Whether you are working with a potential employee to determine a salary and benefits package or speaking with a competitor about selling your company or buying a different one, negotiating is a key part of owning a successful business. When you negotiate, you are working with another party to put together an agreement that somehow benefits all parties involved. You might not get everything you want out of the deal, but in some cases, that’s better than no deal at all. Here’s what you can do to improve your negotiating skills and increase the likelihood of reaching an agreement that suits everyone.
Make a Plan
Before you walk into any negotiation, you need to have a plan. Write out the things you want to discuss during the meeting and what your ideal goals for the negotiation are. Ideally, you’ll draw up a few plans before you start the negotiating process.
Plan A can be your ideal plan or the outcome that you’d like to have come about in a perfect world. Plan B can be an acceptable plan but not your preferred outcome. Try to think about how the person you are negotiating with will react and what you can do to steer the negotiation in the direct you want it to go. Making plans and lists beforehand prepares you for a variety of possible situations and helps you avoid losing your cool at the table.
Don’t Be Afraid to Go First
One common piece of negotiating advice is to always let the other party make the first move or offer. But it might actually be in your best interest to go first. A study from Harvard Business School found that people who make the first offer typically come out ahead in a negotiation. That’s because that first offer acts as a sort of anchoring point for the negotiation. The first figure you offer can sway the other party to adjust their offer either higher or lower. For example, if you are negotiating salary with someone and you offer $100,000 off of the bat, the potential employee might lower their counteroffer to be more in line with your initial offer.
Additionally, if you are selling something and you start the negotiation with a price of $5,000, the buyer might adjust their asking price upward, even if the item you’re selling isn’t really worth $5,000. The Harvard study points out that high anchor prices make people focus on the good features of the item on offer and help them ignore the not-so-great features.
Flexibility is a key part of a negotiation. After all, a successful negotiation usually involves a fair amount of give and take from both parties. When you’re making your plan, include a few things that you can give up or that wouldn’t be the end of the world if they weren’t included in the final deal. When you prepare for the negotiation in advance, it’s a lot easier to be flexible with the person you’re working with.
Another way to improve your flexibility during a negotiation is to try to see things from the other party’s perspective. You might not want to match 10 percent of contributions to an employee’s retirement plan. Ask yourself why the potential employee wants that and what you can offer as a suitable alternative.
Walk Away If Necessary
It’s important to remember that being flexible during a negotiation doesn’t mean completely giving up everything you want to get out of it. It’s not really a negotiation if the other party gets everything they want and you get nothing.
When you’re making your list of goals and plans for the negotiation, include numbers or terms that are your absolute deal breakers. For example, if a potential employee won’t budge from a $150,000 salary, but you can only afford $125,000, it’s OK to move on. If a buyer won’t pay more than $3,500 for your product, but you know it’s worth $4,000 and that you can get $4,000 from someone else, walk away.
Don’t necessarily slam the door shut when you walk away, though. The other party might change their minds after having some time to reflect on the situation. Or, they might realize that $4,000 isn’t too much to pay for a product they need.
There will come a time when you need to negotiate. If you’re nervous about heading to the negotiating table or aren’t sure where to start the planning process, the team at New Direction Capital can help. Our virtual CFO can help your team develop the negotiation techniques and skills it needs to grow your company and take your business to the next level.
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25 May 2017
Many of today’s well-known companies began life as something else entirely. Twitter started out of a podcast subscription company, Nokia began life as a paper mill. Starbucks originally sold just espresso makers and coffee beans, not the hot beverages and Frappuccinos it’s known for today.
What do these companies have in common? They all pivoted. They saw that their original business idea wasn’t likely to continue to succeed due to increased competition or they fell in love with a new idea and decided to move in that direction. Pivoting can save a business from going under but it can also open the doors to growth for a business that is currently doing rather well. If you’re considering a pivot for your business, here’s what to ask and how to do it.
Questions to Ask Before a Pivot
The big question to ask before you pivot is “why?” Why should you pivot and what will your business gain from doing so? One answer to the question “why” might be to keep customers interested in your product or to stay one step ahead of the competition. Twitter, for example, decided to pivot away from being a podcast subscription company when it became clear that iTunes was going to be a leader in that category. Pocket Gems, a mobile game developer, decided to pivot once it learned that gamers were moving to more technologically advanced games and losing interest in the games offered by Pocket Gems.
Another question to ask is “what does your business do that sets it apart from others?” What value does your company bring to the table that no other companies bring? If you can’t come up with an answer to the “what” question, it might be time to change course so that you can answer the question.
Finally, you want to ask yourself “how?” How can your company begin to better meet customer needs or fill in a gap in the marketplace?
Ways to Pivot Your Business
Once you’ve decided that pivoting your business can help it move to the next phase of growth, the tricky thing can be figuring out how to actually change direction. There are several paths your company can take, depending on what the ultimate goal of the pivot is.
For example, if you hope to attract new customers or want to work with a new demographic to increase revenue, take a close look at your current offering. If your primary customer is currently single, young adults, look at ways you can tweak the product or add a new product to make it appeal to older adults who might be married or have families. If you think that a product that originally appealed to young people can’t appeal to all, think again. Just take a look at Facebook. It was originally only for college students. Now people of all ages use the site and use it regularly.
Surveys or actually going out and talking to people on the street can help you see what you can do to reach a new demographic or alter your product to make it more appealing. You might think that you’re offering something that solves a problem. But it could be that the people that use your product or would use your product think otherwise.
Changing your business model is another way to pivot. For example, if you are a direct to consumer company, you might find more opportunities for growth if you start working with distributors. You’ll be able to get your products in stores, rather than selling them directly. That can reduce costs on your end and increase the size of your customer base.
You might also consider pivoting your business by changing your pricing structure. While offering your products at a high price point might make sense at first, you might find that you can easily broaden your customer based by introducing a lower priced option. You can still offer the higher priced item, but as a “premium” or “luxe” option. The lower priced option will bring more people in. Who knows, after some time, many of them might decide that they like your products so much that it is worth switching to the premium option.
The road to growth might be long and full of twists and turns. If you’re not sure what direction to take your business in or if a pivot is right for you, the team at New Direction Capital can help. We offer virtual CFO services to help your company achieve profitable growth. Contact us today to learn more.
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16 May 2017
Although many businesses follow the maxim “the customer is always right,” there are occasionally times when the advice gets ignored or thrown out the window. When a big company is behind a customer service gaffe or PR disaster, coverage of the incident is all over the news. The recent case of United Airlines employees trying to forcibly remove a man from a plane, resulting in that man being hurt, is just one example of a poorly planned policy going wrong. Large or small, companies have customer service issues on a regular basis. How your company reacts and what you do determines whether or not your business will survive.
Respond to the Problem
The sooner you or another leader in your company issues a response acknowledging the issue, the better. How you respond depends on the nature of the problem, and there are good ways and bad ways to respond. Trying to pass blame off on the customer isn’t a good way to respond, for example. If the problem is a one-time situation, it’s best to find out what people are saying about the issue and craft a response based on the criticisms of your company and in an attempt to minimize any damage from the situation. If the issue is something that’s been ongoing, your response might include putting together a task force or group to look into the problem and figure out where it is coming from and how best to respond.
Be Empathetic to the Affected Customers
It took the CEO of United three attempts before he released a response that people thought was at least halfway appropriate in light of the incident. The first response ignored the issue entirely. The second response was worse — it put blame on the customer who was removed from the plane. By the time the company got around to issuing a third response, which was an apology, it started to seem as if they were trying to do damage control to avoid a potential lawsuit.
A more effective response would have empathized with the passenger right away and would have avoided the social media fallout that followed the first response. It might have also helped the company avoid the drop in stock prices that went with the incident.
Reach Out to Remaining Customers
Part of doing damage control after a customer service or PR disaster is to get in touch with other customers. When something goes wrong with a company, people’s first inclination is often to boycott that business. To keep your customers from flying to other brands, it’s up to you to initiate contact. You want to rebuild trust and relationships with your customers.
One option is to ask your customers for their feedback. Getting feedback can be particularly helpful in the case of an ongoing problem with customer service at your company. The people who buy from you and who want to continue to buy from you are the most likely to provide you with advice on what you can do to improve.
Along with asking for feedback, you want to make a plan to actually put some of that advice into practice. Once your company has made some of the improvements people have suggested, let them know. Respond to specific pieces of feedback and point out what your company has done to improve those areas.
Focus on the Positive
While you don’t want to look like you’re sweeping the gaffe under the rug, it can be helpful to shine a light on the good things your company is doing after a customer service meltdown. A major PR problem can also be an opportunity for your business to find something positive to work on. For example, if you find that one of your company’s products is being manufactured in a factory with known safety issues, you can partner with an organization that works to improve factory conditions. If your company already does a lot of good for your community, you can issue press releases and social media posts calling people’s attention to those products.
You can’t grow your business if customers are jumping ship. Having a disaster plan in place in case something should go wrong should be part of your business’ plan. To learn more about how to put together a plan and map for growth, contact New Direction Capital today.
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27 Apr 2017
Businesses that want to succeed need to find some source of funding to get them off of the ground and to help them grow. But, for many newer businesses, it can be difficult to obtain traditional types of financing, such as debt or equity financing. A newer or fledgling business usually doesn’t have the track record to prove to lenders that it will be able to repay any loans. Additionally, it might not have access to traditional investments firms that often back more established companies.
Enter venture capital, a different type of equity financing. Venture capital might not be the funding option for all businesses, or even a funding option that is appropriate for all new businesses. But for the right company, it can provide the financing and leg up that the business needs to get going.
What is Venture Capital?
Venture capital is a type of equity financing, which means that investors provide a company with money in exchange for a stake in the business, or a portion of its shares. Companies that receive venture capital don’t repay the money they’re given.
There are a variety of ways in which venture capital is different from other types of equity financing. For one thing, venture capitalists typically only provide funding to a specific type of company, namely start-ups. Companies that have the potential for high growth are of particular interest into venture capitalists.
Often, the investors who offer venture capitals to entrepreneurs and start-ups also take a very active role in the company, including having a say in major decisions made by executives and stakeholders. Since there is a higher risk for venture capitalists compared to investing in more established businesses or businesses with a proven track record, it’s usually expected that the return on investment will also be considerably higher than average. Additionally, most venture capital financing is long term financing, meaning that investors are willing to wait to see a considerable return on their initial contribution.
Where Does the Financing Come From?
There are two main sources of venture capital financing: High net worth individuals (also known as angel investors) and actual venture capital firms. Although the show isn’t necessarily an accurate depiction of how the pitching and investing process works, the people you see making offers or dashing entrepreneur’s hopes on “Shark Tank” are examples of angel investors. In many cases, an angel investor is often a former entrepreneur who earned considerable wealth by launching a successful business or series of businesses.
What Do Venture Capital Firms or Angel Investors Look For in a Company?
Although venture capital tends to go to start-ups, not every start-up is a good match for financing. It’s also not only start-ups that qualify for venture capital. The financing can also go towards companies that are already established and are looking to expand in some way or towards research and development projects.
Generally speaking, angel investors and other venture capitalists typically look for several characteristics in a company before they decide to invest. Having the potential for substantial or considerable growth is just one qualification. Investors are also on the look out for a well written and clear business plan and a strong and competent management team. Since many angel investors are also former entrepreneurs, many tend to seek out companies that are in their former industry. A tech entrepreneur turned investor is likely to finance tech companies while a doctor who’s also an investor is likely to look for businesses in the healthcare field.
Angel investors who have experience in a particular industry are also more likely to take a more active role with the companies they invest in. For newer businesses or less experienced entrepreneurs, having guidance and mentorship from an investor can be very valuable.
What Other Options Does a Business Have?
Like debt financing and other types of equity financing, venture capital is just one financing option available. Figuring out which financing options are best for your business will allow it to grow and scale.
If you are unsure about financing or need assistance choosing which options are most appropriate for your company, New Direction Capital can help. Working with a virtual CFO can help your company navigate the often tricky waters of financing and finding capital. To learn more, contact us today.
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If there’s one type of work that’s been growing by leaps and bounds in recent years, it’s freelance work. By the year 2020, it’s expected that a significant portion (more than 40 percent) of the workforce in the US will be classified as contingent or freelance workers.
There are benefits to freelance work for both the contractor and the employer. People who work as independent contractors often enjoy greater flexibility and can schedule their work around their lives, not the other way around. Working with contractors can help a business meet specific needs at a particular time and can save companies a considerable amount of money.
Independent Contractors Cost Less
Even if your business only offers benefits such as retirement matches and healthcare to a few employees, hiring people on a full or part-time basis can get pretty pricey. Employers are responsible for paying half of an employee’s Medicare and Social Security taxes (7.65 percent of an employee’s compensation). Employers also need to pay for worker’s compensation insurance and state unemployment insurance.
But when you decide to work with a freelance, your company doesn’t have to contribute to those three items. A contractor is technically his or her own employer and needs to pay the full amount of Medicare and Social Security taxes. It’s also up to the contractor to purchase insurance if he or she chooses.
Since contractors often work from home or usually bring their own equipment, your business is able to save on other costs as well. For example, you won’t have to purchase a laptop or smartphone for a contractor and you won’t have to reserve a desk for him or her.
Freelancers Can Come and Go
The nature of a freelance agreement is that a worker can come and go as you need. When you hire someone on a contract basis, you specify the terms of the agreement from the start. For example, you might hire a freelancer to work on one single project with an open ended time frame. Once the project is over, you can part ways amicably, until you have another project you’d like the contractor to work on. Another option is to hire someone to work with your company for a set period, such as three months or a year. You might decide to renew the contract at the end of the period, decide to hire the person full-time or decide to part ways.
Since you’re not working with an employee, you aren’t actually firing anyone at the end of the contract. You also don’t have to worry about scrambling to find a new employee or someone to take that contractor’s place.
Remember There’s a Line Between Freelancer and Employee
There’s a big difference between an employee and a freelancer or independent contractor. Your company can’t hire someone as a contractor then expect him or her to behave like an employee. Since a contractor is taking on a certain amount of risk and responsibility, it’s recognized that he or she should have a certain degree of say over when and how he or she works.
It’s fairly common for companies to misclassify employees as freelancers. The Department of Labor and the IRS take this pretty seriously, and have required companies that misclassified their workers to pay a combined $79 million back wages in recent years.
Three factors generally decide whether a person is really an employee or can be classified as a contractor. One is the financial factor, which includes things such as how the person is paid, who pays for expenses, and so on. Another factor looks at the behavior of the employer and contractor/employee. If an employer has a lot of say or control over where and how a person performs the work, that person is usually an employee. Employees are also told what types of products to use, where to buy those products, and the exact tasks he or she must complete.
The third factor is the relationship between the employer and the person. If the working relationship is going to be ongoing and the employer expects to provide benefits, the person is an employee. Usually, contractors are hired for specific projects.
Did you know that you can hire contractors to perform the role of certain executive level positions? For example, New Direction Capital serves as a virtual CFO for companies that can’t afford or don’t yet require a full-time CFO. Contact us today to learn more.
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