 Photo by Mateusz Wacławek on Unsplash One of our clients has an incredibly valuable series of patents. The highly effective product made by his patented manufacturing system has recently skyrocketed with the pandemic. His timing was excellent by any estimation. The only problem is that several companies have blatantly knocked off his product without any repercussions at all. Why? Because he doesn’t have the enormous resources necessary to sue those companies for patent infringement. But let’s back up a moment. The Ridiculous Cost of a Patent According to Bitlaw Guidance, a patent attorney will usually charge between $8,000 and $10,000 for a patent application, and the cost can be higher. In most cases, you should budget between $15,000 and $20,000 to complete the patenting process for your invention. They’ve constructed a great graphic to show the costs by tasks. (This does not include international patents which are also very expensive.)  If you wonder if you can go ahead and use your patent (sometimes referred to as the poor man’s patent) to make and distribute your product before you patent it, in most cases it will not hold up in a court of law.
What About Litigation? Let’s say you spent $20,000 and got your patents and someone violated it. You then have to be in a position to sue them to stop using it. Patent litigation costs between $2.3 million and $4 million on average, and it takes one to three years for a patent case to reach trial. Patent infringement lawsuits are settled in 95 percent to 97 percent of cases. In conclusion, I’m not saying, don’t get your patent. I’m just saying, make sure you have the money set aside to do so and also to fight any infringers. Otherwise, skip the patent, try to be first to market, and establish your customer base based on other tangible benefits like customer service. Disclaimer: I am not a patent attorney, I am just a patent holder. So check with your lawyer to confirm anything I write about here. Subscribe to newsletter on LinkedIn.
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 Best Use: Increase the accuracy of any forecast.
In 1906, Francis Galton discovered what we now call, the wisdom of crowds. At a farmers’ fair in Plymouth he came upon a contest where crowd members had to guess the weight of an ox. Around 800 people wrote their guesses on tickets and the person with a guess that came the closest to the actual weight won a prize. The interesting part of this contest was the analysis Galton did afterward. He added up all the weights guessed and took an average. It turned out that the average was remarkably close,It turned out that the average was remarkably close, much closer than the winner, and even closer than some of the experts in the crowd. The average was only one pound off. This experiment has been repeated many times over the last century. One talked about is the Jelly Bean Experiment. A finance professor, Jack Treynor ran this experiment with his class of fifty six students. He filled a jar with 850 jelly beans and had his students guess. The average estimate was 871 — a difference of only 2.5%. Only one person in the class made a closer guess. In 2004, James Surowiecki drilled down into this phenomena with his acclaimed book, The Wisdom of Crowds (Doubleday). In his research he discovered important information about the crowds. Not all crowds are wise. As an example, investors in a stock market bubble. According to Surowiecki, for the wisdom of the crowd averages to work in their intended way, the information collected had to meet five criteria[1]: 1. Diversity of opinion — Each person should have private information 2. Independence — People’s opinions are not determined by the opinions of others participating. 3. Decentralization — People are able to specialize and draw on local knowledge. 4. Aggregation — Some mechanism exists for turning private judgements into a collective decision. 5. Trust — Each person trusts the collective group to be fair. The book received rave reviews. BusinessWeek wrote, “Provocative …. Musters ample proof that the payoff from heeding collective intelligence is greater than many of us imagine.” Applying The Wisdom of Crowds to Your Business A terrific August 2022 article in Harvard Business Review by Don A. Moore and Max H. Bazerman, “Leading with Confidence in Uncertain Times,” advocated using the concept of wisdom of crowds in forecasting. The question posed was if companies should rely on one expert forecast or many forecasts averaged. They posited that the higher risk of companies is to depend too much on one expert economic forecast. They reported that, averaging the estimates of all of the economists in the survey is a better strategy than selecting the estimate of the best predictor from the previous year. So how can you, as an executive, take advantage of this concept? Gather the opinions of as many knowledgeable stakeholders as you can. This can be done creatively with different “crowds.” 1. Ask your employees. Who knows your company better? Make it anonymous to get more authentic answers. 2. Ask your customers. When is the last time that you sent out a survey or email where you asked your customers about your products or ways for you to improve? I don’t know about you, but I’m sick of getting a survey every time I buy something. So come up with a creative way to get people to respond. Try telling a story. Use the story I told about the ox and the fair and the wisdom of the crowd. I would respond to that. 3. Ask your vendors. I always say that a company is only as good as its vendors. You buy things from them, so the least they could do is spend a few minutes answering some questions. Besides, it may benefit them. If your business increases because you are making better business decisions, then conceivably you would buy more products or component parts from them. 4. Ask the internet. Social media. Followers. Fans. You can definitely reach more people through the internet. This is appropriately your largest audience, your largest crowd. The idea here is to get your dedicated fans to respond. If you don’t have dedicated fans, then you might have bigger problems. 5. Ask your shareholders or investors. Of course you would have to tailor the questions you ask to the audience you reach out to. I wouldn’t talk to your vendors or customers necessarily about your projected revenues or profit numbers. Using the Results There are plenty of questions you could ask your crowd. This method works best as a prediction or projection of unknown numbers. So you need to put choices in terms of numbers. As an example, let’s say you ask your ten-person sales department what they think sales will be next year. Write down all the estimates and then take an average. Using the average sales number, you could ask your shipping department of twenty employees, what they think total dimensional weight cost for freight will be for the upcoming year. You can ask qualitative questions and attach numbers to the answers so you can get an average. You could post an ad campaign on your social media and ask your followers to rate it from one star to ten stars. Then take an average and if that is a 10, then run that campaign. If they rate it as a one or two, you’d better start to work on another campaign. As Moore and Bazerman so aptly pointed out: “It is our craving for certainty that leads us to chase a single expert, the one who can make perfect predictions. And this craving also makes us vulnerable to charlatans who lie to us and pretend they know; or worse yet, those megalomaniacs so overconfident that they sincerely believe they know. Beware the leader, entrepreneur, or political candidate who claims certainty about an uncertain future. They reveal more arrogance than insight.” [1] https://en.wikipedia.org/wiki/The_Wisdom_of_Crowds Subscribe to my LinkedIn newsletter. Originally published at https://www.datadriveninvestor.com on April 20, 2023.  Photo by Mediamodifier on Unsplash Lately, I've been watching a lot of detective shows on television. If there is a murder (and there's always a murder), the detective's job is to collect every bit of information that they can. They observe the murder scene. They take photos. They take fingerprints. They interview all the relevant people in the victim's life. They pull documents on the victim. Were they ever convicted of a crime? And so on. The same kind of deep dive information collection can be the single most powerful tool to change anything in our life and in our business as well. Want to get your finances into shape? Measure everything you spend your money on. Want to lose 10 pounds? Measure everything you eat and how much exercise you get. And here's the really cool thing: simply by virtue of the fact that you are collecting and measuring things, you can change their outcome. I wrote about this recently in my article about the Observer Effect. Sometimes, it can be tricky to collect data for your business. Here is a great chart from Research Gate to fine-tune your information collecting methods.  When running your business think of yourself as a detective. Collect all the information that is possible. A much clearer picture will eventually evolve. If detectives can find a murderer, you can find the bottleneck in your operations, the most effective marketing campaign, or the highest profit products. Then use that information to take your business to the next level. Subscribe to my newsletter on LinkedIn.  Photo by Alina Grubnyak on Unsplash In Monday’s newsletter, I published a story about how I landed every single one of my jobs. It was from my network of friends and colleagues if you haven’t yet read it.
After reflecting on that a bit, I wanted to give an example of an unusual way I connected with a powerful person who was responsible for more than one of my job referrals. Backing up for a moment, reminded me about Malcolm Gladwell’s book, “The Tipping Point.” In the book he classifies three different types of people: Connectors, Mavens and Salesmen (ahem, should be salespeople, Mr. Gladwell). He then gave an exercise to list all the important people in your life that you met through someone else. The task was to write down the person’s name and who introduced them to you. After that, if relevant, you wrote the person’s name on top of theirs who introduced you to them. As an example, I met George through Tiffany. And I met Tiffany through Hilary. And I met Hilary through Lilah. Lilah was the beginning connector. I met Dennis through John who I met through my boyfriend, Peter, who worked with Hilary, who I met through Lilah. There’s Lilah again. What was the point of this exercise which I completed? To show who the connectors are. Unbelievably, almost every important person in my life was traced back to one person. One person! That’s pretty incredible. Of course my friend was not just a connector, but a super duper connector. The idea of contacts and networking to get jobs is brought into focus with this exercise. It’s not that you have to be a connector, but you should recognize who your connectors are and treat them well. Sometimes you make your own connections. Maybe at a local coffee shop or joining a networking group. At a certain point, I made my own strong connection at my first job after I moved back to California. I was the controller for an apparel company that was financed by and in partnership with their Chinese factory. They were making silk boxer shorts and selling them to mass merchandisers, namely Target. As the controller, I had to find an accounting firm to do our year end financial statements and tax returns. I found a great candidate. They were a medium-sized firm in Los Angeles that specialized in the apparel industry. As a controller, I like to find at least three or four options and quotes for any task. I met with three other firms and made my recommendation to the owners. They wanted a Big Six accounting firm (yes it was that long ago when there was actually a Big Six), and so I chose Ernst & Young. They were good, of course, but they cost twice as much as the firm I originally wanted. I called the firms that did not get the bid. I explained that we passed on their quotes. My first choice I called and talked to the partner I had met with. I told him the truth, that he was my choice but the ownership wanted a Big Six firm. I disagreed with them, but it wasn’t my final decision. I appreciated the time he spent with me and if I found myself in the same position in the future, I would love to work with him. He was quiet for a few moments. He then explained that I was the first one who ever took the time to explain why they weren’t hired. The situation always required him to call the potential client. I know he appreciated it because when another of his clients needed a CFO, he recommended me for the job. I got that job. And he became a friend who recommended me for other positions over the years. In closing, figure out who your main connectors are. Whenever you meet new contacts, always treat everyone with respect. You never know when they could be in a position to help you. Originally published at https://www.linkedin.com. Subscribe to my newsletter on LinkedIn.  Martin Bjork from Unsplash Remember that scene from Kramer v. Kramer where the husband is desperately looking for and had to get a job on Christmas Eve? You may have never seen that movie. It came out many moons ago, but everytime I think about someone looking for a job, I think about that scene. Poor Dustin Hoffman. He was trying to get custody of his young son after his wife, Meryl Streep, left them. He had recently been fired from his advertising job because when his wife left, he became a single parent and couldn’t manage it all. Welcome to motherhood, Dustin. We mothers have been dealing with this shit for decades.
Recently, I thought about this movie. Through a series of fortunate events I became connected with a mother who worked at a prominent venture capital firm, and she was just ranting and raving about the lack of and difficulty in finding good, affordable childcare. Bravo. My kids are grown now, but boy oh boy, I remember grappling with this problem and resultant anger when they were still in school. Back to the job search. I started thinking about all the jobs I’ve ever had and how I landed them. I am a serial entrepreneur and most of my jobs have been with myself, but in between my own companies, I took other jobs with a variety of employers. Due to my education and experience, these were relatively high level jobs and every single one of them came from knowing someone. In fact, ever since I graduated from grad school, I never even had an official resume. I was simply referred to a job and that was that. So consider this, the next time you have to look for a job, perhaps it’s a Kramer v. Kramer situation or simply a, if you don’t get a job you can’t pay rent next month and will have to move in with your mom situation, or you can’t afford your childcare anymore, call everyone you know. Tell them what you’re looking for. That’s how you’ll find a job. If you don’t know people, seek them out. Network. Make friends. Originally published at https://www.linkedin.com. Subscribe to my newsletter on LinkedIn: https://www.linkedin.com/build-relation/newsletter-follow?entityUrn=7019392199951880192  He was running out of time. Our client’s warehouse was in a rustbelt town, he needed to sell it and no one was rushing to buy it. The weeds were growing through the cracks in the parking lot and he couldn’t cover the mortgage payment with his cash flow for much longer. This client was a perfect candidate for the 21 Reasons exercise.
In our Startup Founders group, we would task a participant to write down 21 Reasons in regards to anything they were struggling with. This came from our leader, John Morris, who is brilliant about startups, raising money and other esoteric businessy things. It probably came from someone or somewhere else, like most great ideas, but after many Google searches I couldn’t find anything. So, I’m giving John the full credit. The Methodology Write a list of 21 Reasons why someone would want to do whatever it is that you want them to do. One of The Project Consultant clients needed to sell a warehouse, and sell it quickly. It had been on the market for almost two years. He was willing to lease it as well, but he had already tried that to no avail. His broker brought in interested companies now and then, but not many and no one bit. My partner, Dennis, is pretty well connected in the real estate business; his dad was the top commercial real estate company in Connecticut before they sold it to Grubb & Ellis. And I was a partner in my own real estate investment company in Southern California for many years. Despite our knowledge and contacts in the real estate business, the first thing we did was ask our client to list twenty one reasons why someone would want to buy his building. And we promised him that if he did, his building would sell. What? The First Six You might ask the value in doing this exercise. Fair question. As John Morris explained, the first six reasons are usually easy. They are the obvious things. The building is 100,000 sq. ft. which gives you room to grow. There is a rail spur behind the loading dock. Speaking of loading docks, we have ten of them. We just replaced the roof five years ago. The parking lot can hold a hundred cars. The Next Ten The next ten reasons are a little more difficult. You have to think about the less obvious things, like we’re including industrial shelves with the building. There are ten offices, too. The view from the main office looks out onto the river. There is a great security system built-in. It’s only five miles to the nearest interstate freeway and so on. The Last Five Then you get to the last five. You’re going through this process and you come to the last five reasons and you have to dig deep. Deep. There’s a fantastic deli within walking distance. Or, the offices are painted in a soothing shade of blue. I don’t know. It’s your building. What do you like about it? You can live on a farm on rolling hills nearby where the fog settles among the treetops every night. Your husband can buy a horse. The local town has an October Fest that can’t be beat. The Psychology Behind This By listing all these things, you will shift your mindset. That makes a difference in whatever you’re trying to achieve. Not to get all woo-woo about it, but it’s kind of like manifesting. You attract a buyer to you because you are putting out into the universe thoughts and messaging about this amazing building that anyone should want to buy as long as they have a need for a warehouse. It also gives you more confidence when someone comes to look at it. You think, this is a fantastic building. I just listed twenty reasons why it’s a fantastic building. I’ll let you buy it if you’re lucky. Then, because my partner and I have real estate contacts, we convinced him to fire his agent. Dennis referred him to an international commercial broker he knew. The new agent had an enormous database of buyers from all around the world. That’s helpful because they might have known a company in Europe that wanted to open a satellite warehouse in the United States. And perhaps they never would have considered this particular area. In short, it increased the population of potential buyers. The building was sold in a month. It was purchased by a company that looked at it the year prior. That’s fine. Competition had become more intense with the new broker. And I’m sure that company was aware of it. There was now pressure for them to buy. They didn’t need that much space, but they took a chance and had a belief that their business would grow, and therefore, they would grow into the space. But in my opinion, it was the list. To be sure, the list did help them write a more thorough and attractive listing. But it was the power of our client believing in the value of his building. Some other lists we’ve worked on: 21 Reasons why someone would want to buy your medical practice. 21 Reasons why you should hire an assistant. 21 Reasons why you should buy out your minority partner. 21 Reasons why someone would want to license your brand. 21 Reasons why you should manufacture overseas. 21 Reasons why someone would invest in your startup. 21 Reasons why my nephew’s crush would want to go to the dance with him. Try it yourself. Consider a vexing problem you have. Write your list of 21 Reasons. Remember, it must be twenty one. Cynthia Wylie started her career in investment banking and left to start her first company. She has started/run/sold six companies. Through her last company, The Project Consultant, she has worked with many clients who were starting their own companies and/or launching projects in industries such as agriculture, publishing, toys, and apparel. She has extensive experience in consumer products manufacturing and importing as well as real estate investment. Her areas of strength include operations and finance, in particular, cash flow management and raising money. As a founding member of the L.A.–based entrepreneurial group, The Startup Founders, and a participant in Startup Chile, she has evaluated and assisted hundreds of startups locally and globally. She has a B.S. in agriculture from the Pennsylvania State University and a M.A. in economics from Georgetown University which she attended on a full fellowship. While a student, Ms. Wylie taught undergraduate courses in statistics and economics. She has also written five children’s books for an imprint of Penguin Random House and is a regular contributor about business and economics for the publication, Data Driven Investor. Favorite quote: The truth is in the numbers. Originally published at https://www.datadriveninvestor.com on March 2, 2023.  What are the biggest challenges you are facing in your business right now? I just posted this question on a small business group that I’m a member of on Alignable.com.
As a partner in a consulting firm, we are putting together updated, post pandemic marketing materials and fine tuning our message. I wanted to get an idea of the biggest problems companies are currently facing. Our economy has been through a lot the past few years. The responses I received were wide ranging and touched upon just about every area of business (with some surprises): delegating, ADHD, growing the business, raising capital, finding employees, raising prices, staying motivated, prioritizing, and closing sales to name several. I thanked all of those who replied and contributed some tidbits of advice. I couldn’t help myself. As a consultant, that’s what I do. One particular response was a business having difficulty getting his salespeople to close at a rate above 10–15%. I replied that he should check his industry’s standard closing rate because maybe 10–15% was within the norm. Many a company I’ve consulted would be thrilled with a 15% closing rate. (The average sales success rate across all industries is 3%.) I also suggested some sales training, because while research has been mixed on the effectiveness of sales training, some studies suggest it can improve ROI considerably. Lastly, I suggested his sales staff read the book, “The Asking Formula,” by John Baker. It really is a wonderful little book for sales and I recommend that everyone read it regardless of what they’re doing. He rather sanctimoniously said that he already has three sales trainers that he feels are the best in the world. One of them made $33 million in commissions in 10 years. And that, someone will not rise to his level reading from a book. Okay, but, what? Obvious first question, Why not use that guy for your sales instead of as a trainer? Maybe he’s retired? So, Why is your sales staff still struggling with the $33 million guy training them? Along with the gold, there’s a lot of questions in “them thar hills.” A Method to Find out What Your Problem Really Is It brought to mind the Startup Founders Group I was a founding member of many years ago. We met once a month to process issues. We started with a dozen or so entrepreneurs and I appreciated it because being a Startup Founder without a partner can be a lonely endeavor. We had a formal approach for processing our issues: Begin with a problem and put it into a question. It should take the form of How Do I (HDI). It can be business or personal, because if you’re having personal problems, it can definitely interfere with your business. After the issue was presented, there was a period of questions which the founder would answer. After that the other members would suggest a different HDI. We found that the problem members thought they were having, wasn’t really the problem. Almost always! Here are some hypothetical HDIs to give you an idea of the concept. 1. HDI increase my runway by raising money in a hurry? Could actually be, HDI cut expenses to decrease my monthly burn rate? 2. HDI deal with my partner who is an alcoholic and passing out in the middle of the day? Could be, HDI buy out my partner? (Ask him when he’s on a bender with pen and contract in hand. Just kidding.) 3. HDI reduce my dependency on one large customer? Try, HDI divert resources and update my marketing plan to attract new, smaller customers? 4. HDI get my spouse to be more supportive of my startup? HDI improve my communication skills so that my spouse understands the startup world. After the HDI is restated and accepted by the processing member of the group, (and they can choose between many suggested HDIs, or even their original HDI), we would enter the period of suggestions. These are ideas of how the member can fix their problem. During this period they need to remain silent and listen. We assign another member to take notes, so the issue processor can just listen. Upon finishing, the member taking notes will email those to the processor and then, the most important part, they make a promise or commitment to action (CTA). Relevant Questions to Ask Back to the sales guy on Alignable.com. The following are the types of questions he should ask himself after the first two obvious questions I mentioned earlier. Keep in mind some of the questions here included what are called, veiled suggestions. When you are processing, just ask questions. But for this article, I’ll include some suggestions along with the questions. 1. Again, what is the industry average closing rate? You didn’t answer that. 2. The $33 million guy might be a great closer, but a lousy teacher. That’s possible. Can he teach others? Perhaps he doesn’t like the task of training others? 3. Are the sales people you’re hiring any good at sales? Start keeping track of your sales data; who is the most successful and what are their methods? 4. If your sales people are underperforming, is there a problem with your product? 5. Ask top level interviewees that are declining to take a sales job with you, why? Maybe you need to offer a higher salary, commission rate or benefits. 6. In addition to training people to sell, are you training them about your products, all the benefits? 7. If appropriate, do you have a good prepared pitch? If not, maybe you need one. If so, maybe it needs to be better. 8. Are you providing your sales staff with good quality, warm leads? If not, maybe you could do that. 9. Is your product a commodity, based simply on price? If so, maybe you need to adjust your pricing. 10. If your product is not a commodity, have you developed reasons why customers should buy from you? Have you distinguished your company through customer service, or some other benefits? 11. Do you have a detailed marketing program to support your sales people? Do you have a marketing strategy at all? I could go on. But after all these questions are answered I think a new HDI suggestion would be along the lines of: How do I help my sales staff to be more successful? Then move on to the suggestions phase, many of which will be self-evident. That is the value of questioning whatever you think your problem is. You can use this process yourself, with your own company, for any issues you are facing. Better yet, get your employees to join in. They might know more than you. They’re on the front lines, after all. Originally published at https://www.datadriveninvestor.com on February 24, 2023. Subscribe to DDIntel Here. Visit our website here: https://www.datadriveninvestor.com And help their customers along with their own bottom line.  Photo by Author It is always a win-win for financial institutions to reduce loan delinquencies. This has become especially important during the post-pandemic world with a slumping housing market, high inflation, raising interest rates and high levels of consumer debt. During the economic shocks of the last few years, however, we saw an interesting trend in delinquencies.
Spanish philosopher George Santayana is credited with the aphorism, “Those who cannot remember the past are condemned to repeat it.” As we navigate our current economic challenges, looking back at our most recent economic downturn, the Great Recession in the late 2000s, might provide some helpful lessons. In early 2009, I attended an economic forum with guest speakers from the banking, real estate, stock brokerage, and economic industries. At that time, there were many real estate properties in foreclosure, but the banks didn’t seem very interested in selling them. My favorite part of the forum is when the banking executive told me why. Banks had such an excess of properties in foreclosure on their books, that to sell them at their market value (about 40% less than book value), and write-off the losses would have rendered the financial institutions insolvent. So they just didn’t sell them. During the pandemic years of 2020 and 2021, the unemployment rate from the Bureau of Labor Statistics showed both the unemployment rate at 6.2 percent, and the number of unemployed persons at 10 million. However, loan delinquencies went down — even with the high unemployment rate and the strong historical association between the unemployment rate and loan defaults. A 2021 article in Fortune Magazine, based on a study by business schools of Columbia University, Northwestern University, Stanford University, and the University of Southern California, found that in the Great Recession, mortgage delinquencies jumped from 2% to 8%. But in the pandemic’s first seven months they fell from 3% to 1.8%. “This is especially striking,” the researchers note, “given an unprecedented increase in the unemployment rate that reached almost 15% in the second quarter of 2020.” And, they found that the explanation went beyond just stimulus checks. Fast forward to 2023. TransUnion’s (NYSE: TRU) 2023 Consumer Credit Forecast projects delinquency rates for credit card and personal loans to rise to levels not seen since 2010. Card delinquency, on the rise in 2022, is projected to increase to 2.6% through the end of 2023, which would represent a 20.3% increase year-over-year. This is attributed to persistent inflation and high interest rates. Bloomberg predicts that credit-card rates are poised to hit a four-decade high this year. Bankrate predicts an average interest rate of 20.5% in 2023. And some retail-brand credit cards have already surpassed 30%. Just to give you an ideas, pre-pandemic credit card interest rates were around 17%, but fell below 16% when the pandemic hit. Which brings me to my point: the reason why credit card interest rates when down during the pandemic was to help people and help banks keep delinquencies low. Banks and credit card companies now need to heed what they did during the pandemic to avoid a repeat of the Great Recession. Here are six strategies financial institutions, including credit unions, deployed during the pandemic that should stay in effect now: 1. Utilize forbearance. Instead of cracking down on delinquent borrowers, offer forbearance. That way, borrowers can delay loan payments without you declaring the borrower delinquent. It also improves your borrower relations by not diminishing the borrower’s credit rating. You will still take a hit on revenue, but only temporarily, and you don’t have to worry about a portfolio of foreclosed assets to liquidate. 2. Offer a variety of payment options. You can decrease your delinquencies by offering various payment options to your borrowers. Anyone struggling financially can pay principal-only, interest-only, or a combined payment. You could also reduce the minimum payments if possible. Be creative. 3. Encourage recurring payments. Offering recurring payments makes bill payments easier and more timely. This is especially helpful for busy borrowers or those who travel. 4. Encourage paperless adoption. Studies show that those borrowers who receive electronic bills tend to be more satisfied and reliable borrowers. According to an article from My Billing Tree: “By encouraging paperless adoption, you are in turn developing a more satisfied customer base. These customers, in many cases, are then more likely to be receptive to other types of account management features, including enrollment in recurring payments.” 5. Accept payments regardless of method or channel. In addition to different payment amount and delivery options, you can also provide different payment methods and channels. Borrowers can call and pay by phone, or even text to pay. 6. Improved information from technology. With online and mobile banking, borrowers can check their balances in real-time. Upcoming loan due date reminders can be emailed or texted to them. Pending payments can be posted to avoid overdrafts. We cannot overestimate the importance of technology in avoiding delinquencies and making borrowers happier. Loan delinquency rates could improve more, due to robust employment numbers. The important thing to remember is that most borrowers want to pay their bills and pay them on time. With these proven methods, credit card companies and banks can do their part to help with the economic challenges their members have. By smartly learning from the past, financial institutions can improve their delinquencies, borrower satisfaction, and bottom line. A previous version of this article was published on CheckAlt.  Photo by Patricia Prudente @apsprudente … even if you are making a profit. Working Capital is the lifeblood for most businesses. It can make the difference between surviving and growing or going bankrupt. Working capital is all about planning, negotiating and timing. Oftentimes, owners learn this the hard way. After leaving the investment banking world, my then husband and I started our own business. According to family folklore, his father’s plastic manufacturing business had patented the original Hula Hoop which was featured on The Art Linkletter Show and immediately became a worldwide fad, its sales estimated to be over 100 million hoops in two years. After those two years, his family went back to their regular plastic extrusion business for OEM customers like automotive companies and the like. Whamo registered the name and continued selling them, albeit in much lower numbers. At the 50th anniversary of the launch of the original, a cousin asked us to make hoops for their chain of American Greetings stores which numbered about 50 or so. We updated the colors to fluorescent shades and they looked fantastic. We named the hoop the Maui Hoop and called our company Maui Toys. We invented three more products, went to our first trade show, the International Toy Fair in New York City, and our toy company was off and running. Maui Toys was soon selling to large retailers such as Toys “R” Us, Walmart, Target, Kmart, Children’s Palace, and a slew of other smaller chains and independent toy stores. It was great fun, but we were facing a looming working capital problem. We were self funded and it was one thing to make a few thousand hoops for one smallish store chain, and it was another to make hundreds of thousands of hoops for huge chains such as Walmart. Working CapitalBefore I get to our survival strategy, let me explain what working capital is for those who don’t know. It is the money a business needs to cover the gap between paying bills for its manufacturing or purchases of its products and collecting money from the sales of those products. This can pose a problem. Why? Let’s use the example of making hoops. You order your hoops from a plastic manufacturer, in this case a plastic extrusion company. Think of extrusion as the famous Play-Doh machine where you put a ball of doh in the little mechanism, a shape at the end (called a die) and you push the Play-Doh through. It comes out as a long tube of doh in whatever shape you have chosen. Obviously for the hoop a circle die was chosen. Your extruder makes your products and gives you a 30-day invoice which means you have to pay them in 30 days for the plastic tubes. Let’s assume that bill is $250,000. Then you have to pay factory workers for assembling the hoops in a circle with a connection plug, put a label on it, and pack it into a box for shipping and displaying at the store. Your toy company has to pay the factory workers their salary in addition to payroll taxes bi-weekly. You also have to buy a label from a printing company. It’s a small expense but has to be paid up front until you can establish a credit relationship with them to get 30-day terms. Let’s say all of that costs roughly $14,000. Most of it has to be paid in 30 days or less. You ship your boxes of hoops to your biggest customer and invoice them. They have 60 days to pay you and you find that they often stretch that out to 90 days and sometimes even 120 days. According to the following, hypothetical and very simplified cash flow/working capital projection, by month 4 you need almost $278,000! That’s assuming your customer pays you in 90 days and you have to pay your plastic manufacturer in 30 days.  Timing You’ve had to spend about $280,000. Your invoice to your customer is $500,000. There is a lag effect where you have to come up with almost $280,000 dollars to pay your suppliers and you won’t receive your $500,000 from your customer for another 90 days. That’s a working capital problem. By the way, you’ve just made a huge profit. But, how do you bridge the 60, 90 or 120 gap between paying your bills and receiving your money? Hard to put $280,000 on a credit card. Maui Toys didn’t have that kind of money. Nowadays, founders might raise money as seed capital from an investor and give away a percentage of their company’s stock. We came up with another solution. The number one reason why we were able to survive and grow our business: We asked our plastic manufacturer to accept 120 days for our company to pay their invoice. They said, yes. They gave us 120 days to pay our bills. Technically, they gave us 30 days and we didn’t pay for 120 days. And they didn’t sue us. Or shut us off from future purchases. Labor and other costs still had to be paid for, but they were a relatively small percentage of the overall cost so we were able to cover that ourselves. We were lucky because we didn’t have to give away ownership to get started. In the startup world that’s called bootstrapping it.  Increase Your Working Capital
To summarize, these are the steps you can take to increase your working capital.
And remember, the truth is always in the numbers. Originally published at https://www.datadriveninvestor.com on August 10, 2022.  What is McDonald’s business? Some might say, the fast food business, or more broadly, the restaurant business. But what many people don’t realize is that McDonald’s is really in the real estate business.
Their real estate holdings include land and prime building locations around the world where their Franchisees build restaurants and pay them rent, month-in and month-out. That’s where McDonald’s makes most of their money, more money than selling burgers. I remember watching, “The Founder,” a 2016 film about McDonald’s history. “You don’t build an empire off a 1.4% cut of a 15 cent hamburger, you build it by owning the land on which that burger is cooked.” Decent flick by the way if you haven’t seen it. Southwest Airlines flies people around, but they are also adept at buying and selling oil futures. They do it really, really well. What started out as a way to hedge against fluctuations in fuel prices back in 2007, ended up being a major profit center for them. And while other airlines were losing money when oil prices skyrocketed, Southwest made money. Another good example is Amazon. According to a February 2022 article in Investopedia, while the majority of Amazon’s revenues comes from online and offline retail sales, the majority of its operating income is from AWS or Amazon Web Services. It is the world’s most comprehensive and broadly adopted cloud platform. Many car companies earn very thin margins selling cars but make up the difference both through financing those cars and inside their service departments. So are they in the car selling or the car servicing/repair business? Are they in the financing business? Of course it depends on the particular car company. Which begs the question, do you know what business you are really in? The best way to find out what business you’re in is to give the different departments (or product lines) inside your company their own financial statements. That amounts to extra accounting work, but not that much compared to the benefits that knowledge will give you. Break down each department’s sales, cost of goods sold, and expenses specific to them. You can apportion the time expense of employees who manage and work for different departments. You can also apportion rent, utilities, equipment, and so on. Then analyze and compare the financials. Which department is making the highest profit margin? Which one is generating the most cash flow? Chances are, that’s your core business. Why is this important? This is important because once you figure out what your real business is, you have to protect that and feed it. Spend extra money to make sure it is well staffed and well stocked. Veer marketing and advertising dollars in that direction. Give it the most attention. Doing this will protect your overall business. When I was a partner in the apparel business, XLARGE Clothing, we had half a dozen retail stores in addition to selling to major retail chains, bougie boutiques, and international licensees. What business were we in? XLARGE designed an entire collection four times a year: spring, summer, fall/back-to-school and holiday. The collection included everything from graphic tees and sweatshirts to jeans and work pants to accessories (belts, backpacks, etc.), to button down shirts to outerwear and even shoes. We did a lot of collaborations too with artists and other designer brands like, Vans and The Hundreds. Our retail stores were in San Francisco, Orange County, SOHO, and Los Feliz. Licensed XLARGE stores were in London, Germany, Taiwan, China, Hong Kong, Australia, Korea and Japan. The licensed stores had to buy all their clothes from us. We had a girl’s line, X-Girl and later, x’e. And our kid’s line was called, X-Little. And we sold to retailers such as Urban Outfitters, Bloomingdales, Journeys, Hot Topic, Federated Department Stores, PacSun, and many other cool stores like, Colette in Paris. It was really the best job in the whole wide world. The Beastie Boys were partners and we had a lot of great parties and store openings. Many wonderful artists worked for us and with us. My duties included traveling to Tokyo and New York City. It was hard work but great fun. Work hard. Play hard. Where do you think we made the most money? Well, it certainly wasn’t our retail stores. Retail is a difficult place to make money even with the vertical integration and resultant hefty gross profit margins that affords. We didn’t make that much money for most of our clothing collection either. Our volume wasn’t quite high enough to get the pricing we needed to be competitive. Most of our licensees had one or a handful of stores so they didn’t really buy enough from us to be a contender for our largest generator of profits. Diversification is good and we had many different sales channels that helped us achieve that; we didn’t want to throw out the baby with the bath water so we carefully evaluated all our different departments. Our true business, our real business, the thing that made us the most money was two things: graphic t-shirts and sweatshirts, and our Japanese licensees because they had eighteen stores. Nothing else came even close. Since I was the CFO, I closed most of our stores except SOHO and Los Feliz and wrote off those losses as advertising expenses, because that’s what they were. We also quit selling to most of our wholesale accounts because they weren’t worth the expense of a sales force and the merchandise returns were shameful. There were more things we shuffled around and refocused on. We hired additional, talented graphic designers for more tees and sweatshirts. We transferred the manufacturing of the collection to our different licensees and they had to pay us simply a licensing royalty instead of buying the entire collection. They still had to buy tees and sweats from us. All of these moves made our company immensely more attractive to the point where we were able to sell it to our Japanese licensee for a spectacular return. XLARGE is still around today and still a super cool, niche, streetwear brand. All of this analysis taught us we were in the business of making t-shirts and sweatshirts and selling them to Japan. The role of the customer. Sometimes a less profitable part of your business feeds customers to the more profitable part of your business. It’s similar to a loss leader in a grocery store. Using the car dealer example above, perhaps they make most of their profits in car servicing, but without selling customers the cars in the first place, they wouldn’t have a servicing business. That needs to be taken into account as well and can be established by doing a customer analysis. Think of it like computer analytics which tally where your customers originate. Are they being referred from a blog? Your website? Google searches? Social media posts? You should be able to track that. If most of your customers are coming from outside your website, then don’t invest too much time and money on your website. Or if the bulk of your business is coming from social media, then don’t spend money on Google ads. The important thing is to know your business. Know where you make the most money, what has the most potential and where your customers originate. Then spend more time nurturing those things. And remember, the truth is always in the numbers. Originally published at https://www.datadriveninvestor.com on May 12, 2022. |
Stories and snippets of wisdom from Cynthia Wylie and Dennis Kamoen. Your comments are appreciated.
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