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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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No One is Irreplaceable

Q.I have an employee who is critical to the operation of my small business. He knows how to do things that no one else knows how to do. At the same time, he’s become very disruptive to the business. I would like to fire him, but I’m afraid my business will fall apart without him. What should I do?


A.It’s appropriate for small business owners to hand off various tasks and responsibilities to others as their businesses grow. After all, you can’t do everything. If you want your business to grow, you must be willing to let go of some of the tasks you handled personally when the business was smaller. In most cases, this process works well. However, sometimes the person who has taken over critical duties becomes a disruption or problem within the business. When this happens, the business owner may be reluctant to make a personnel change, especially if he or she believes the business cannot function without this employee. This seems to be the dilemma you face.


We have seen dozens of these situations. The business owner has a bookkeeper, operations manager or sales person who is the only employee who knows how to do a critical function. This key employee begins to perform poorly, either in his or her duties, or more often behaviorally. The situation continues to worsen until the performance or behavior is unacceptable. However, the business owner is afraid to take action, fearing the employee will quit. The owner believes that his or her business cannot function without the key employee and the knowledge and skills he or she possess. The owner is in effect, held hostage.


Inaction only makes the situation worse. The business often loses other employees or customers due to the key employee’s poor behavior. The owner feels powerless fearing that removing the employee will cause his or her business to fail. However, regardless of the short-term pain, no one is irreplaceable. The owner and business can get through this. For example, we worked with a company that lost its entire management team save one person in a tragic fire. Extraordinary effort was required, but the company survived and eventually thrived.


Realize that no one is irreplaceable – In all our years of business experience, we have learned that no one is irreplaceable. Your business may suffer some short-term setbacks. It may cost a bit more, and you will have to expend time solving the problem, but you can get through. In fact, we have never had anyone say, I should have waited a few weeks longer before letting him/her go. Instead, what we repeatedly hear is that the business owner wished that he or she had terminated the problem employee weeks, months or even years earlier. The termination often brings a collective sigh of relieve from everyone involved.


Find people to help you through the transition – There are services that can supply you with a temporary CFO, bookkeeper, operations expert or other key employees. These services generally cost more than your current employee, but this is a sort-term fix. You can almost always hire a person with great experience in the functional area you need, even if it is only a consultant working on a temporary basis. You may have to fill in yourself for a few weeks or months, but this can help you to feel more comfortable in an area that you had previously abdicated to others.


Make a clean break – It can be very difficult for the problem employee to train his or her replacement. You may think that you can bring in someone to learn parts of the job, thus easing the disruption to your business when you terminate the current employee. However, in our experience, the entrenched employee most often will be unwilling or at least reluctant to help you take duties away from him or her. His or her complete control over the function has allowed the bad behavior without repercussions. Make a clean break. Ripping off the bandage will mean some pain, but again, you will get through it.


Don’t let this happen again – Before it occurs, you can reduce the impact of this type of situation with two steps. First, document your processes. If you document processes, it is easier for a new person to step in and take over tasks in the short term. Second, cross train as much as possible. This spreads the company knowledge over more people. It takes a bit of preplanning and effort, but is completely doable.


As the saying goes, absolute power corrupts absolutely. If you find yourself with a key employee who is causing severe issues in your company, follow the steps above to extricate your company and yourself from the situation. Don’t be a hostage. You can get through the short-term pain and get your organization back on track
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Business Plans



Q.Some friends have told me that I should have a business plan for the small business I am planning to launch in the fear future. What do you think?







What is the formula for a successful business? You know the ones we mean, the ones that thrive. These are the businesses that throw off a lot of cash and provide a great lifestyle for the owner and his/her family. Then there is the other kind of business. Those that struggle and never seem to reach their potential. Doug and Polly’s award winning and best-selling book, Let Go to Grow: Why Some Business Thrive and Others Fail to Reach Their Potential uses real life examples gleaned from their more than 100 interviews with small business owners and entrepreneurs.

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A.You will most assuredly need a plan for your business. You may, or may not, need a formal business plan. 


Every business must answer three questions. They are:

1.  Why should a prospective customer buy your product or service rather than a competitor’s?

2.  Is there a segment of the market that values what differentiates your offering and is it large enough to support your business? 

 


3.  How will you reach this segment with your marketing message?

 

Every business, no matter how large or small must answer these three questions, either implicitly or explicitly. However, once you resolve these very basic issues, whether you need a formal business plan is a function of cash flow. If your business will have significant negative cash flow before it starts to throw off cash, or if you need your business to throw off cash from day one (say to pay the bills), a formal business plan may be in order.


Let’s consider examples at each end of the spectrum. You have an idea for a fantastic new product. You want to launch a business to bring the product to market. However, you’ll need to make a significant investment in product development. Then, you’ll need to purchase equipment, rent space, and hire people to manufacturer it. There will be a lot of cash outflow before there is any income. You’re looking for investors to help make your dream a reality. You are going to need a formal business plan.


At the other end of the spectrum, suppose you want to launch a business that has no fixed cost. No upfront investment is required. You’ll be cash flow positive from day one. Further, let’s assume that you are not counting on income from this new venture to pay your monthly bills. An example might be a residential cleaning business. You’ll use the customer’s equipment and supplies. You have already had two prospective customers approach you about cleaning their homes. You know that a large number of working people in your area use housekeepers, so there is a good market. Your prices are competitive and you consistently do a better job than the franchise cleaners do. Therefore, you expect that your business will grow through word of mouth.


You certainly have a plan for your business. You’ve answered the three questions every business must answer. However, we would not encourage you to hire a consultant to help you develop a formal business plan with revenue, expense, and cash flow projections. Instead, test and learn. Fail fast and fail cheap. Learn from your mistake and move on.


Most businesses fall between these two extremes described above. The key to whether or not you will want to invest the time and effort to develop a formal business plan is your cash flow situation. If you are looking for outside funding or you are going to dig a deep whole before you become cash flow positive, invest the time to develop a formal business plan. If you will be cash flow positive from day one, answer the three questions above and get on with your business.


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A Quick Guide to Owner Compensation

Q.  I have a small business. It is growing nicely and is profitable, but I haven’t paid myself anything yet. I have been living off of savings. When should I start paying myself a salary? How should I set my salary?

A.  When we began working with Joe’s lawn care business, we asked to see the financial statements. He proudly showed us that the company had made a profit of $10,000 to $15,000 in each of its first three years of operation. There was only one problem. Joe hadn’t paid himself a nickel in any of those years. Had he compensated himself at market rates for the 60-hour weeks he was working, the business would have lost money in each of those years.

One of the most frequent mistakes small business owners make is not paying themselves and thinking that their business is profitable. Entrepreneurs should compensate themselves at market rates as soon as the business can afford to do so.




Do you have a great product or service, but you can’t find a way to get access to the key decision makers who can buy from you? In this book, Doug and Polly share their secrets to get four meetings with the decision makers who are critical to your business. Their technique, “Research Marketing” helped them to take their struggling practice and inability to sell and turn it around in a matter of months. Now they can do the same for your business.

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Many small business owners need a paycheck to cover their personal expenses. Beyond that, it’s critical for entrepreneurs to understand when their businesses are profitable. New ventures often struggle to find the right business model. In general, companies shouldn’t expand until the business model is profitable. If it costs you $7 to make a widget that you are selling for $5, you can’t make it up in volume. Unfortunately, if the owner isn’t compensating himself or herself, it can be difficult to know when the business model is profitable.

Further, if the owner is receiving compensation, the business can expand more easily. Many very small businesses struggle with hiring a new employee. They just don’t have the cash flow to do it. If the owner is receiving compensation, it can be reduced for a period of time. This will provide the business with cash to pay the new employee who is performing some of the work that the owner used to do. The owner then has time to grow the company and replace his or her lost compensation.

In general, a business should start to pay the owner as soon as it can afford to do so. A business can afford this when there is cash left over after all of the current liabilities of the business have been met, it is likely that future obligations can be paid out of projected revenue, and there are no investment opportunities that would require leaving cash in the business. Obviously, in making these judgments, the owner will weigh his or her personal need for cash against those of the business.

We advise setting owner compensation at market rates for the job that he or she is performing. If the owner had to hire someone to do the job that he or she is performing, how much would the business have to pay to attract and keep such a person? Once all current expenses of the business are met and the owner is paid a market rate for his or her work, any remainder is profit. Of course, whether the profit is left in the business or paid out as dividends, it belongs to the owner as well. Profit is the benefit the owner receives for accepting the risk of being in business.

It is important for business owners to compensate themselves so that they understand the true profitability of their business model. Business owners should receive market rate compensation as soon as the business can afford it.

Read more ...

Ancillary Functions of Small Businesses

Q.  I have worked for several years as an automobile repair technician. I know this field well and I enjoy my work. I’m thinking about opening my own business. Do you have any words of caution?

A.  We often advise people not to open a bakery because you love baking cakes. If you love baking, get a job as a baker. The minute you open a bakery, you’ll discover that there is a lot more to running such a business than baking cakes. You’ll have to wait on customers, keep the books, order inventory and sweep the floors. Open a bakery because you want to run a business and you happen to have a great cake recipe. We offer the same advice about opening an automobile repair shop.

There are many functions associated with running a business. Before you quit your day job, make sure that you know how each of these functions is going to be handled. In most cases, the founder will need to be good at doing the primary work of the business. It sounds as though you fit this mold. It is important to remember that this most often includes sales and marketing. You’ll need to figure out how you will drive business to your shop. Further, you will need a plan for how to accomplish the ancillary functions (e.g., accounting, information technology, etc.).

We recommend that the first step for most entrepreneurs is to sell something. Put in place the minimum amount of infrastructure that you can get by with and focus on generating revenue. If it doesn’t violate your contract, perhaps you can take on some side jobs working out of your garage at home. This will allow you to figure out how your business will operate. If this isn’t a viable option, you may need to take the big step of launching your business to see if it will work. In this case, we advise doing it at as low a cost as possible.

Many new businesses fail because they simply cannot generate enough revenue to cover the fixed costs. Keep them as low as possible. Test the viability of your business as quickly and as inexpensively as possible. We say, “Fail fast, fail cheap.” Learn from your failure and modify your approach. Once you identify a model that generates revenue, then you can focus on building infrastructure.

The only caveat to this advice is to, “Fail fast, fail cheap, but don’t fail because you are cheap.” That is, don’t offer an inferior product or service that has little or no chance of success because you are doing it on the cheap. Spend enough to ensure that you have a chance to succeed. For example, in your case, this means make sure you have the tools to do the work properly.

While we recommend minimum infrastructure during this trial phase, there are some things you will need. For example, in many counties, you’ll need a business license. You’ll want to keep track of the revenue you generate and all of your business expenses for filing taxes. In Virginia, if you are selling a product, you’ll have to keep track of and pay sales tax. To minimize expense, you’ll want to handle as much of this as you can personally in the beginning. However, it’s wise to reach out to people who have expertise you lack. Initially, you should minimize the infrastructure you build, do as much of the work as you can yourself, and outsource those items where you lack expertise.

As you get some traction and your business grows, you will find that your capacity is exhausted. You’ll need to begin to make cost/benefit tradeoffs. For example, would the business be better off if you spent your time putting entries into QuickBooks or if you hired someone to do that work and spent your time marketing or working in the shop? By hiring an employee or outsourcing, you are in effect buying yourself more time that you can invest in other aspects of the business. The investment is a wise one when the value you create by spending your time in these aspects of the business exceeds what you have to pay to create this time for yourself.

Finally, we suggest that you have a plan for how you will pay your bills during the startup period before launching out on your own. If you plan to live off of savings, make sure you have twice as much as you think you will need. Launching a business invariably takes longer and costs more than you think.

Starting a business is a risky venture. Planning for how you will handle the ancillary things that go beyond the core of your business will improve your chances of success. Good luck! Read more ...

The Reality of Increasing Minimum Wage

Q.  I am hearing a lot of discussion about raising the minimum wage? What would be the results of such a change, particularly on small business?

A.   Politicians love to talk about raising the minimum wage because people perceive this to be helping those at the bottom end of the income spectrum without having to raise taxes—a win-win situation, right? Unfortunately, it’s not, because there are many unintended consequences.

When the national minimum wage is increased, more jobs will move to lower wage countries. Companies that have been able to justify leaving operations in the US with a $7.25 per hour minimum wage, will find that if they are forced to pay $12.00 per hour, they are better off to move the jobs off shore. The Americans that formerly held these jobs will be unemployed. This isn’t just companies being greedy. They may need to make this move to stay in business.

The second thing that will happen is that more jobs will be lost to automation. Companies that find they can’t afford automation at current labor rates will find that it is profitable when the minimum wage is artificially increased. More low wage earners will be unemployed. Unfortunately, both jobs moving overseas and increased automation hurts the very people that the law purports to help—those at the bottom end of the wage scale. Instead of earning $7.25 per hour, they will earn nothing.

Small business will feel a disproportionate negative impact. Large companies will be hurt less. They can afford to set up operations in low wage countries. Small companies often don’t have that luxury. Large companies can afford the capital cost of automation and can amortize the cost over large volumes. Small companies often don’t have the volume to justify automation that is profitable for large companies and even if they do, they may not have the capital required to purchase the equipment. In these cases, a rise in minimum wage will drive small companies out of business because they don’t have the resources to compete with large companies. The result will be an increased number of people out of work—the entrepreneurs who ran the now defunct companies and the low wage workers it used to employ.

Admittedly, some low wage jobs will remain. For example, people who clean hotel rooms or work in the fast food industry do not run the risk that their jobs will move to low labor cost countries. Automation could, in the long run, threaten some of these jobs, but in the short term, most of these jobs are likely to avoid elimination. People that hold such jobs are likely to benefit from a higher minimum wage, at least in the short term

Those at the bottom end of the wage scale will have more disposable income. However, if the person making $7.25 per hour is now making $12.00, the semiskilled person who used to make $9.25 per hour will expect to be raised to a couple of dollars more than the new minimum wage, say $14.00. The person previously making $13.00 will also expect a raise and on it goes.

To pay the higher wages, companies will increase the price of their goods and services. People who think that the evil companies will pay for the wage increases by making less profit either do not understand economics or are practicing self-deceit. Inflated costs will drive prices up. The end result is that within a fairly short period of time, inflation will mean that those who are still employed at the bottom end of the wage scale will have no more purchasing power than that with which they started. Those who have lost their jobs to offshoring or automation will obviously be worse off. Raising the minimum wage will have the effect of hurting the very people it purports to help—low wage earners.

Unfortunately, you can’t legislate prosperity. For those who still question this, we ask, if a $12.00 per hour minimum wage is a good thing, wouldn’t $15.00 per hour be better, and if $15.00 per hour is better, wouldn’t $20.00 per hour be better yet? Following this logic, let’s raise the minimum wage to $50.00. That way every person who is employed 40 hours per week will make more than $100,000 per year. We’d all be rich! Wouldn’t that be great? No, unfortunately, it wouldn’t be because all of the things discussed above would happen, but at an even faster rate.

Everyone will be far better off if we let the free market set wages. Oh, everyone that is except the politicians who can’t by votes by claiming to help people by raising the minimum wage.

Read more ...
Q.  I am hearing a lot of discussion about raising the minimum wage? What would be the results of such a change, particularly on small business?

A.   Politicians love to talk about raising the minimum wage because people perceive this to be helping those at the bottom end of the income spectrum without having to raise taxes—a win-win situation, right? Unfortunately, it’s not, because there are many unintended consequences.

When the national minimum wage is increased, more jobs will move to lower wage countries. Companies that have been able to justify leaving operations in the US with a $7.25 per hour minimum wage, will find that if they are forced to pay $12.00 per hour, they are better off to move the jobs off shore. The Americans that formerly held these jobs will be unemployed. This isn’t just companies being greedy. They may need to make this move to stay in business.

The second thing that will happen is that more jobs will be lost to automation. Companies that find they can’t afford automation at current labor rates will find that it is profitable when the minimum wage is artificially increased. More low wage earners will be unemployed. Unfortunately, both jobs moving overseas and increased automation hurts the very people that the law purports to help—those at the bottom end of the wage scale. Instead of earning $7.25 per hour, they will earn nothing.

Small business will feel a disproportionate negative impact. Large companies will be hurt less. They can afford to set up operations in low wage countries. Small companies often don’t have that luxury. Large companies can afford the capital cost of automation and can amortize the cost over large volumes. Small companies often don’t have the volume to justify automation that is profitable for large companies and even if they do, they may not have the capital required to purchase the equipment. In these cases, a rise in minimum wage will drive small companies out of business because they don’t have the resources to compete with large companies. The result will be an increased number of people out of work—the entrepreneurs who ran the now defunct companies and the low wage workers it used to employ.

Admittedly, some low wage jobs will remain. For example, people who clean hotel rooms or work in the fast food industry do not run the risk that their jobs will move to low labor cost countries. Automation could, in the long run, threaten some of these jobs, but in the short term, most of these jobs are likely to avoid elimination. People that hold such jobs are likely to benefit from a higher minimum wage, at least in the short term

Those at the bottom end of the wage scale will have more disposable income. However, if the person making $7.25 per hour is now making $12.00, the semiskilled person who used to make $9.25 per hour will expect to be raised to a couple of dollars more than the new minimum wage, say $14.00. The person previously making $13.00 will also expect a raise and on it goes.

To pay the higher wages, companies will increase the price of their goods and services. People who think that the evil companies will pay for the wage increases by making less profit either do not understand economics or are practicing self-deceit. Inflated costs will drive prices up. The end result is that within a fairly short period of time, inflation will mean that those who are still employed at the bottom end of the wage scale will have no more purchasing power than that with which they started. Those who have lost their jobs to offshoring or automation will obviously be worse off. Raising the minimum wage will have the effect of hurting the very people it purports to help—low wage earners.

Unfortunately, you can’t legislate prosperity. For those who still question this, we ask, if a $12.00 per hour minimum wage is a good thing, wouldn’t $15.00 per hour be better, and if $15.00 per hour is better, wouldn’t $20.00 per hour be better yet? Following this logic, let’s raise the minimum wage to $50.00. That way every person who is employed 40 hours per week will make more than $100,000 per year. We’d all be rich! Wouldn’t that be great? No, unfortunately, it wouldn’t be because all of the things discussed above would happen, but at an even faster rate.

Everyone will be far better off if we let the free market set wages. Oh, everyone that is except the politicians who can’t by votes by claiming to help people by raising the minimum wage.

“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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