each of these different parts can help us better understand how we will reach our goals.

Measuring your financial effectiveness

According to green car report, most internal combustion engines are incredibly inefficient at turning fuel into usable energy.  On average, most gasoline combustion engines average around 20% thermal efficiency where diesels are closer to 40%.  I can still remember sitting in physical chemistry discussing thermodynamics and this example of thermal efficiency was mentioned.

So, how does this relate to financial effectiveness?

If there is a way to calculate the efficiency of an engine, then there surely is a way to calculate the efficiency of income.  Since my education and earlier part of my career is science-engineering based, I try to relate things to my background because it is what I feel most comfortable with.  I want to have financial concepts that I can grasp and that make sense to me.  I am intending to estimate efficiency of income based on the total salary you earn on an annual basis and unavoidable expenditures [required to live].

Here are a few items that would not be included in unavoidable expenditures:

  • Video game
  • Cable or Netflix
  • Luxury clothes, shoes, or accessories
  • Decorations
  • Vacation

Anything you can truly live without would be considered avoidable expenditures.  As always, there may be some expenditures that may be avoidable to someone else and unavoidable to you or vice versa.  These would need to be looked at case by case.

So, why is efficiency of income important and what does it tell us?

First of all, in setting financial goals we need a key performance indicator (KPI) we can use to identify how well we are doing.  If you calculate your efficiency of income to be 50% in 2018, then you will focus on reducing avoidable expenditures in 2019 to increase this KPI.  Year over year, you will continue to monitor this KPI and put efforts into increasing it.  The higher your efficiency of income, the better opportunity for you to grow financially.

Similar to thermal efficiency, efficiency of income will take into account any money losses due to poor investments, interest paid for mortgage/loans, fees that could have been avoided, and so on.  As you pay off mortgages, get your finances in better working order, and learn to invest properly, your efficiency of income should rise.

The last point I want to mention about efficiency of income is that it standardizes all individuals based on how well they manage their money and not how much money they make.  Too often, you have individuals who bring in large sums of money, yet they are still poor.  How does this happen?  They are simply awful at managing their money for the most part.  If they were properly managing their money, they should in theory be better off than someone making less money than them.  Think about it this way, just because a hockey team has great offense, does not mean they will be a great team when their defense is horrible.  They may get a lot of goals, but they are probably going to give up a lot of goals too.

More to come on this concept later.

Faster decisions for faster results

A good amount of our time is spent on deciding whether we are doing things the right way.  Are we spending our time on the right things?  Am I doing something the right way?  Am I making the right decisions to further advance my career?  From the New York Post, American couples spend 5.5 days (132 hours) a year deciding what to eat.  How much time are we spending on selecting clothes, daily activities, and career opportunities?

As mentioned before, we need to gather information/data to better prepare ourselves for the future and understand our goals and build a plan to reach them in a timely manner.  Once you have your goals set, then you can align your decisions to these goals.  This should help make your decisions a little easier and execute them more swiftly.  Decisions that do not impact your goals and are not life-threatening, can be made faster knowing they will not impact your overall journey to success.

If you want to become VP of Operations and are planning to be there in 5 years, a decision today on bagel with sesame seeds or bagel with poppy seeds should not affect your ability to be a VP of Operations in 5 years.  Quickly think which one you want more now and decide, so you can move on with your day.  At times we do spend time in excess on things that truly do not matter.  If you are happy with either bagel, then why put so much thought into it?  At one time, I would spend a few extra minutes looking for the perfect breakfast or lunch when I went to a fast food restaurant on the way to the office.  Essentially I was wasting my time and the person’s time behind me in line.  Now, I go in with confidence and select the first thing that I think is good.  If it is not great, I’ll select something better next time.  I have more important things to think about.

We need faster decisions for faster results.  Our bosses are typically only looking for results and less of how we are getting there, unless they want us to apply those processes to the broader team because they were great processes with great results.  There are a lot of smaller things that we can get caught up in, which is not what we want to do.  We have limited time and need to focus our time in the more important areas that will yield the biggest results.  I’ve learned to understand the key points and work from those.  Technical expertise is important too, but I look at that as a prerequisite.  We need to know what we are doing to get our job.  The strategic mindset will help us get promoted.

Early Retirement

If you play your cards right, you can retire early!  Sounds good, right?  As much as I love to daydream about my future, I need to make sure I am enjoying the present too.  For some this means spending a bunch of money they don’t have on things they don’t need.  This can cause issues down the road when you do not have the money to get yourself out of debt.  By the time you are finally paying off your debt, you probably don’t even remember what you spent your money on and lost a great amount of interest in the process.  It is sad, but very often true.  I do not believe we need to spend our money on things we don’t need just to be happy.  I do believe we need to enjoy the present, but do so in a way where we are being responsible.

I often catch myself day dreaming about fancy cars and John Deere tractors.  Although I’d love to have these things, I know it would set me back further in my plan to pay off my mortgage.  For example, if I went out and bought an Audi A5, I’d need to pay back the $50K or so for principal and another couple of thousand dollars in interest.  This money can be more effectively used towards paying off my house.  I already have an nice vehicle with no payment that I can use.  After I pay off my mortgage in 2022, I can evaluate if a new vehicle is possible.  The longer I stay debt free, save, and invest, the quicker retirement should come.  Careful management of my funds is key to me getting the opportunity to retire sooner rather than later.  It does not mean I need to, but gives me the option to take it easier.

I will also need to save up for my children(s) college tuition, which is not cheap.  I mentioned this in my post titled, Planning for your children’s schooling (university).  Tuition is only getting more pricey by the day, so I am expected to pay between $200k to $500k by the time my son is 18.  Since I want to pay cash, I need to make sure I am planning for this well in advance.  Everything comes back to saving and saving early enough for your planned expenditures.

One of the big mistakes I see people make is saying the small stuff does not matter.  I feel the small stuff matters the most because it is an area where you can make big gains over long periods of time.  $10 a day extra wasted turns into $3,560 in a year and $35,600 in ten years.  Imagine finding a few of these opportunities and multiplying it several times.  It all adds up and all means something.  For the people who are not super stars (like myself), I thrive on small gains.  The small gains are where I can be successful too.

Planning for your children’s schooling (university)

Now that I have a 7 month year old child, I am thinking about the cost of college in 18 years because I know the cost will only rise.  According to cnbc, in 18 years the average cost for a private university could be as much as $130,428 per year.  In 18 years the average cost for a state university could be as much as $41,228 per year.  4 years at a private university would cost me $521,712 and 4 years at a state university would cost me $164,912 per child.  If you have several children, these costs are going to be multiplied by the number of children you have.

My big priority right now is to pay off my mortgage as quickly as I can.  Once I achieve this, I am going to make sure I put away a significant amount of money for my child’s (possibly children’s) education fund.  If I start saving when my child is 5 years old, this only gives me 13 years to save up enough money for my son’s college fund.  If he goes to a state university, I will need to save roughly $1,000 per month for 13 years.  If he goes to a private university, I will need to save roughly $3,000 per month for 13 years.

You can look into a 529 plan, which is a tax-advantaged savings plan designed to encourage saving for future education costs.  I am still determining if this is the best route for what I am trying to accomplish.  My reservation is if my child (or children) decide they do not want to go to college.  There may be some penalties associated with this that I am not willing to endure.  I can only hope they are able to get some sort of scholarship to help them with their tuition.  I do want to provide them with as much assistance as I can because it is a very big benefit to get out of school debt free.  I want to make sure they are able to focus completely on their schooling and not need to worry about financial issues.

Fortunately, my parents did pay most of my schooling and it was a very big help.  It allowed me to get a jump start on my life and not need to worry as much about student loan debt.  I want my children to have the same opportunities.

Getting paid based on your value

Today I had a question that went like this – how are people paid?  The intent of the question is not to understand how someone is actually paid (i.e., salary, hourly), but to understand how salaries are determined in the first place.  I stumbled upon this article titled, How does a salary range work? and it has been somewhat helpful.  At minimal it gives you a good understanding of how salary ranges are determined, but does not speak exactly to the details of determining someone’s value to a company.

First of all, I am not a HR expert nor do I claim to be.  I come to the table with a unique perspective that was developed over years from personal experiences.  In the past six years, I’ve spent the majority of my time working in a corporate environment with 30-50% of my time traveling to offices and manufacturing facilities throughout Canada and the United States.  I have dealt with a vase range of people from various levels in their organization.  I have had the pleasure to work with so many great people and a few not so great people.  Many of the folks I’ve worked with do add incredible value to their organization.  Some folks do not add much value if any at all (my opinion).

If I think about salaries and what someone should be paid, it can get very complicated quick.  I am not with these people all day long, so I cannot judge whether or not they should get paid what hey are getting paid.  What I can say is, your education, experience, and reputation do help determine your salary.  Education and experience are two obvious factors, but you may be skeptical of how reputation determines your salary.  Once I explain my view, I hope you also see it the same way I do.

As per google.comreputation is defined as the beliefs or opinions that are generally held about someone or something.  Your education and experience do overlap into this realm of reputation, but there are also other things too.  If you are already working for a company and there is an opportunity that opens up that you feel fits you well, you may apply.  If you are a good worker and have a good reputation, then there is more of a chance that you are called in for an interview.  If you are perceived as not a good worker, then the chance of you being called for an interview is not good.  That is pretty basic!

Each day at work, you are building your reputation through decisions and interactions with co-workers.  Even if you think nobody is watching, most likely someone is watching.  You are providing a service to your company each day by showing up and doing your job.  The moment you stop, you are no longer providing value to your company.  At that moment, your value significantly decreases.  Each year, your reputation plays into how much salary increase you get.  If you are going into a new company, it is possible HR will ask around to see what your reputation looks like somewhere else.  This can determine your pay at the new company.  Reputation is huge and we should never underestimate it.

With all this said, each day we build experience, knowledge, and reputation.  These things will surely play into how much you are paid.  If you are not getting paid enough at your current employer, start looking outside and understand what you can make somewhere else.  I’ve never seen anyone harmed by interviewing for another position inside/outside.  If you want to keep growing, increasing your salary, and so forth, then you need to be able to provide more value to your employer.  These are my thoughts.  What are your thoughts?

Ready, set, grow my business and live my dream

There is one life given to us and it is up to you to determine what you want to do with that life.  Each day you are making decisions, even if you are not aware of it.  These decisions may lead you to new opportunities and experiences.  We must also keep in mind that we can make 1 million great decisions, but there may be 1 decision that ruins it all.  I would not say live in fear, but be aware that some decisions can be detrimental and need to be taken more seriously than others.  So, with one life I want to realize my full potential and live out my dreams.  It is completely up to me to achieve my goals and find happiness.

Many years ago, I decided to push for what I want because nobody else is going to give me anything for free.  A goal of mine is to take my business full time and dedicate 100% of my 40-50 hrs per week focus on the business.  As of now, I hold a permanent position with my employer for financial security.  In a few years, I plan on shifting all my focus from my employer to my business.  If I have 25% dedicated to my business today and shift the other 75% to my business in two years, I would expect an increase in returns by 75% from my business.

Many years ago, I met an older gentleman on an airplane who told me the story of his successes.  He was the only 20-something year old living in a small town in upstate New York driving a Lamborghini.  Since that time he has sold two of his businesses and was onto selling a third.  One of those businesses he sold went for $60 million.  He was an interesting character with a lot of charisma.  When I think about myself, I know I need to build my skill set to better position myself to run a business.

Running a business part-time and running a business full-time are two very different things.  Especially, when I have a regular salary from another source.  Fully depending on a business to put food on the table can bring mixed emotions.  I have seen business failures and good people end up in a bad situation.  To avoid this, I have a few things I need to do first before shifting all my time to the business.

First, I need to pay off my mortgage and save up a significant amount of money.  Second, I need to grow my business to a point where it can support me.  Third, I need to make sure my heart is still in the business and I still truly believe in it.  When I say heart, I am saying passion with a mix of hard facts stating the business is ready for further growth.  Things can get a little more complicated from here, which I won’t get into those details right now.

In my personal finances, I continue to cut costs and grow my income whenever possible and however possible.  Small gains continues to work for me, as I discussed this concept many blogs ago.  Please continue to follow me on my journey and continue to support me. What are your thoughts?