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Normal Business Growing Pains Or Flawed Thinking?
Posted By: jpoyer on 10/8/2006 9:17 PM (CST)	2225 Points
Ok, in an attempt to give you a complete picture here, I’ve put in as much relevant information as I can think of; I hope it is enough, and I am very much looking forward to your responses. I have learned so much since I’ve been a member here, and I have come to respect your opinions, so here it goes!! (my first question, how exciting!) Some background: My business XPRT Creative is made up of four partners, including myself. We are a woman-owned/minority owned small business. Three of us work in New Mexico, while I am based out of Georgia. Currently, I am the only one working full-time for XPRT Creative. We take all profits, split them five ways, give one fifth to the business, and one-fifth to each of us. This way, we are putting back into the business to allow for expenses such as software, hardware or mailing costs. We have practically no overhead because we all work from our homes. The problem: One of my partners suggested that our business is young (started in Jan 2005), and supposed to be supported BY us, while in reality, it's like we gave birth to this infant, and we are expecting it to support us, which is bringing a pending failure. One of our goals was to move two people full-time within 5 years, and we are not on that track in our current state. Another issue is one partner will be quitting his current job in June to complete a master's degree which is a concentrated 2-year program and will benefit him and especially our business with the experience and connections he will gain. This entails him moving to Atlanta (which will bring him closer to me!) but will put us all in the position of the business having to support him, which at our current status, is not a possibility. Currently, we are not doing any advertising; all of our clients have come by word of mouth and networking. Our client roster is steadily growing, with 99% of our clients returning as loyal customer evangelists. We are all not sure if we can take on the rush of clients we know would get if we were enacting our marketing plan at this point (with only one person full-time). We are also undertaking a new website design for our company which will better highlight our portfolio and be closer to the quality of the sites we provide our clients (will be replacing the site at www.xprtcreative.com). We are also hesitant to undertake any substantial marketing efforts until that is completed (ETA end of November). The consensus is that we can't afford to hire anyone for design or programming for our sites (though I don't really agree with that) and publications because we would have to train them (how do you find people you trust?), and to maintain the high level of quality and customer service our clients receive and expect. We have a solid roster of clients and projects, several of which are larger clients/projects that will come to fruition by June/July, but that are currently "under construction" at this point. These larger clients include a university athletic department, a city chamber and a national organization which we are creating websites and publications for. We know our portfolio will gain tremendous credibility with these additional projects, and we will gain a possible foothold in markets where we previously had none. We all felt that we really don't want to get loans, but that we should be able to support our business while it's in it's baby stages, and be able to put more money back into the business, and be financially independent enough not to "need" the income from our business to make our own personal finances work. From my standpoint, my involvement in XPRT Creative provides just enough income for me to stay home and work, and I work anywhere from 4-10 hours a day, depending on deadlines or projects. I feel pretty sure that if I cannot spend the time to fulfill the management role I provide (if I have to get another job to help support my family), then things aren't going to be moving forward like they could/should be. We know many small businesses fail because the members might be good at their craft(S), but not necessarily business minded. The Question(s): What do you think about this situation? Does anyone have any similar personal experience(s) regarding this to share? Regarding loans, I would definitely like to hear from you entrepreneurs out there — If you are self-employed, do you work in your business full-time? Is this part of the growing pains of starting a business? How much are we supposed to support the business, versus the business supporting us? Are we expecting too much too soon? Looking forward to reading your responses and doling out points. Thanks in advance for your help ... Best, Jennifer XPRT Creative

Posted by: wnelson	Accepted Answer
10/8/2006 10:09 PM (CST)
Jennifer, Your business description is full of discontinuities. You have a goal to have two people full time in five years, but I infer from the question you ask that you haven't a formal business plan from which you operate. You aren't going to meet that goal of having two people full time, but you state you have plenty of clients that you are afraid to advertise because you might get too many. The business is fledgling and one "partner" is bailing out in the middle of the start-up phase to get his masters. Is this a business for the three other partners, or a hobby??? Obviously this "business" means "a job" for you. But, I don't sense much commitment from your partners. The other three seem pretty committed to the "take" when it comes to profit, but it seems you are the one who is carrying it all since you are the one who is "executing." I would recommend you put a plan together and stick to it. How many clients do you need before you can add resource on "the payroll?" How do you build up to that point? The fifth of the profits you are putting into the business doesn't sound like enough if you are the only one working in the business...what are the others doing to warrant an equal split? I believe they should be putting more time or more money into the business to fuel growth. Almost all businesses fail during start-up because of lack of cash and many businesses fail because they fail to plan for the cash needed to expand their business. As far as loans are concerned, it is egregious for the owners to be sucking money out of the business and then saddle the business with debt with loans. Your question concerning "should you be supporting the business or the business supporting you.." is just plain wrong thinking. The business plan dictates what happens to the profit. As a start-up business, I have a business plan that plans my cash for marketing activities to fuel my growth. I have a three year cash flow projection in my business plan and a point where I take money out of the business for me. I also have cash remaining in the business building to a point where I can bring on more people. If you need help putting together a comprehensive business plan, I have an outline on my website. Click on my name above and in my profile, my website link is provided. After reviewing that information, if you have questions, feel free to contact me - contact information is on my website also. I hope this helps. Wayde

Posted by: KathySmithFilms*	Accepted Answer
10/9/2006 3:37 AM (CST)
Hi jpoyer, I agree with Wayde and would take the time to follow the outline of his comprehensive business plan on his website. That's where I would put some beans in for expansion. What a gift!! Pay is good when it's based on production. The person doing the work should be rewarded. Something for nothing has a tendency to bring the morale down in a business. It is good to relook at the original contract and see if it needs to be adjusted based on contribution and original intent. It's essential to keep stats and graphs to show progress. Did the other three partners put up the funds and the pay is balancing out their investment? Does a buy-out need to be looked at if one of the partners is leaving for school? You shouldn't be penalized for keeping the statistics up and running. What's being contributed besides talk? There's 168 hours in a week so even 1 hour or production from each per week is 21 hours to your expansion...it's a gradient. I just left a "partnership" where I was "slave"/robot & woke up to it. The partner was thrilled that I was performing all the tasks. I really got the lesson that: Truth is built by those who have the breadth and balance to see also where they're wrong. It wasn't til I was willing to admit where I was right and where I was wrong on allowing myself to be used that I woke up and took some degree of responsibility. I feel more ethical again. I used a lawyer to help with my ownership on the copyright to salvage part of the work & finally will get fair exchange. You asked if others had a similar experience. I had to start from scratch and just recently got back on my feet, brushed myself off, and found a two new clients to work with again that need my filmmaking & marketing skills. I always create & have a building fund (money to build on) going on 15 years and I put 10% of my gross income back into it and spend 15-20% on promo and marketing. Sometimes I go shopping-- but mostly invest back to grow my business cause I love what I do. When a "war story" comes along the building fund has always been there to rescue the unpredictible things/projects that sometimes I "think"/hope will turn out & my predition was off. I would drive as much traffic in the door and have the problem of scheduling delivery--much cooler problem. There are sooooo many guys on this site that I know would be hoppy to accommodate a pay-per-project basis. Hope this helps as my intention is for you to Boom that Biz. Kathy

Posted by: Frank Hurtte	Accepted Answer
10/9/2006 9:01 AM (CST)
Jennifer... before procede any further I would read my article on partnerships... I feel like you are heading for trouble being in a partnership... ultimately there can not be 5 people in charge... http://www.riverheightsconsulting.com/TheRiverHeightsView/Beforeyouaddapart...

Posted by: cread	Accepted Answer
10/9/2006 9:31 AM (CST)
Dear jpoyer: Besides marketing for my companies I have did business consulting for 30 years. (I am now full time into marketing). Partnerships do not work. The only true partnership (as opposed to ones with a defined hierarchical management function) was where two partners separated the functions of the business (sales vs. operations) and kept of each others toes. Even then it took a lot of time and concessions. They make a nice lifestyle income but not near what they could. So consider either installing a true, defined and enforceable management structure with a CEO or consider starting your own firm. Nothing wrong with input from every one but somebody has to make the final decision when consensus fails, as it will. Second of all the business books I have read in 40 plus years the one that made the most difference in my business career is "The E-myth Revisited" by Michael Gerber. You can pick it up on Amazon used for less than $10.00. It saved my business and has allowed it to grow substantially. It may have saved my marriage in the process (36 years next week). I have all my new employees read it and buy copies by the dozen to give to clients with business management and control problems. I reread it every two years or so as well. I get absolutely nothing from the sale of copies (I should with all I buy). It is a short easy read and many of my clients have told me it changed their life. Good luck, Charles

Posted by: jpoyer	Author Response
10/9/2006 1:04 PM (CST)
Thanks so much for your feedback so far guys! I will be reading these several times before I call it a day! :) Wayde, thank you for the guidance with the business plan, looking at what you have in your guidelines, I can see we have a lot of work to do yet in that regard. I appreciate your assistance, and will probably be contacting you in the not too distant future. (at this point, I regretfully have to admit I really dropped the ball on finishing our business plan. A good start is just not enough, and that is very clear to me now.) Frank, I will read that article, THANK YOU! If you think of anything else to add down the line please do. This is excellent food for thought and a there will be a serious partner discussion coming our way. Kathy, as far as monetary investment goes, each of us invested our computer and software, and we split the cost for lawyer fees/etc out of pocket evenly, so it's not like any one of us is out more than the others. We worked as a team doing this same thing that we did before we decided to become partners, and there is a very high level of trust and openness that I am not sure most people find even in their personal relationships. The things we all have in common are strong work ethic, integrity and character, which is why we chose to partner together in the beginning. I'm know this probably sounds cliché, but we have an unusually strong bond. There is definitely a lot of contribution from all partners in our own way, in our specialty realm. I know I'm putting in more "time" but this is me contracting, posting, researching, learning and documenting - I'd say maybe 40% of my work is actual product production on average. I would say, though, as far as bringing in money, there is one partner who has brought in about 70% over the past year, so that is definitely something we need to think about in relation to the morale-production-payment thing. Thanks for mentioning that, we definitely need to address it. Our work load varies. We each have a very specific role and there is little or no overlap for our duties, all of which are skill specific. (for instance, our designer designs, the programmer programs, I write the contracts and proposals, document processes follow up with deadlines, etc, and then our accounting goddess takes care of billing, administrative duties, taxes, etc, etc.) Really the only reason the other partners aren't doing this full-time at this point is because they have other jobs to support their families (new babies, serious health issues-needed health insurance, etc). Charles - I'm so excited to have my partners read these responses. I would love to be a part of the group that makes this partnership work, and if there is a way, we're definitely the group to find that path. I will also be looking into that book too. Thank you for the recommendation. Thank you again everyone, and anyone else out there who has any nuggets of wisdom to share, please do! We are taking it all in! There's nothing like having a group of esteemed professionals on tap. ... this is really the best forum out there. Still Going ... Jennifer XPRT Creative

Posted by: kannanveeraiah	Accepted Answer
10/9/2006 1:54 PM (CST)
Dear Jennifer Poyer, From your narration I understand that all four of you are talented. Whatever little efforts you four contribute to the business does bring revenue and there is a repeat business from your present clients. This indicates that you people together could succeed. But, now the individuals are not fully committed to the business. Everybody has their own other goal to pursue. The reason being that present income is not good enough to meet the individuals' present income / need. After all, it would never be enough without all your whole hearted whole time efforts. Business is very young. You have made client basis. It is growing and there are enough projects / offers in the pipe-line. Now, to make it a full-time business you need to build an organisation. You need to recruit assistants who would take care of day to day support work that you must be having while you concentrate on your core-activities. Why should you do yourself the small but time consuming activities while you could employ someone (or a few) for that. Write down what are the tasks you and your partners are doing in the execution of every order that you get from your clients. Each and every task/activity should be jotted down. Just think which of these activities could be done by anyone else (apart from you four). Then recruit the needed persons for these activities. May be, initially, you need to train them on how you want these tasks are to be performed. Certainly going for a loan should be considered. Prepare business plan and a detailed project work on these organization building - the employees to be appointed the costs on them, costs on your office infrastructure. Make estimation of your present business (value), and approximate value of the businesses that are getting finalised with various clients and your projection for the future. Make a presentation to your bankers of your plan and what you partners would be contributing to that and what loan you need. Get the loan sanctioned. It is a commitment to the bank (financier) so get committed to the business. Focus your full efforts fulltime on the business. Business calls for some sacrifices but it rewards you in return. You cannot have the cake and eat it too. But, Keep baking cakes and eating too. Best Wishes, kannan

Posted by: mbarber	Accepted Answer
10/9/2006 7:11 PM (CST)
Gidday Jennifer. Some very useful observations have already been made so I'll probably not cover those again. I'm probably needing some clarity here about the issue of 'partners'. Are you saying you have a formal legally binding partnership arrangement, or are you a group of friends who are partnering together in the form of a business? Very different legal issues potentially exist based on which it is and what the legal process exists in your area. I'm going to answer this based on the possibility that you are a group of friends rather than a formal legal partnership. If that isn't the case then you probably don't need to read on :-) Based on that context then my first piece of advice would be to go and get a loan. I say that because then you have a financial commitment to the business being shared by all of those partnering to it. This becomes particularly important given one of your team is going to take time away from the business to improve their education. If the group agrees that this is a viable thing to do and that that person should still be able to draw an income or bonus from the business then any bonus can be used to off set their aspects of the loan repayments. By the way it would be remiss of me to not suggest that this person going on to improve their education in order to benefit the busiess is a mosnomer. There is no guarantee that one thing leads to the other, even if the promise of such a benefit exists. Given that you say one of the team brings in the majority of income then I do feel there is a case for a bonus payment based on income generated. That said though, it can be very easy to think that bringing in the business is all there is to it, when in fact the back end stuff is equally as important. One way to overcome this challenge is to consider the idea of 'tiering' the bonus based on income generated as a % of an overall income for each month So let's say you all agree that the business will pay itself a % of all fees generated. And for purposes of a demonstration, let's say that your business generated 50% profit each month. As a group you agree what % the business will pay itself (the partners) each month Righto let's consider that you make $2000 a month and after all business operating expenses have been paid (but not salaries as there is only your group) you have $1000. Let's say that your group wanted to pay each other a share of 50% of the profit each month ($500) which, with 5 of you, would be $100 each. That leaves you with the other half of the monthly profit ($500) to assign. You assign 30% of the remaining income to future business development and management (so $300) and that goes to systems upgrades, lighting, postage etc etc. That leaves you with 20% of the total monthly profit ($200) to assign. Here is where you establish a bonus to those that help generate the income. You assign a % of that monthly total based on the revenue contribution brought in by each member of the group. If 70% of the income is generated by one person, they'd get an additional bonus of 70% of $200. The remainder would be split up amongst the others based on the value of the clients they have brought to the business. What this process does is ensure that people understand that the business runs based on clients and that there is current value in existing clients that needs to be recognised, as well as identifying that there is future potential value to each partner by introducing new clients to the relationship. Future Sales and Ongoing client management becomes everyone's business. The payment made to the partners each month is recognition of the workload and shared contribution in keeping the business running and delivering on those client needs (for which all are equally rewarded). The bonus payment makes explicit that there would be NO payment to anyone without someone first having introduced a cleint to the business. That is a recognition that should NEVER be downplayed or washed over. I think you are to be congratulated for having the type of existing relationship that enables you to have such a wonderful level of trust. best of luck :-0

Posted by: jpoyer	Author Response
10/9/2006 10:23 PM (CST)
THANK YOU, THANK YOU, THANK YOU! kannan and mbarber some really solid feedback for us. Your action steps (past the business plan) and ideas of how to structure the payment issue are well received. I'm going to leave this open one more day, but I definitely feel like we got more than 2225 points worth of answer already. Jennifer

Posted by: anadisah22*	Accepted Answer
10/10/2006 10:15 AM (CST)
Jennifer. I really apppreciate you and your follks effort and determination to startoff so soon big. But there is somehings you should be clear about. See the business is an identity in itself so your sharing of profit is perfectly fine in five even parts. Now as the start is correct continue with it.As you all are well determined for the growth of it just flaot an opinion in offering loan to the business urself at the minimal interest rates which would be a good inhouse investment.Now look at this clearly as one puts in his money he gives more to get the interest and principle to get the return or you can fluctuate the stake hold on the company as you all know the bright prospects of it as the client response is good so intentionally everyone would go for an inhouse laoning proposition and work more to get the money out and te business would sustain to the limit when it is self sustaining and the cash register has enough entries till you can go to the bank for a formal business loan. Hope this would be of some help An Ad i Sah

Posted by: mick	Accepted Answer
10/10/2006 11:07 AM (CST)
Jennifer, First of all, I agree with your need for a plan. I'm glad you're pursuing that. The issue that stood out to me was your pricing (I reviewed your current web site). If you're going to build a business, you need solid profit. For the first few years, much of that profit will be needed to build infrastructure and get your message out. Eventually, that profit can be used to hire qualified employees who can help process the daily work flow, while you and your partners can work to execute growth strategies. Considering that you list a very low hourly rate, you are unlikely to find quality people that would work at those low hourly rates. Be forewarned, finding trustworthy people is probably going to be the most difficult thing to do. My business plan called for aligning with seasoned professionals to provide peripheral or specialized services, so that we could deliver the highest quality deliverables and services from day one. That strategy has its own downside, as does every other approach. There is no perfect solution. The other perspective I can offer is that if you offer high-quality services for very low rates, you will attract (generally speaking) clients who want very much for very little $. In my experience, these types of clients end up causing numerous hours of un-billable work and headaches on top of the tiny margins. I would reconsider this in the development of your plan. Hope this helps.

Posted by: jpoyer	Author Response
10/10/2006 8:34 PM (CST)
Wow Mick ... the $$ thing is yet another thing for us to think about. You're right on with the some clients we have (outside of the PR/Marketing people), with the wanting very much for very little. The less they pay, the more they want - SO true. And the idea that there is no perfect solution will help us weather the storm An Ad i Sah - I had a little trouble understanding your answer, but I think I got the gist of it with possibly of loaning the business money from our personal finances, and then possibly getting a loan. Please let me know if I misunderstood ... I just really appreciate you all taking the time to answer so honestly and I do believe we've got some work to do :) Best Regards to All, Jennifer XPRT Creative

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