I’ve been working with a couple of clients recently on how to give equity to other people coming into the business, and it’s definitely a recurring theme which causes a lot of debate and difficulty.

Sometimes people have to decide who gets what at the start of a business, but more frequently the issue comes up when there’s an existing enterprise and the owners want to bring someone else in.

You might want to bring someone else in because you’ve found someone who can help you with the business.  Sometimes, that someone is me, so I might provide advice and support in return for a share in the business rather than my usual cash fee.  More often, I’m advising someone who has a business which is doing okay, but the existing business owners just don’t have enough time or the skills to do the thing which are needed to push the business to the next step.  Sometimes the business has outgrown the original owner, or you just need an extra pair of hands on board, and you can’t afford to pay the high salary that someone really good would need.

Or you might want someone with a lot of talent and experience, and want them to stay around for a while and be really motivated to work on the business.  This was why I went to work for a web hosting company as Operations Director 10 years ago – they needed someone who would work really hard to grow the business, and I wanted a share of the business because I was fed up of working for a salary and making money for other people.

Whatever your reasons, if you’re going to bring someone in to work for the company in return for equity, here are some areas to think about (more…)

I’ve recently been asked for help by someone who is running a (sort of) social enterprise.  He’s been running a business, and on the side of this he’s been doing all sorts of community projects.  All brilliant stuff, getting young people involved, providing services to the community – I’m not going to be specific in case you recognise him, but there were lots of great ideas for wonderful things.

This guy had not planned things out, and unfortunately had started a business which was failing.  So none of the lovely things could happen, because there was no profit to recycle into the community benefits.

In order to run a social enterprise you need to put the enterprise bit first.  You have to run a business, sell things, make money and deal with all of the things that every other entrepreneur has to deal with.

I tell people all the time that making money is a good thing, because money gives you options.  For some (non social) entrepreneurs, these are options to make the business bigger, have lovely holidays, do more aggressive marketing or feel secure for once.  Social enterprises have a different set of goals – they need to make money to make a contribution to the community.

So making money, and lots of it, is even more important for social enterprises than your regular businesses. If you’re not making a profit you’re just a loss making business, just like all the other failing businesses, but you’re going to feel worse because you’ve set yourself these community goals as well as business goals.

Many companies at the moment are facing cashflow difficulties and having difficulties in raising funding to cover shortfalls in working capital – or toiling to pay the bills.

The biggest single cost for most people is the wage bill.  That’s the troublesome one which comes around every month.  Reducing your wage bill by sacking people is a horrible experience, and it doesn’t get any better if you call it downsizing.  Not only is it traumatic for everyone concerned, you risk losing the staff you’ve trained up, and these are the people who make the money for you, so it can be counterproductive in the long run.

So what else can you do?

These are some of the actions I’ve been suggesting to some of my clients over the last few months:

• Firstly cut all the unnecessary costs you can find in the company.  Can you get a cheaper deal on your telecoms?  Speak to Pete Jenkins about hosted VOIP, renegotiate your mobile phone contracts.  Ditch the company car by using the city car club (mention me and I get 20 quid off my car club bill)  and buying your bus tickets online.
• Can you cut out how much you take out of the company?  Have a look at the Money Diet by Martin Lewis – I paid £3.99 for this and have saved around 5k by doing what he suggests.  If you save money on your personal spending, you can afford to leave more money in the company and still have a good lifestyle.
• Instead of making some staff redundant, ask your staff if they would be willing to take a small pay cut while things are difficult, or move to working a 4 day week.  It helps if you cut your own pay by more than you are asking staff to take. Most people would rather have a temporary pay cut than lose their jobs altogether, and if you need to make substantial savings, staff will probably know that they need to help out.
• Cut your advertising spend. Unless you are 100% certain that your advertising works for you and you get real return on your investment, get rid of it. Note that I say advertising, not marketing – you should be increasing your marketing.  If you are 100% sure that you’re getting more customers through your ad spend (this might be where you can track customers through adwords, or you’ve run a special campaign that you can trace) and you’re making money from those customers, then beg, borrow or steal to increase your spending.

What not to cut out

• Don’t cut out the biscuits at meetings. Apparently, 20% of companies are doing this, which is madness.  If you can’t afford a packet of hobnobs, then you should be giving yourself a P45 and signing on.  Trivial things like this just annoy staff, damage morale and make you look rubbish.
• Low cost, labour intensive marketing. If your staff aren’t busy because you’re doing less business, then get them out at networking meetings to sell for you. I don’t care if they’re the administrator or the cleaner – give them some key messages, and send them out there to be your ambassador and make new friends.  If they’re shy, get them to develop some web links by commenting on blogs in your industry.

The other day I got an email (along with 76 other people who had signed up to the Brighton and Hove Council “Buy Local” Campaign) asking me to do something.  Unfortunately, the guy who sent it out just put all 77 email addresses in the “To” line, which meant that all of our email addresses were clearly visible and able to be copied by everyone else.

I complained (no response, but that’s a different post about customer service) and all was quiet.  Until one person decided to press “reply to all” and send some details about his business.  I pressed delete, because I hate spam.  And then because he’d done it, a dozen others did the same thing.

And then there was a big debate on twitter about this, and lots of other people got to hear about the Council’s mistake.

So I thought I’d write something about why sending out emails like this is a really bad idea.

When you communicate with someone, especially when you communicate with the idea that they might buy from you, you want them to think well of you.  So just sending something into their inbox, when they’ve never heard of you is not going to create a good impression.  At best, they’re just going to press delete and never remember you (so you gain nothing) and at worst, they’re going to think that you’re a pushy idiot that they never want to buy from.  And you’ve just damaged your reputation.

When you communicate with someone and want them to buy from you, they are much more likely to buy if they’ve already got some sort of relationship with you.  This might be because they have read about you in the paper, seen your website, been recommended to buy from you, or if you’ve had a chat about something.  No one is going to buy from you if you just wave it in front of them.

People get particularly annoyed if you wave something in front of them, with no regard for who they are.  We all like to think that we’re a little bit important, and we don’t like being treated as if we’re just one of a herd of sheep.

People have an intimate relationship with their inbox. Research shows that children get very upset if their computer doesn’t work or if they’re banned from using it, because they view the computer as their friend.  And I think that we do this as adults as well.  We spend more time looking at it than we do our loved ones, and probably more time communicating through the computer than we do talking to our partners.  So if you slam your junk mail into someone’s inbox, they’ll get upset.

We usually think of spam as being people trying to sell us dodgy blue tablets, or trying to get us to give them our bank details for nefarious purposes.  But spam is any unsolicited email – it’s email from someone I don’t know, who has no reason to have my email address, and therefore someone who is unwelcome in my inbox.  So make sure that you’re not seen as one of these people.

The rules of making email work for you

1. Only email people who you have a reason to have their address, ie, you’ve met/talked to them, they’ve opted in to your list (you can opt in to the Joy of Business email newsletter here) or they’ve got in touch with you.
2. Be personal. You’ll get a much better response from me if you say “Hi Julia, how’s your cat doing these days, last time we spoke she was poorly” than if you just say “Dear Friend”
3. Be brief and specific. Ask someone to do something for you as a friend (see rule 1 for who your friends are) or tell them about something that you’re sure they’ve be interested in. Do not just say “my company provides high quality 3D architectural visualisations” as one of the spammers did.  I don’t know what this means, and even if I did, how would I know that he’s high quality?
4. Make it useful.  If you send someone an email that says “I saw some brilliant examples of 3D achitectural animations at this website, and thought of you” then you’re starting a conversation and doing someone a favour. If you’re having a conversation and doing people favours, then they might buy something from you, or recommend you, which is what you wanted in the first place.

It has become more and more difficult to raise money for your business in recent months and I’m spending more of my time helping people to get the investment they need to take their business to the next stage.  I’m noticing some big changes in the investment environment, so I thought I’d pass these on.

Banks – At the moment, the banks don’t know where they are.  Frontline staff are being given different targets, and different instructions every week, so all the rules are being rewritten, and then written again. I’m finding that the bank staff are being overruled by lending departments, and that even if a loan is agreed in principle, this can be changed a few weeks later.  Frustrating for them, and even more irritating for the business.

What to learn from this – always have a back up plan about where you’re going to find the money.  Talk to several banks, be able to come up with some matching cash and don’t expect to do a deal quickly or easily.

Angel investors – The amount of money being invested by business angels has gone down recently.  Partly this is because less small companies are being sold to bigger companies or going for floatation, so the serial investors aren’t getting their money back to invest in more companies, and partly it’s because everyone’s too scared to do anything and is waiting to see what everyone else is doing.  However, there is still money out there, and with interest rates going so very low, I’m guessing that investors will be unlikely to keep their money in a bank for 3% interest.  They might even see investing in small businesses as a safer investment than, say, Royal Bank of Scotland.

What to learn from this – consider bringing in an angel investor, maybe as part of a deal, where the angel money entices the bank to lend.  Try flirting with several angels at once to make sure someone is really going to get into bed with you.