e-WOM as an Advertising Strategy: It’s not as easy as it looks

July 30, 2013 in Emmett Dulaney, Entrepreneur

The buzz phrase that I have seen in every business plan lately is word of mouth (WOM), and to be more specific: electronic word of mouth (eWOM). The authors assert that if they do everything right (offer the right product at the right location and at the right price, etc.), customers won’t be able to stop talking about them. While this sounds good in theory, in reality there are still billions of dollars spent on advertising – much of it online at Google, Facebook, and others – by companies that haven’t been able to get customers talking.

A Perceived Relationship

To understand why that is, I turned to research by Rebecca Gunn and a definition of eWOM as: “any positive or negative statement made by potential, actual, or former customers about a product or company, which is made available to a multitude of people and institutions via the Internet.”   While eWOM has many of the same characteristics as the traditional offline form, there are some differences.  For example, traditional WOM requires conversations take place orally, whereas eWOM conversations can take place simply through written language in an online environment.  In addition, traditional WOM generally involves a relational aspect, whereas eWOM conversations may take place among people who have never physically met and may remain virtual strangers.

To compensate for the lack of relationship, researchers discovered that in online written content consumers often create personalities for unknown, faceless communicators.  Because there is a perceived relationship, the content is considered more trustworthy and credible, so it has greater influence over consumers than other forms of traditional WOM.  And, while traditional WOM’s audience is limited in size, eWOM can reach a wide scope of potential consumers.   Finally, eWOM conversations reside online, which allows the information to be sought out and retrieved.

 

Motivations for Contributing eWOM

The big question, from the standpoint of a business, is why some consumers contribute to eWOM while others don’t. In order to get customers talking about your product, you need to know what motivates them to do so.  Here are seven reasons people engage in eWOM.

Social Benefits. By contributing online, consumers are able to identify with others and express opinions, which are seen as part of the requirement for being involved in a social online community.

Enjoyment. Researchers have found that people relive exciting and adventurous experiences by contributing online.

Altruism. People truly want to help others make better decisions.  In the travel industry, for example, consumers often warn of a negative experience or endorse a positive one.

Self-Enhancement. People like to be recognized as experts. Helpful eWOM through eloquent written reviews and recommendations enhances their online status.

Self-Directed.  Similar to self-enhancement, self-directed motivation considers the entertainment value as well as the possibility of economic incentives, like monetary compensation or discounts. Self-directed motivation can be just a way to pass time and receive self-gratification; perhaps a better descriptor of this motivation would be self-gratification.

Consumer Empowerment. Consumers believe a company will pay better attention to them if they publicize matters in an online environment. They also see it as a way to ensure quality in a risky transaction.

Expressing Displeasure. eWOM may be used as a way to vent frustrations or to seek retribution. Although some studies have shown that this is not a primary motivator, negative eWOM could make consumers feel better after a bad experience.

 

There are many other factors that influence eWOM but one of the most significant is its availability. If a consumer has mobile access at the moment of great displeasure, she may be more tempted to turn to eWOM to share her displeasure than she would be hours later. Of course the same is true for a positive experience.

 

Significance

So what does any of this mean? It means that eWOM can be driven by any of a number of motivations, and that it can be positive or negative in nature. Your challenge is to tap into one or more of these major motivators to get people talking about your business.  And, unless you can come up with some method of truly motivating consumers to engage in eWOM, you had better still include something in the business plan budget for marketing.

The Rules of Risk and Return: Lessons from the Roulette Table

May 31, 2013 in Emmett Dulaney, Entrepreneur

I am grateful that we live in the third largest gaming state in the United States, because I can think of no better way to describe entrepreneurial risk than using the game of roulette as an analogy. Placing a bet on a business venture is a lot like placing a bet at the table game, except it can take significantly longer for the ball to drop.

 

For those who may not have first-hand experience at the casino or watch a lot of gambling movies, with roulette a ball spins around a wheel that is also spinning at fairly high speed until the two slow and it drops into a slot. The slots are numbered from 1 to 36 and alternate between red and black colors. To give the house its odds, there are also two other slots the ball can fall in – 0 and 00, both of which are green instead of red or black.

 

The Safe Bet

 

One “safe” bet would be to put half of your chips on the space marked red and the other half on the space marked black (conversely, you could also choose odd and even).  Both of these spots match wins with the same amount you bet. Thus if the ball falls into one of the 18 slots with a red number, the losses from betting on black would be offset by the wins on red and the diversification covers the loss. In the entrepreneurial world, this would be equivalent to buying franchises in well-established chains; the business plans have been written and the formula has repeatedly proven successful so the risk is lessened (as can be the payout). The problem is that there is never a surefire guarantee of success and even in this scenario there is a 2-in-38 chance of the ball dropping in a green slot and you losing it all. That 5% chance could represent the franchise failing, the location proving less than desirable, employees running off customers, or almost any of a plethora of possibilities for ruin.

 

A higher return is possible by betting only on a set of twelve numbers (either in numerical order such as 1-12 or in a “column” such as 1, 4, 7, etc.). If the ball falls into one of the twelve numbers bet on, the payout is 2 to 1. In the business world, this would be analogous to loaning money to a startup; you’re taking a debt position and can charge a higher rate of interest than is possible with a more established firm – even requiring collateral to secure the loan when possible. The risk comes in that the startup may go completely under and have assets that have no real value to anyone else. In roulette, those 2 to 1 odds are offset by the fact that 26 (not 24) slots aren’t covered.

 

Instead of betting on a column, it is possible to bet on a row and transform that 2 to 1 return into 11 to 1. A row consists of three numbers (1-3, 4-6, etc.) and a corresponding bet in industry would be to move from loaning a startup money to taking an equity stake in an existing one. By waiving collateral and other protections afforded by a debt versus equity agreement, the gamble becomes a great deal riskier. To offset that, instead of getting a good return on your money, you now hope to be compensated far more by reaping a sizable percentage of the profits. The danger rests in the scarcity of startups that become successful enough to quickly turn a profit and sustain it.

 

The Riskiest Strategy

 

The last betting strategy we will look at – many others do exist – is to put your chips across two numbers. The return on this bet is great at 17 to 1, but the odds of being successful are only 5.26%, a percentage that almost mirrors the success rate for many startups (with variations existing for industry, management experience, resources, and so on).

 

It doesn’t take much to see how this analogy can be used for all aspects of the startup – there can be losses in the beginning, but you can win at the table if you have enough capital to stay in the game past one or two spins – but what is here is enough to bring up the most important of all questions: if the odds always favor the house, why does anyone play?  The answer is because of the number to the left of the colon in any payout equation. Though there is only a 5% chance of success, the 17 to 1 payout can be found few other places than in business and it is the successes that far outweigh the failures in memory and in lore.

 

5 Tools for Reducing New Venture Risk

March 17, 2013 in Emmett Dulaney, Entrepreneur

Risk is inherent in any new venture. Without it there would be nothing to stop multitudes of those who think they have a good idea – but are afraid to commit to it – from tossing everything they have into an undertaking. While you can’t completely remove all risk, there are ways to reduce (or contain) some risks.

Here are five techniques to consider:

  1. Don’t insist on doing everything yourself. In today’s economy, so many fields have enough excess capacity that you can usually outsource a sizable portion of any endeavor. It is possible, for example, to contract with a number of technology giants to host your IT “in the cloud”.  Not only can they decrease their expenses through economies of scale/scope, but this lowers your initial investment.

 

You can farm out payroll, marketing, human resources, and almost every division or function to specialists. While allowing you to focus more on your business, subcontracting during the initial startup phase can help prevent overhiring, and the problems associated with that.

 

  1. Investigate the insurance options and protect your assets. No one likes paying for insurance and almost everyone wants to get by with as little as possible. That may be well and good when it comes to a homeowner’s policy, but when it comes to a new business, insurance can be the very thing that keeps you operating after one bad incident. That “incident” can be someone tripping over an extension cord (general public liability), forgetting to take care of an important detail (errors and omissions), or making a bad hire who damages something belonging to a client (bonding). Many companies are only in business today because insurance saved them at a time when they needed it.

 

On the flip side, many companies are overpaying for insurance they don’t need. Just as you shop around for the best supplier of any resource/input, find someone you can trust to recommend and manage your insurance.

 

  1. Add seasoned founders to the team. There is no substitute for experience when it comes to anticipating stumbling blocks and knowing how to work around them. If you don’t have the experience yourself, add others to the team that do.

 

If not founders, additional team members can be on the board of directors, serve as advisors, consultants, or in any of a number of other roles. The key is that they are actively engaged and available to help when you pick up the phone to address a crisis.

 

  1. Copy what has worked before. Franchising works because you are purchasing a business plan and operations model that has proven successful for others. While there is great utility in creating something radically different than has ever been done before, there is also great risk in it. The closer the venture is to what has worked in the past, the lower the risk associated with it.

 

  1. Understand demand before you begin. Founders tend to overestimate the demand for their offerings and underestimate the marketing needed to educate the public about them.  After you’ve sunk everything into the venture, it is sobering to realize that the numbers weren’t what you thought they were. A good way to help with the approximation is to ask as many people as you can before you start.  Answers live in numbers, but you have to look at a big enough sample to see the true picture. Looking at my statistics in Windows Solitaire after I’ve won two games, for example, will show that I have a winning average of 100%. But I am nowhere near that good. Those same statistics after I’ve played more than 500 games will show the real average is only 53%. All of those iterations bring the findings to the true number that you don’t want to overlook.

 

In class I often is pass around a sealed jar that has a lot of pennies in it and ask each person to write down how many they believe are inside. The guesses are all over the place, but the more that are gathered, the more the average of those guesses approximates the actual number.

There is no way to completely remove risk from a new endeavor, but these five tools can help reduce it.

 

What Makes Your Business Different?

December 4, 2012 in Columns, Emmett Dulaney, Entrepreneur

Six factors will impact your potential PROFIT

by Emmett Dulaney

To survive in the marketplace in the long run, a business has to fulfill some real need. It can be based on a differentiation in convenience, price, or any of a number of other factors but it has to be a genuine need in the market. Far too often, entrepreneurs will start businesses to satisfy their own desires– as opposed to their customers’ – only to find success elusive.

Identifying that differentiation can be tricky. In his book Entrepreneurship: Strategies and Resources, Marc J. Dollinger identifies six types of strategic resources. I like to think of them as potential points of differentiation. If executed properly, each one of these can provide a competitive advantage and an economic profit.

The initials of the six resource possibilities spell the acronym PROFIT. While keeping the list and Dollinger’s acronym, I am going to redefine and describe them in terms of their possible competitive advantages.

Physical: Sometimes the advantage can reside 100% in the location of the business. If yours is the only coffee shop for miles and you’re located in the lobby of the busiest library around, then you could have a fair amount of business even if your product is not the best tasting coffee. That advantage could disappear if the library begins to lose patrons, competition moves in right across the street, or the library renegotiates the lease to require a substantial percentage of your sales.
Reputational: There are any number of business transactions where you worry about dealing only with someone of the highest caliber and ask for references, speak to former clients, listen to word of mouth, and so on. A good reputation is difficult to obtain and very easy to lose. With a business, an impeccable reputation can be based on the management team, the policies of the company, or any of a number of other factors. New businesses are often at a distinct disadvantage since they haven’t had time to build a reputation. The best way to accelerate creating it is to import top managers, directors, and advisors who already have a reputation of value. To keep that reputation, the business has to also be willing to sever connections on the spot to anything (vendors, directors, policies) which can negatively affect it.
Organizational: This encompasses the firm’s structure, routines, and systems. You can create a product more efficiently, more cost effectively, or more suited to the customer’s demands than anyone else. Patents, copyrights, and other forms of legal protection may be able to protect organizational resources, but tend to have limited lives. The only way to keep this as a competitive advantage is to continue to improve and cultivate it.
Financial: There is a saying attributed to Guy Kawasaki that capital is the life blood of a business and many die from oxygen deprivation. There is a distinct advantage in having the financial resources to weather bad times, to be able to invest in research and development, and to be able to attract top talent. As tricky as it may be to prepare for, sometimes the best advantage to have is more reserves than the competition.
Intellectual and Human: Knowledge, training, and experience are all elements of intellectual property, along with wisdom and common sense. Human capital enhances this by including relationship capital – the ability to connect to those who can provide funding and other resources when a business is in need.
Technological: A technological advantage can come in several forms, including economies of scale (Google can compute far cheaper than smaller companies), innovations (particularly if protected by patents), and design. It can be difficult to use technology as an advantage, but the absence of it, Nicholas Carr quipped several years ago, will still put you at a distinct disadvantage if others are using something that you do not have.

These six categories offer opportunities for competitive advantages and thus reasons for a business to exist. If an entrepreneur is considering starting a new venture and that business does not have an offering that fits into any of these groups, then one has to wonder if there is really a need for it in the market.

Beware the Slippery Slope

October 8, 2012 in Columns, Emmett Dulaney, Entrepreneur

Poor Decisions Early Can Have Dire Consequences Later

by Emmett Dulaney

Sometimes, the biggest problems can be traced back to the smallest beginnings. Once you make what at first glance seems to be a minor mistake, whether intentional or unintentional, it can create an environment in which problems can snowball or even avalanche. The following case is based on an actual example with several details changed to protect the parties involved:
A Thriving Business
In year one, Talon started his own technology company, specializing in a programming language not known by many but used by a sizable portion of the healthcare industry. Workers who are proficient with it can be hard to find and are thus well-compensated. By the beginning of year two, the quality of work and reputation was such that Talon and his company (H&C, LLC) had all the clients he could manage. Very few clients needed something simple on a one-time basis; the majority needed regular help and wanted to lock in contracts with him so there would not be a learning curve with a new vendor every time something needed to be done.
Rather than turn away the new business that seemed to keep cropping up, Talon decided to hire others to work for H&C. He carefully selected individuals he believed had great potential and then taught them the intricacies of the programming language. Once he was comfortable with their abilities, he assigned them to new clients with the understanding that each account would stay with them for the life of the relationship. Clients were billed by H&C at $100/hour and the programmers were reimbursed at half that rate as independent contractors since it made paperwork so much easier. As years passed, H&C became a staple of the industry – the company to turn to when you needed a programmer who specialized in this field. The old clients continued to work directly with Talon, while newer clients would hear his name (or see it on the bill) but had a relationship with their programmer only and were generally pleased with the quality of the work delivered.
An Expensive Vacation
In year seven, Talon took some time off to spend two weeks on an overseas vacation with family. The moment he left, two of the original programmers sent an email to each of their accounts announcing that they were no longer working for H&C, but had now started their own company: NewCompany, LLC. The email assured the clients that the transition would be seamless, all work underway would continue, all scheduled appointments would remain the same, and the only difference was that the bills would no longer say H&C, but would now have the NewCompany name and address on them.
Needless to say, Talon, when he discovered what happened, was furious and immediately wanted legal recourse. To his thinking, the programmers stole clients of H&C (using contact information from the company database) and took with them future business that was booked with his company. While the actions the NewCompany crew took violate a number of standards (ethical as well as principal/agent and otherwise), Talon would indeed have much more of a potentially litigable issue were it not for the slippery slope that began the moment he decided to “hire” them as contract workers. While the initial reason was to simplify paperwork and bookkeeping, in reality these individuals functioned under the legal definition of “employees” for six years and were in violation of tax law the whole time. Because they were contractors, they weren’t held to the same rules (such as non-compete) as employees and they, by definition, had to be able to seek and accept other work. Over time, new jobs that came in often came because of a recommendation from a current client for a particular programmer other than Talon, thus setting the foundation for a strong argument that those new clients could have belonged to the contractor from the start and not H&C.
A Lesson Learned
Talon eventually decided not to seek legal action against the contractors. Once NewCompany was off the hook, most of the other programmers left H&C and went to work with their old comrades, bringing their existing clients in tow. With a solid staff and reputation, NewCompany began acquiring other accounts – taking many that once were Talon’s. H&C’s income shriveled, and the company essentially went away.
While your company may not be involved in specialized programming, the lesson remains the same. By taking one shortcut, you open the door that makes a company vulnerable and, in the end, could lead to its demise. Beware the slippery slope.

A Lesson from the Pumpkin Patch

November 23, 2011 in Columns, Emmett Dulaney, Entrepreneur

Your power position affects your negotiating ability

by Emmett Dulaney

Sometimes, concepts seem overly simplistic on the paper of a textbook, making it difficult to understand how they would ever apply in the real world. One of the goals of entrepreneurship education is for students to learn that those principles truly do apply and to suffer the consequences while still in school so they won’t be so vulnerable to them after they graduate. Many times, it only takes a simple lesson for it to hit home, such as the case with Michael Porter’s Five Forces Model.
A standard of both management and marketing disciplines, the Five Forces Model identifies five different areas to evaluate for an industry, the goal being to strategize how to have the best hand. One of the five areas is the power of the supplier. It is unfortunate to find yourself in a position where the supplier of a good you need can dictate terms unfavorable to you. Since that concept is easily understood, most business plans just state that the business intends to have more than one supplier so they will never be in a situation where they can’t impose their own terms. That is a lot easier said than done, as students at Anderson University learned this fall.
In October, nineteen students ran a family fun park, which included a hayride, concessions, games, live music, and a pumpkin patch. The pumpkin patch was such an integral part of setting the scene for the business that it was advertised in every promotional piece and was included in a package deal marketed through Groupon (two pumpkins included with admission and games). Not only were the pumpkins used for aesthetics, but they were intended as a profit item as well. Unfortunately, all the promotion was done in September, before students got the news of a pumpkin shortage.
The shortage raised the price of pumpkins at the wholesale and retail levels and tipped the tables out of favor for the family fun park. Not purchasing pumpkins was never an option since the promotions were already underway and it was important to meet expectations of those who came to the park. The students hit the phones and called around until they found a pumpkin patch on the east side of Indianapolis that agreed to supply a large quantity at a reasonable price per pound compared to what others were charging.
Computing gasoline, labor, and other expenses involved with making the pumpkin run, it worked out to be slightly cheaper than buying them locally and would thus be worth the effort. On Thursday, the students arranged with the farmer to purchase and transport the pumpkins on Saturday morning (he said to be there at 8am), and reserved a van. At 7am on Saturday morning, they called to say they were on the way and confirmed the price; he said he would be waiting.
At 8am, they pulled into the farm with the intent of loading a cargo van with 300 pumpkins. The farmer told them not to get the pumpkins near the stand and drove with them back to the field where there were others to load. Try as they might, it was not possible to safely put that many pumpkins in that type of vehicle. It maxed out at around 200, meaning that the costs of getting the pumpkins now had to be spread over a smaller quantity, cutting into the profit.
When the van was full, and sagging like a teenager’s jeans, the farmer handed them a bill and told them to drive to the cashier. As they were driving, they did the math and found it to be 20% more per pound than the agreed upon price. When brought to the farmer’s attention, his response was “You should have locked it in.”
The price that existed on Thursday and the price that existed at 7am on Saturday morning went up by 20% at 8am when the van was loaded and the farmer had the power. The choices that existed in that moment were to pay the increased price, or unload all the pumpkins and leave empty handed (a more costly undertaking). The supplier genuinely had all the power in the relationship at that moment and a concept that had existed only on paper became a reality that those students suddenly grasped and will never forget.

More from Porter:
Michael Porter’s classic book On Competition was updated and expanded in 2008 (ISBN: 978-1422126967). Not many business books have stood the test of time the way this one has and it is well worth the read.

Emmett Dulaney teaches entrepreneurship and business at Anderson University.

Special Programs for Women and Minorities

October 28, 2011 in Columns, Emmett Dulaney, Entrepreneur

Business Certifications Can Boost Business

by Emmett Dulaney

Certain business certifications can help small business owners bid on and obtain new contracts. Some are specific to each state in which the business operates, while others (such as Service-Disabled Veteran-Owned Small Business: SDVOSB) are recognized in all fifty states. We will look at two of the most popular Indiana certifications – the Minority Business Enterprise (MBE) and Women Business Enterprise (WBE).
Businesses are certified for the MBE or WBE through the Indiana Department of Administration (IDOA). To qualify, the firm must be at least 51% owned by qualifying minorities or women and the owner must possess expertise in the field, control the business, and be a United Stated citizen. All funding should be free of any questionable standing; in other words it cannot look like the business was set up for the sole purpose of obtaining this certification.
Advantages
The certification can help you acquire additional business by differentiating your company from others but there are other incentives too. For instance, your firm will appear in a directory of certified businesses. Organizations with government contracts are strongly encouraged to use certified vendors and suppliers, so those in the directory have more opportunity for contacts, contracts, and expansion.
The IDOA will also notify you of upcoming events, which serve as networking opportunities. These notifications can provide resources for small businesses that they would have been unaware of or unable to access.
One further incentive comes from the state government’s attempts to increase the success rate of businesses owned by women and minorities. Both public and private organizations that are supported by the government are strongly encouraged, through financial incentives, to purchase from MBE/WBE certified businesses.
Applying
To receive certification, the business owner must fill out the application on the IDOA website. Be forewarned that the application is both onerous and time-consuming and you have to provide records and artifacts since day one (which can make it easier for a business that has been around two years to comply than one that has been around longer). An on-premises site visit is mandatory.
The state requires businesses to update their certification annually, which means filling out a 2-page form with any changes or verifying that there were no changes to the business. Every three years, businesses must fill out a longer form as well as attach anything new. The state also does another on-site interview.
While the application process can be lengthy and time-consuming, the benefits of becoming MBE/WBE certified are apparent. Certified firms can gain access to resources they may not have been able to otherwise. Because of the many benefits, these certifications can be valuable resources for Indiana companies hoping to increase business.

Emmett Dulaney teaches Entrepreneurship and business at Anderson University

Facing Up to the Cold Hard Truth

August 22, 2011 in Columns, Emmett Dulaney, Entrepreneur

Objectivity is Scarce Among Friends and Family

by Emmett Dulaney

Imagine you’ve just come up with what you believe to be the most brilliant business idea you’ve ever had. Before going further, you want to bounce it off someone, but who can you share it with and trust to give you objective feedback? If you’re thinking family, friends, or even just acquaintances, you may want to think again…

Recently, Anderson University held a business plan competition with 37 entries. The questions following each presentation came from six faculty members and the audience. At the end of each presentation, the audience voted and the weighting was equally divided between each of six cohorts and members of the general public (ballots were color coded). The criteria for voting were based on seven categories. Here’s a sample ballot:

Judging Criteria Elaboration Points (1-10)
The Idea How compelling and interesting is this idea?
Market Opportunity What are the size, growth, and expectations for the market?
Financials What are the revenue and profitability possibilities and have they been correctly identified as well as the amount and type of funding sought?
Investment Potential How well does the business represent a real investment opportunity worthy of funding?
Innovativeness Is the business concept unique enough to have a competitive advantage?
Delivery Did the presenters communicate well, with confidence and awareness of time management?
Question and Answer Are the presenters responsive and able to think on their feet?

One of the presentations clearly did not belong. It was a newly-created not-for-profit attempting to provide services to inner-city residents. Driven by a passion to help the community, the presenters discussed how they would never charge for their services, and all funding would come from unidentified grants. The slides behind them showed crumbling buildings and urban decay while their zeal for making a positive difference was readily apparent in the words they spoke.

Regardless of how well-intentioned their motives, this was not a suitable entry for this competition given the evaluation criteria, which had been published in multiple sources for months preceding the event. Appraising the enterprise using the criteria, there is no way to justify giving the Financials and Investment Potential anything but the minimum score (1) since the group failed to identify any sources of funding, revenue possibilities, profitability, or even an investment opportunity. If the presenters excelled in every single category remaining, the most they could earn was 52 of the 70 possible points.

Surprisingly, of the 149 votes cast by the audience, they were given a score of 70 in 12 of them (8%). If we conclude that four ballots could have been slipped in by the presenters themselves, it can be reasoned that they had eight friends or fellow students who believed in their idea enough to also not read the criteria and blindly give them the maximum score even though their idea didn’t match the fields they were being scored on. This lack of objectivity mirrors what happens when starting a real business. Not only is the entrepreneur convinced that this is the best idea ever – overlooking or downplaying the true criteria for success- but they also find similar adoration for the undertaking from family and friends, who also ignore the critical factors for success out of admiration for the idea itself or for the entrepreneur(s). The friends likely fear that being honest will make them appear as less-than-supportive and so they praise the idea to stay on good terms.

Unfortunately, this can lead to great injury. Whereas telling the would-be entrepreneurs that their idea is not as good as they believe it to be could lead to feelings of ill-will, letting them pursue their passion and invest their money and time in a failing venture can lead to far more harm. As painful as it may be to have a friend tell you that your idea for a video rental store in today’s market isn’t as good as you think, it is far better than investing every penny of your savings and two years of your life only to learn the lesson the hard way.

If you cannot trust family and friends to be brutally honest in their evaluations, who can you trust? Complete strangers? In our competition, only 8 members of the audience gave a score of one to both the Financials and Investment Potential categories: only 5% of those present could be counted upon – even with the benefit of anonymity – to evaluate the idea properly. Others thought the presentation so compelling that they ignored the objective criteria. It is disheartening to realize that it is possible to be moved by an idea – in which we aren’t even vested – to the point where we cannot objectively critique it.

Emmett Dulaney teaches entrepreneurship and business at Anderson University.

Polishing Your Presentation

June 5, 2011 in Columns, Emmett Dulaney, Entrepreneur

Seven Tips for Presenting Your Business Plan

by Emmett Dulaney

Once you’ve written a business plan, the next step often is presenting it to potential investors, judges in a competition, class members, or even peers at a business gathering. Regardless of who the listeners are, here are mistakes to avoid. While some of these guidelines are universal enough to apply to other types of presentations as well, they specifically address issues that commonly occur with business plan presentations.

Before the presentation begins: Remember that the audience judges you the moment they first see you and usually this is long before you ever speak. If you’re presenting with a group and are joking around before you go on, some will discount your presentation immediately; stay a representative of the company from the moment you arrive until you leave, not just during your oration. You should also overdress for the occasion as it makes it look as if you are taking it seriously; never dress in blue jeans unless the company you’re pitching is producing denim – mentally equate it with a job interview and act accordingly. When presenting in a group, add uniformity by all wearing matching something (ties, colors, accessories, etc.); it is a subtle thing but it gives the impression that everyone is in agreement.

During the presentation: Talk to the audience. Don’t talk to the screen where your PowerPoint slides are (leading to death by PowerPoint) or hold up a paper and read from it (leading to mumbling and whispering). Unless you’re Bob Dylan, or the artist once again known as Prince, look at your audience and talk directly to them. This will require rehearsal ahead of time and is considerably more difficult than reading, but if you put yourself in the shoes of an audience member, there should be no discussion of which you would rather sit through.

When you must use PowerPoint/Keynote/Prezi, avoid putting too much information on each slide. There is only so much information the audience can see, and reading a slide distracts them from you. Guy Kawasaki has a 10-20-30 rule which states that you should use 10 slides for a 20 minute presentation and the font should never be less than 30 point. If you start going much below 30 point font, you start getting into sub bullets that the viewers won’t be able to see if their eyesight isn’t perfect and they aren’t sitting near the screen. Where you can, use images instead of words to jar your memory and keep the presentation on track.

Avoid going off on tangents during your talk. Unless it specifically applies to this company at this moment, most don’t want to hear about your childhood, the joke you heard on the radio, or the girl from high school that friended you out of the blue. They also don’t want to hear private jokes between presenters when there are more than one of you. Like a tired two-year-old, the audience needs to be the center of attention and you need to speak directly to them.

After the presentation: Make sure the audience knows when you are finished. Some presentations end and the audience members look at each other and wonder if the person is really done yet or just thinking of the next thing to say. In other presentations, the last ten minutes are peppered with false promises of a conclusion as the presenter follows “In closing,” with “And lastly,” and tosses in a “Finally,” and a “My final point.” End when you say you are going to end and make sure there is no doubt that you are finished. An easy way to do this is with, “I’ll now answer any questions you may have.”

When answering questions, make sure you answer the question asked. A convoluted diatribe on how you first got interested in the business at a young age may fool some listeners, but not the one who asked about ROI. Avoid throwing questions back at the person asking – “That’s a good question, but let me ask you…”; they didn’t come to present, they came to hear you. Finally, when presenting in a group, limit the number of responses on any one question to a maximum of two. You don’t need every member of the group adding to the answer given by the last person; instead, you need to answer this question and take the next before the audience loses interest.

By paying attention to these small issues before, during, and after your presentation, you can increase your odds of keeping the audience with you and help your business plan presentation proceed more smoothly. Not only will you be pleased with the results, but those in the audience will appreciate them as well.
About the Author: Emmett Dulaney teaches entrepreneurship and business at Anderson University

Red Flags in your Business Plan

April 4, 2011 in Columns, Emmett Dulaney, Entrepreneur

Avoid these common errors

by Emmett Dulaney

When you think you’re done writing your business plan and are ready to print and bind an official copy – stop and take one last run through it. Look for clichés and lofty statements that might cause readers to raise an eyebrow. The primary purpose of the plan is to explain why your business exists, how it operates, and why it is a good investment. Anything that detracts from that should be questioned and removed.
Watch for these items and find a way to delete them:
Empty phrases. “We will create an unstoppable buzz” is not only meaningless but also laughable. Everyone wants to create an unstoppable buzz but the chances of your doing it with a smoothie shop in Indiana are slim. The same can be said for “greatly exceeding all customer expectations” (which you can only do for new customers since they will then raise their expectations to what you provided), “low overhead” (unless you’re comparing it to others in the exact same business with hard numbers, it is questionable), and “our experience” (which means you didn’t do much research).
Inconsistencies in spelling. Far worse than spelling errors are inconsistencies in spelling. I once reviewed a business plan for a new establishment that was going to open on Scatterfield Road. I wasn’t bothered so much by the fact that they misspelled the name of the road throughout the plan as the fact that they spelled it three different ways. It immediately implied that they had not bothered to double-check what they had written and most likely hadn’t visited the text beyond a rough draft. If something this trivial could be epidemic throughout the plan, it gave me zero confidence in the rest of the content.
Inconsistencies in offerings. There are often lags in time between the authoring of various sections of the plan, which can lead to different wording in different parts of the plan. For example, you might talk about the business renting trail bikes by the hour when you first write the marketing section. By the time you get around to writing the executive summary, you realize that it would be so much easier to rent the bikes by the day. Don’t forget to go back and update the marketing section for this change. Almost every one of these can be caught if you read your final draft out loud from start to finish. That will slow you down so you’ll actually see what is on the page as opposed to what you think is on the page.
Be careful with comparisons. One of the easiest ways to make a reader understand your business is to compare it to something they already know (“ABC will have a product line similar to Starbucks”, “Furniture will be sold with assembly required, like IKEA”, etc.). When you make those comparisons in offerings, be careful to include those companies in all other comparisons. For example, if the products are like Starbucks, then you need to include Starbucks in your discussion of the industry, of the competitors, of the trends, and so on. Worse yet is arguing against them. You can’t successfully compare yourself to Starbucks for example after example, then say that Starbucks is experiencing negative growth but you expect to differ since you aren’t Starbucks, and expect to get away with that.
Search for the word “think” and scrutinize those lines. Quite often “think” is used in place of “know” and raises a lot of red flags. When you say, “We also think customers will want…” it means that you didn’t survey them enough to know. When you say, “We think there are three competitors…” it means you didn’t take the time to do a real analysis and if that is the case, the reader won’t think they can put much faith in your financials.
Look for anything that could be considered flippant.You want to inform the reader, you want to entice the reader, you want to excite the reader; you don’t want to offend them. Sometimes lines that you think are cute or good-natured (“…if you don’t know who he is, then talk to someone who does…”), can come across as offensive. Save the industry jokes, slang, and colloquial speech for the marketing materials – not the business plan.
Make sure the appendices serve a legitimate purpose.Too often, the only purpose the content in the appendix serves is to fatten the plan and kill trees. Nothing should appear in the appendices as a standalone item you expect the reader to just stumble upon. There is a legitimate reason to have items in an appendix, and that reason is to strengthen, or supplement, the content in the business plan. Anything you put in the appendices should be referenced in the plan and the reader told to look for it (for example, in the management section, “For a profile of Mr. Vincent that appeared in the Hamilton County Business Magazine, see Appendix C”).
When these items have been corrected, read the plan once more from the perspective of the intended reader. If you’re writing for an investor, question how closely what you’ve written mirrors other plans that have caught their attention. If you are writing for a competition, compare what you have to the rubric that will be used by the judges. When you’ve matched what they are looking for as closely as possible, then print, bind, and submit.
Emmett Dulaney teaches entrepreneurship and business at Anderson University.