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Meet Doug & Polly

Doug and Polly White love working with small businesses. Through their columns, which appear weekly in several online publications including Entrepreneur.com, their books, videos and speeches, Doug and Polly focus on helping small business owners and their managers grow and improve profitability, understand and manage their people and their finances and achieve organizational efficiencies.

Doug White
Doug White spends his time solving business problems for entrepreneurs and their organizations. His background in physics, math, engineering and business gives him an ability to go beyond the easy, surface solution; to dig deeper and find unique answers to the problems that plague small businesses. Read more...
Polly White
Polly White spends most of her time on the "folks." Whether it is helping owners and managers learn how to get the best out of their people or walking companies through a complex HR situation, Polly's expertise is unparalleled. She has that unique ability to understand people, their behaviors and personalities. Read more...
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Pricing Your Consulting Services

Q.  I am thinking of launching a one-person management consulting practice. In fact, I have had several companies approach me about helping them. Unfortunately, I have no idea how to price my services. Do you have any ideas that might be helpful?

A.   Setting consulting fees is challenging. You don’t want to overcharge your client or set your fees so high that you can’t get work. On the other hand, you want to be fairly compensated for your time. Below are five factors to consider when setting your hourly billing rate.

1.      Size of the opportunity – Bain Consulting, McKinsey & Company, and the Boston Consulting Group are able to charge millions of dollars for an engagement because the projects on which they work hold the realistic possibility of yielding benefit to their clients in the hundreds of millions, if not billions, of dollars. This, of course, means that they can typically only serve the largest companies in the world.

 

Unless you have an unusually strong pedigree, you won’t be able to work on opportunities of this magnitude or charge these fees. Nevertheless, think about the size of the opportunities on which you will work. Our rough rule of thumb is that the expected upside for the client should be on the order of ten times our fees or more. One of our core values is that our clients receive value in excess of our fees. Using this rule of thumb helps to ensure that this is the case.

 

2.      Ability of the client to pay – Even if you are working on an opportunity with $10 million of potential upside for the client an unfunded startup won’t be able to pay fees of $1 million. They just won’t have the cash. In such situations there are three options: (1) pass on the work, (2) accept lower than normal fees (probably much lower), and (3) negotiate fees that will be large only if the upside is realized.

 

From our perspective, the third option is the most attractive. This often means accepting equity, some form of convertible debt, or a share of future profits for your services. Structuring fee arrangements in these situations can require experience and creativity. It may be advisable to seek help. Of course, if the client has been funded by angel investors or venture capitalists, it is more likely to be able to afford your normal fees.

 

3.      Competition – The free market will set the cap for your fees. If prospective clients can hire equally qualified competitors at half of your rate, you are unlikely to be able to bill many hours. It is worth asking people who are doing what you plan to do how they set their rates. If you are uncomfortable approaching local competitors, ask out-of-town consultants with whom you are unlikely to compete. Google makes it easy to find these people.

 

4.      Your financial needs/goals – Your wants and needs will not affect a client’s ability or willingness to pay. However, it should affect what you charge. Recognize the fact that you are very unlikely to be able to bill eight hours in a typical workday (unless you are working as a fractional employee). Time spent on administrative tasks, marketing your services and personal issues will make this an impossibility. We find it to be a challenge to bill more than about 100 hours per month. If you are just starting out, this is likely an aggressive target, so you may want to adjust it downward. Nevertheless, you can get a floor for your fees by taking your aspirational fee income and dividing by 1,200 (12 months X 100 hours per month). If you set your fees at the level you need to achieve your income objectives, you will find out whether your business model is viable.

 

5.      Set your fees too high rather than too low – Once you have established a billing rate with a client, it is difficult to raise fees significantly. On the other hand, it is much easier to lower your billing rate. Therefore, our advice is to err on the high side.

Setting fees always involves an element of judgment. However, considering the five tips above will put you on the road to setting prices that are appropriate.

Read more...

How to Save Your Company by Performing a Business Triage

Q.  I’ve got a terrible problem. My business with 25 employees is underwater. I can’t pay all of the bills. We have plenty of revenue, but things have gotten away from me. I’m overwhelmed and don’t know what to do next. What’s your advice?

A.  It sounds like you are in a tough spot. You’ll likely have to make some difficult decisions and will need to take decisive action to save your business. We’ll give you some general thoughts on how to address your most pressing needs. However, you may be well advised to reach out to someone with experience in this area for help.

1.      Ensure that you have a positive variable contribution – That is, make sure that the price you receive for your product or service exceeds what it costs you to deliver an incremental unit (e.g., make one more widget or perform one more hour of service). Do this for every product, if you have multiple products. If you price customers differently, the analysis must be done at the customer level. When you find situations with a negative variable contribution, increase price, reduce the cost of providing the incremental unit, or stop offering that product or service. There may be rare exceptions to this rule, but in general, you have got to ensure that you are making money to cover your overhead on each sale.

 

2.      Cut costs – To stay in business, you will likely have to reduce your costs. First, eliminate all discretionary spending. The summer outing or the company holiday party need to go. Next, look to non-people costs. Can you reduce what you pay in travel costs or utilities? The landlord may be willing to reduce rent, at least for a time, if the alternative is empty space because you are out of business. Unfortunately, cutting costs may well involve the difficult decision to reduce labor costs (i.e., lay off people, reduce their hours or reduce compensation). Austerity measures are never easy, but if the alternative is closing your business, it will be better to keep some people employed than for everyone to lose their jobs when the company shuts the doors.

 

3.      Prioritize your payables – You owe more than your available cash. Therefore, you must prioritize what to pay. We suggest prioritizing in the following order:

 

·         Obligations that will shut your business down if you don’t pay them. For example, if you don’t pay your employees, they will likely leave to find work with employers who can pay them. If this leaves you unable to deliver your product or service, you’ll be out of business. Paying employees is typically a top priority.

 

·         Prioritize items that will result in large penalties next. For example, not paying taxes in a timely manner can sometimes result in massive fines. Avoid these if possible.

 

·         Any payment that is late should be next in line.

 

·         Finally, prioritize payments that are not yet late last.

 

4.      Plan your cash flow carefully – Once you have prioritized your payables, assess the cash you have and the receivables you expect to collect. Then build a detailed cash flow plan that lays out who you will pay, when you will pay them and how much you will pay them.

 

5.      Communicate with creditors – When you owe money you can’t pay in a timely manner, it is easy to ignore the situation and hide. This is almost always a mistake. Call your creditors. Explain your situation and your plans to pay your debt. Most people will be willing to work with you if they believe that you will eventually pay what you owe.

 

If you have bank debt and will break a covenant either because you will miss a payment or because some other requirement will not be met (e.g., liquidity requirements), proactively communicate with your banker regarding your situation. Remember, your banker is primarily interested in being repaid. The bank will likely only call your loan if it assesses that there is little hope of being repaid otherwise. If you proactively go to your banker with a sound plan to improve your financial situation and repay the loan, he/she is highly likely to work with you.

The five tips above will help you effectively triage your priorities when your business is struggling. However, don’t wait until it is too late to take action. Move quickly to get your business back on the right track.

Read more...

How to Hold Your Employees Accountable

Q.  I have a small business and know that I should hold my employees accountable for delivering results, but, truthfully, I’m not sure I know what that means or how to do it. Can you help?

A.  Delegating decision making authority without properly holding people accountable is a recipe for disaster. Decision makers must be held accountable for the results they produce. However, there is much more to holding people accountable than telling someone they are responsible for results and chastising them when you aren’t happy with how things go. Effectively holding employees accountable requires four steps:

1.   Set Clear and Measurable Goals – If you are going to hold employees accountable for delivering results, you must be explicit about exactly what results you expect. To be most effective, the goals should be:

•     Written – If you don’t write the goals down, the chance for a misunderstanding regarding exactly what the goal is increases exponentially.

•     Harmonious – Ensure that the goals you set for an employee are aligned with each other. They should also be aligned with the company’s overall goals and with the goals of other employees.

•     Specific and Measurable – Broad, generalizations such as, “Improve performance,” are not helpful. “Achieve sales of $1.3 million” is a much better goal. It is specific, measurable and not open to interpretation. There can be no disagreement regarding whether the employee achieved the goal.

•     Achievable with effort – Goals that are too easy to attain aren’t useful. They will not drive performance. Goals that are unattainable will frustrate rather than motivate employees. Employees should see the goals as a real stretch, but achievable.

•     Time and Resource constrained – Be clear regarding when the goal must be achieved and the resources that the employee can use. Growing annual sales by 10 percent may be a wonderful goal, but if the employee achieves this by hiring six new salespeople or spending a million dollars on advertising, the cost may exceed the benefit.

2.   Delegate Authority – You must delegate to the accountable employee the key decisions that will affect results. For example, we often see well-meaning business owners attempt to hold an employee accountable for delivering results, but they do not give the employee the authority to choose his/her team. This is a mistake. Nothing impacts results more than the choice of who will do the work. If you are going to effectively hold people accountable for results, you must empower them to make the decisions that impact the results.

3.   Measure and Review Results – You must measure, track and review results with employees. Too often, we’ve seen goals developed, written down and put into a drawer. Either they are never discussed again or they are discussed only a year later at the annual review. Periodically reviewing the employee’s progress versus the goal is much more effective.

4.   Address Deficiencies – During the reviews, if the employee is not on track to succeed, require him/her to develop a plan to address the deficiency. Berating the employee is not helpful. Instead, ask her/him what he/she will do to correct the problem. If the response isn’t sufficient, coach the employee by asking leading questions. Help your charge develop a set of action steps that will allow her/him achieve the goal. Remember, as the manager, you are accountable for ensuring that your employees succeed. At the end of the day, if your employees fail to achieve their goals, you have failed as well.

Holding employees accountable is a critical skill for good managers. The four steps above will help ensure that you are successful.

Read more...

How to use a decision tree to make tough choices

Q.  I own a successful restaurant, which I plan to sell in the next couple of years. I face a difficult decision between three options. I can only pursue one.

·         Option 1 – I could open a second location. This would cost me about $100,000. If this location fails, I would lose my investment. If it succeeds, I estimate that I would make an additional $30,000 before I sell the business and it would increase the price I would get by $200,000. New ventures are always risky. I estimate the probability of success at 50%.

·         Option 2 – Open a catering business. This would cost me about $20,000. Again, if the catering business fails, I would lose my investment. If it succeeds, I estimate that I would make an additional $10,000 before I sell the business and it would increase the price I would get by $50,000. I am more certain this would succeed, so I would put the chance of success at 80%.

·         Option 3 – Focus on my existing restaurant to improve its profitability and do not pursue any other ventures. By doing this, I might make an additional $5,000 before I sell and increase the price I get by $20,000.

Can you help me think about which option is best?

A.    The approach we recommend is a classic decision tree. We’ll walk through each option and calculate the expected value of each.

·         Option 1

o   Failure means losing $100,000. There is a 50% chance this will happen. Therefore, the expected value of this outcome is -$50,000 (-$100,000 X 50%).

o   Success means making $230,000 ($30,000 in additional profit prior to sale plus a sales price that is $200,000 higher). There is a 50% chance this will happen. Therefore, the expected value of this outcome is $115,000 ($230,000 X 50%).

o   The expected value of choosing Option 1 is $65,000 ($115,000 – $50,000).

·         Option 2

o   Failure means losing $20,000. There is a 20% chance this will happen. Therefore, the expected value of this outcome is -$4,000 (-$20,000 X 20%).

o   Success means making $60,000 ($10,000 in additional profit prior to sale plus a sales price that is $50,000 higher). There is an 80% chance this will happen. Therefore, the expected value of this outcome is $48,000 ($60,000 X 80%).

o   The expected value of choosing Option 2 is $42,000 ($48,000 – $4,000).

·         Option 3 – You don’t assign any probability of failure to this option. Therefore, we will assume that following Option 3 will allow you to capture an additional $25,000 with certainty ($5,000 in increased profit before you sell and a sales price that is $20,000 higher).

We will assume that you have $100,000 to invest and that if you don’t invest it in your business, you will put it in short-term CDs. Rates on short-term CDs are so low at this point that these earnings are unlikely to influence your outcome, therefore we will ignore this for the purposes of this decision.

At this point, the issue becomes your risk tolerance. If you are not risk averse, you will choose the option with the highest expected value—Option 1 which has an expected value of $65,000. However, you may be quite reasonably risk adverse. For example, suppose you saved the $100,000 for your 16-year old daughter’s college education. Although Option 1 has the largest expected value, there is also a 50% chance you will lose your investment. If this would mean that you couldn’t afford to send your child to college, you might well decide to leave the money in CDs and pursue Option 3—focus on improving the operation of your restaurant. Alternatively, if you could afford to lose $20,000, but losing $100,000 would cause you severe hardship, Option 2 might look good to you.

Therefore, your risk tolerance will determine which option is best for you. There is no one-size-fits-all best answer. However, using a decision tree to lay out your choices clearly allows you to weigh your options more clearly.

Read more...

How to forecast revenue for your company

Q.  I’m struggling to forecast 2015 revenue for my company. I think I can forecast sales for my ten existing clients relatively accurately. However, I have identified about two dozen prospects. I am much less certain how to forecast revenue for them. Do you have any tips for how to think about this issue?

A.  First, congratulations, it sounds as though you have a robust sales pipeline. We have a very helpful technique we have used many times with clients to help them forecast revenue.

You can use this technique on paper or on a whiteboard, but we find it is helpful to use excel because you can set it up to do the calculations for you. In the left most column, list the names of all of your prospects. At the bottom of this column, add one more item called “Unknown.” We’ll use this to add in revenue from clients you will pick up throughout the year that you have not yet identified.

In the next column to the right, enter the amount of revenue you expect to receive during 2015 if you close the client. Remember, if you think it will take six months to close the client, you will only bill for the second half of the year. Make sure to factor this timing into your estimate of revenue.

In the third column, enter the probability that you will close the deal (obviously, this assessment will be between 0% and 100%). If one client has more than one possible piece of work with different probabilities of closing each deal, create multiple line items. For example, consider two possible projects at the Acme Machine Company. Project A would bring in $150,000 and has a 75% probability of closing. Project B would bring in $500,000, but has only a 20% chance of closing. Create one line for Acme – Project A and a second line for Acme – Project B.

In the fourth column, for each row, multiply the contents of the second column (the expected revenue if the deal closes) by the contents of the third column (the probability that the deal closes). So for example, the fourth column for Acme – Project A would be $112,500 ($150,000 X 75%) and for Acme – Project B it would read $100,000 ($500,000 X 20%).

In the fourth column in the row titled “Unknown” put your estimate of revenue that will come from clients you have yet to identify. Admittedly, this can be somewhat of a crap shoot, but if you have been in business for a few years, history should be a good guide for making this estimate.

The sum of the entries in the fourth column will be the forecast of revenue from the list of prospects. What you have done is to discount the potential revenue from each prospect using your assessment of the probability that the revenue will come to fruition.

A simple example, where you will intuitively know the answer, will help illustrate the concept. Suppose you had ten prospects, each of which you expected to generate $200,000 of revenue if you could the deal. Further, you assess the probability that each closes to be 20%. This would mean that two of the ten would close. Two new clients at $200,000 each would be $400,000 of incremental revenue.

You’ll reach the same conclusion following the process we outlined. That, is multiply each of the ten estimates of $200,000 of revenue by the 20% chance each will close and add up the ten results (i.e., $200,000 X 20% = $40,000 and $40,000 ten times equals $400,000).

These are still estimates and reality usually varies from estimates—sometimes significantly. This notwithstanding, the process outlined above is the best we have found for estimating revenue from a number of potential sources where there is uncertainty around whether the deal will close.

Read more...
Q.  I’m struggling to forecast 2015 revenue for my company. I think I can forecast sales for my ten existing clients relatively accurately. However, I have identified about two dozen prospects. I am much less certain how to forecast revenue for them. Do you have any tips for how to think about this issue?

A.  First, congratulations, it sounds as though you have a robust sales pipeline. We have a very helpful technique we have used many times with clients to help them forecast revenue.

You can use this technique on paper or on a whiteboard, but we find it is helpful to use excel because you can set it up to do the calculations for you. In the left most column, list the names of all of your prospects. At the bottom of this column, add one more item called “Unknown.” We’ll use this to add in revenue from clients you will pick up throughout the year that you have not yet identified.

In the next column to the right, enter the amount of revenue you expect to receive during 2015 if you close the client. Remember, if you think it will take six months to close the client, you will only bill for the second half of the year. Make sure to factor this timing into your estimate of revenue.

In the third column, enter the probability that you will close the deal (obviously, this assessment will be between 0% and 100%). If one client has more than one possible piece of work with different probabilities of closing each deal, create multiple line items. For example, consider two possible projects at the Acme Machine Company. Project A would bring in $150,000 and has a 75% probability of closing. Project B would bring in $500,000, but has only a 20% chance of closing. Create one line for Acme – Project A and a second line for Acme – Project B.

In the fourth column, for each row, multiply the contents of the second column (the expected revenue if the deal closes) by the contents of the third column (the probability that the deal closes). So for example, the fourth column for Acme – Project A would be $112,500 ($150,000 X 75%) and for Acme – Project B it would read $100,000 ($500,000 X 20%).

In the fourth column in the row titled “Unknown” put your estimate of revenue that will come from clients you have yet to identify. Admittedly, this can be somewhat of a crap shoot, but if you have been in business for a few years, history should be a good guide for making this estimate.

The sum of the entries in the fourth column will be the forecast of revenue from the list of prospects. What you have done is to discount the potential revenue from each prospect using your assessment of the probability that the revenue will come to fruition.

A simple example, where you will intuitively know the answer, will help illustrate the concept. Suppose you had ten prospects, each of which you expected to generate $200,000 of revenue if you could the deal. Further, you assess the probability that each closes to be 20%. This would mean that two of the ten would close. Two new clients at $200,000 each would be $400,000 of incremental revenue.

You’ll reach the same conclusion following the process we outlined. That, is multiply each of the ten estimates of $200,000 of revenue by the 20% chance each will close and add up the ten results (i.e., $200,000 X 20% = $40,000 and $40,000 ten times equals $400,000).

These are still estimates and reality usually varies from estimates—sometimes significantly. This notwithstanding, the process outlined above is the best we have found for estimating revenue from a number of potential sources where there is uncertainty around whether the deal will close.

“I HIGHLY recommend Polly and Doug. They have wonderful insight to help small business owners prioritize and identify strategies for growth and improvement. Wish I had met them 20 years ago!”

Sharon MaderePresident / Premier Pet Products

My team and I have had the privilege of working with Polly on our business. Polly's keen business insight and savvy is something special. She was honest, direct, and tactful about her observations and recommendations for our team and how to grow our business. It was a pleasure having her help us and I would tell anyone that’s serious about growing their business to call Polly. She’s great!

John O’Reilly, Broker/OwnerBase Camp Realty

“Doug and Polly, I want to thank both of you! The past few months have been enlightening and overwhelming all at the same time. Your guidance, direction, wealth of knowledge, and wisdom have exceeded all my expectations. No words could ever completely describe just how amazing of a “dynamic duo” you two really are!”

Dawn Beninghove, RN, CCM, CRP, PNChief Executive Officer / Companion Extraordinaire Nursing Network, Inc.

“Doug White took on an unfocused operation (in the financial services sector) and created an efficient, centralized system dedicated to excellence. He did this not by driving change from the top down, but by helping the entire team see how their part of the process could be improved. Doug then mentored us toward effecting the changes ourselves. He taught us all how to bring our “A game,” and how to take ownership and pride in what we do.”

Donna LevinVice President of Operations / care.com

"I have had the privilege of working with Polly White for several years on a variety of projects. She consistently provides clear direction on how to resolve a wide range of employment-related issues. I look forward to my continued relationship with Polly."

Elizabeth WilkinsBusiness Manager / Manorhouse Management, Inc.

I have known Polly for more than ten years. As an HR Manager, I have utilized Polly’s training expertise at my former company and with my current company. Polly exceled at assessing the needs of our management teams and tailoring training programs that resulted in visible positive change. I also know I can count on Polly as a resource on any HR topic or bounce ideas off of her when I need a second opinion. Polly has been a mentor to me and I have always appreciated her willingness to listen and offer valuable advice and expertise.

Leigh McCullar, HR Business PartnerUniversity of Richmond

I am truly impressed with the abilities of Doug and Polly White, thank you! What a difference your expertise have made in helping Associates grow in their careers. Your dedication to excellence through empowering the individual and strengthening the Company is enlightening. I do and will continue to recommend Whitestone Partners to the Executive Market.

Suzanne Pittman, MEd VAMAC, Inc.
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