Business Insider Magazine - Volume 3 - Issue 4 - 2nd Issue 2008

BUSINESS insider MAGAZINE The South Bay Los Angeles Business-to-Business Magazine Publisher & Editor David Whitehead Contributing Writers Dennis Branconier, Ed Burzminski, Steve Goldstein, Ken Roberts, Brian Simon, Tony Traven, Cayley Vos, David Whitehead, Lori Williams, R. Boyd Zack Graphic Design & Production David Whitehead & Susan L. Wells Copy Editing & Proofing Brian Simon Advertising Sales Manager David Whitehead Assistant to the Publisher Alexandra C. Hart BUSINESS insider MAGAZINE Welcomes Input From The Community: All Letters to the Editor should be concise and include the writer’s name, address and phone number. BIM will publish select letters addressing relevant issues and topics discussed in the magazine. We will not publish street address, email address or phone number. If the editor comments about a letter, the reader may respond with at least as many words as were used by the editor. We would like to stimulate a sincere dialogue. All letters become property of BUSINESS insider Magazine and are subject to editing for length, content, grammar, punctuation, etc. Letters may be submitted by email to:

[email protected] Or mailed to: BIM Letters to the Editor P.O. Box 1032 Palos Verdes Estates, CA 90274 (310) 872-9732 www.BusinessInsider.us www.TheBizBoard.net BUSINESS insider MAGAZINE makes every attempt to provide business decision-makers with current and accurate information. However, BUSINESS insider MAGAZINE disclaims any implied warranty about the correctness or accuracy of information published in BIM and www.BusinessInsider.us or its appropriateness for a particular purpose. You assume full responsibility for using the information and understand and agree that BUSINESS insider MAGAZINE is neither responsible nor liable for any claim, loss, or damage resulting from its use. Opinions and/or claims of BIM contributing writers and advertisers do not necessarily reflect the opinions of BIM’s publisher.

© 2008 BIM Publications & BUSINESS insider MAGAZINE All Rights Reserved

In This Issue… COVER FEATURE: Growth Strategies for Businesses

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Strategic Planning Starts With Strategic People

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Strategic Planning Made Easy Steps and Lessons for Trailblazing a Path to Long-Term Business Success

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The Pros and Cons of Popular Growth Strategies

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Finding the Right Investment Partners

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Cash Management for Growth During Hard Economic Times

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Special Feature 2nd Annual South Bay Technology Guide

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The Benefits of IT Investment in a Down Economy

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Want Website Visibility? Get prepared for Spiders

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Profiles on South Bay Technology Providers

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Your IRA and Company Retirement Plans: How to turn a Liability into a Significant Asset

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The Stimulus Package Was Less Than Stimulating

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Safe But Never Sorry Farmers & Merchants Takes the Conservative Approach To the Bank

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Processing Your Own Payroll Creates a Drag on a Growing Business

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South Bay Calendar of Business Events

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Meeting, Event And Banquet Resources

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his issue focuses on “Growth Strategies for Businesses.” I planned this theme last year knowing we would be facing a tough economy mid-year in 2008. So far, the South Bay is faring reasonably well and should continue to do so as long our key business sectors aren’t deeply affected by the growing national unemployment rate and if inflation remains manageable. That means it is just as important to understand how to implement an effective growth strategy in an up or down economy, or especially when you can’t be entirely sure where it’s headed. When the economy is growing, there are new opportunities to exploit. And when the economy shrinks, every business needs to grow its markets and diversify in new places to remain strong and survive. Exit strategies are just as important so you don’t back yourself into a corner with no good choices. Growth is always a crucial issue for businesses. Having spent most of my adult life in the publishing business, I learned this lesson well from my previous employers. There are definitely right and wrong ways to grow a company. Local business professionals, including myself, have contributed insights on topics ranging from strategic planning and techniques to funding issues. I felt it important to address issues of risk so people understand they must grow in a way that is not only right for their business, but right for them personally. This issue also includes our expanded 2nd Annual South Bay Technology Guide. Business Insider Magazine usually starts our Technology Insider features near the front of the magazine, but in this issue we explore vital IT issues as a distinct centerpiece to our magazine. This feature is informative and also is a keepsake to refer to throughout the year when you need quality South Bay technology providers. Grow safe and don’t get burned this summer! David Whitehead Publisher

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Your IRA and Company Retirement Plans: How to Turn a Liability into a Significant Asset BY DENNIS J. BRANCONIER, CLU

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T’S HEARTWARMING THAT OUR LAWMAKERS ARE BEING SO NICE by allowing us to set aside individual income on a

tax deductible basis and grow it tax-deferred in IRAs and qualified plans such as 401(k)s. Truth is, they’re just being patient with us in their tax collection process. They know that life’s other certainty — death — will eventually cause the transfer of those assets to another person, thus creating a significant opportunity for taxation down the road. If the retirement account has been invested prudently until then and you are a high net worth individual, the government is prepared to send an even more sincere thank you note than usual, because it stands to receive 70% or more of your account by the imposition of estate tax and ordinary income tax. The good news is that you can turn the imminent tax liability into an asset worth millions for your loved ones if you so desire.

What if I spend it all before I die? The best you can do is to spend 60% of your IRA or retirement plan funds during your lifetime because the government will spend the other 40% for you, since you will pay income tax on every dollar distributed (remember, you paid no tax on those dollars when earned). If you meant to ask, “What happens if I deplete my account before I die?” — then you need not read any further. Or if all your retirement money is in a Roth IRA or Roth 401(k), you don’t have an income tax issue looming because you’ve already jumped into the fire to get it over with along the way — good move. Or if you plan to leave all unused retirement funds to charity — great!

On the other hand, what if I don’t spend any of the IRA or company retirement plan money? The government does have limits on its patience. So it set your age 70 1/2 as the trigger for taking distributions out of your 6 S

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retirement funds whether or not you want them. Tax deductible plans are among the best ways to save money, but absolutely the worst for distributing it. That’s why most people will do all they can to live off other investment assets and take only the minimum required by law (Required Minimum Distribution or RMD) from their pre-tax retirement plans. As a result, trillions of dollars are ripening for tax harvest as the Boomers move into retirement.

Is there any way to get 100% of the value of my IRA to my loved ones upon my death? Yes, but you won’t find it by researching retirement plans. In the U.S. tax code, which contains 7,500 pages and 3.4 million words, there is exactly one reference to creating income taxfree benefits for your family at death: life insurance. This exclusive treatment is granted to life insurance as a matter of sound public policy. Otherwise, millions of people would look to public resources to bail them out in the event of a breadwinner’s premature death. And the timing is perfect from a financial and estate planning standpoint: the situation that triggers taxation of your unused retirement funds, namely death, is precisely the same situation that creates income tax-free dollars for your beneficiaries. So the problem is instantly neutralized. As with all other uses of life insurance, the benefits sound great until you have to figure out how to pay for it. It’s important to remember that insurance is the solution, not the problem. The problem is this large wad of untaxed money, perhaps the largest single liquid asset you have. So what about using the problem causer to pay for its own solution and having the government be your partner rather than your adversary? Though it may seem counterintuitive to purposely withdraw retirement funds and pay tax on them now, you will be surprised to do the math and see what happens. Please keep in mind that this strategy is potentially appro-

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priate not for everyone, but for those who will likely want to avoid taking any more out of their retirement plans than they must in order to satisfy the law. It will be even more significant for families that will face estate taxes (retirement plans do not receive a “step up” in basis like other assets do). Here’s why it makes sense in certain situations:

It is more likely that future tax rates will go up than stay the same or go down. Given the nasty outlook for government entitlement programs such as Social Security and Medicare, along with war efforts and other costs not yet known due to the aging population, we may be at the lowest tax rates we will see in a long while. Why not get some taxes out of the way now while it’s relatively cheap? Remember, they will be due and paid someday. If the block of money you pass on to your loved ones (through insurance) is tax-free, will you worry about what the tax rates are in the future? No, because your family won’t be paying them. Talk about peace of mind.

For individuals who don’t want to tap into their retirement plans and will support their retirement lifestyle with other income producing assets, the after-tax RMD might as well be used for something beneficial. Life insurance policies can be designed with a graduated premium over the years to parallel the anticipated growing RMD payout. what the economic loss will be for family members or business partners due to someone’s death. The amount of insurance you choose will be based on an estimate of the loss at some targeted future time and on your preferences for a certain level of premium payments.

What is the best way to pay premiums? For the beneficiary, paying income tax on just the investment earnings is better than paying tax on every dollar taken. While the stretch-out provisions are superior to the old lump sum tax hit from past days, it still means every dollar the beneficiary takes from the retirement plan is subject to income tax when received. By contrast, the fund created by life insurance proceeds is not taxable when taken out. Only the interest or investment returns on that fund are taxed.

My spouse is the beneficiary of my retirement plan; aren’t there special breaks for spouses? There are two main “breaks” for spouse beneficiaries. One is associated with estate taxation. You can pass as much as you want to your spouse upon your death and the unlimited marital deduction will defer estate taxes until the second death. The other break is associated with income taxes. Your spouse can elect to “stretch” the IRA or company plan account (which may well benefit from being rolled over into an IRA first) and take distributions over his/her life expectancy. Again, this only defers taxation so that the account can have a chance to continue growing, but it doesn’t do away with income taxes any more than the marital deduction does away with estate taxes. In both scenarios, a significant asset is transferred at death to someone else who eventually has to acknowledge a tax liability because of that asset. But there’s no reason that death must equate to an economic loss to a spouse or family. Through the power of insurance, the true value of the asset can be preserved.

How do I know the proper amount to insure? Good question. If you take only the RMD from your plan and leave the rest to continue growing, the account value and accompanying taxation are moving targets. Again, as with other uses for life insurance, there is no way to know exactly 2

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If you are a long way off from retirement, it’s unlikely you’d tap into your retirement accounts for premiums (though it can be arranged for your 401(k) or profit sharing plan to actually own and pay for insurance with pre-tax dollars). This provides a good reason for you to sit down with your financial advisor to review your financial and estate plans, because your retirement account is likely a substantial part of both. The reference earlier in this article presumes that the retirement plan itself is the source of funding, which is easiest to consider at age 70 1/2 or older because you’ll be forced to take money out anyway (unless you are a non-owner of the business who is still actively working). For individuals who don’t want to tap into their retirement plans and will support their retirement lifestyle with other income producing assets, the after-tax RMD might as well be used for something beneficial. Life insurance policies can be designed with a graduated premium over the years to parallel the anticipated growing RMD payout. Such a concept is also appealing for individuals who want to make charitable gifts of life insurance (and the income tax deduction can offset the unwanted income tax liability from the RMD distribution).

What other issues need to be addressed in pursuing this strategy? Due to space limitations, this article can only remind you that you’ll need to consult your financial advisor on the appropriateness of this approach for you, including decisions on: • Ownership of insurance — inside or outside your taxable estate. • Type of product — single life or survivorship (“secondto-die”). • Integration with other aspects of your long-term planning. Advances in underwriting have liberally opened up the playing field for individuals with medical histories. As with all continued on page 8 B

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YOUR IRA continued from page 8 great opportunities, acquiring insurance must be taken advantage of while it’s still available. Dennis Branconier, CLU is Vice President of M Advisory Group in Torrance. For affluent clients and entrepreneurial companies, the firm provides wealth preservation and executive benefit planning, insurance expertise and 401(k) investment advisory services. He is past president of the South Bay Estate Planning Council and active in several local community organizations. Dennis can be reached at (310) 530-5525 or [email protected]. This material is not intended to present an opinion on legal or tax matters. Please consult with your attorney or tax advisor, as applicable. Securities and advisory services offered through M Holdings Securities, Inc., A Registered Broker/Dealer and Investment Advisor, Member NASD/SIPC. Services provided through Cal-Surance Benefit Plans, Inc. Cal-Surance Benefit Plans, Inc. and M Advisory Group are independently owned and operated.

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The Stimulus Package Was Less Than Stimulating

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I WAS FEELING a few months ago when guidelines were released for the increased Conforming Loan limits, as part of the administration’s economic stimulus package. You may recall the last issue when I said that raising the loan limits from $417,000 to $729,750 could be a boost to the South Bay real estate market. What we were expecting was the full complement of loan products with similar guidelines for the new so-called Conforming Jumbo as we have for Traditional Conforming loan amounts at $417,000 and below. We were fully prepared to pay a little more and see some tiered pricing. But what we got instead of 31 flavors was your basic chocolate and vanilla, a 30-year fixed and a five-year fixed. And for purchases, the maximum loan-to-value was 90% and required a minimum 700 FICO score. For refinances, the maximum loan-tovalue would be 75% and couldn’t combine an existing first mortgage with an existing second mortgage nor take cash out. All loans required full income documentation (no stated income allowed) and were only applicable to single family residences, condos and planned urban developments (no two to four units allowed). All this stood in stark contrast to Traditional Conforming loans, in which there are numerous loan products (for the sake of brevity, I will spare you a list) to satisfy a variety of palates. It seemed the new Conforming Jumbo loans weren’t going to be included in the same pool of mortgages in which Traditional Conforming loans were bundled and sold. Different pool and different guidelines meant different pricing, and it wasn’t pretty being .75% in rate higher across the board for Conforming Jumbo vs. Traditional Conforming. So we now had only two loan choices, more restrictive guidelines and much higher pricing. No wonder the lending community found this less than stimulating! The only bright spot was FHA financing. Those loan limits were raised in the high cost areas (like LA County) to the same $729,750, with guidelines more similar to what they’d been with a few exceptions. The only problem was that many mortgage brokers didn’t bother to get approved to make FHA loans because previous loan limits had been so low. FHA also has its limitations: limited product choices, no interest-only options, higher interest rates, plus up-front and monthly mortgage insurance premiums. The strongest benefit, however, is that FHA allows for as little as 3% in down payment, which can come from a family gift or outside program. Then things started to loosen, just a tad, for Conforming Jumbo. Guidelines now allow up to $100,000 cash out. Interest-only is available with some lenders. You can combine a first and second mortgage into one loan in a refinance in some instances. Next, we saw pricing for Conforming Jumbo loans drop enough to almost mirror Traditional Conforming loan rates as Fannie Mae and FredHAT PRETTY MUCH SUMS UP HOW

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die Mac started including Conforming Jumbo in the regular pool. And most recently, a few lenders increased their product choices to include seven- and 10-year fixed rate mortgages, some with an interest-only option. I hope this trend continues, but I fear that about the time the consumer is all dressed up and ready to go, the party will be over. According to the legislation that created them, the increased loan limits are temporary. They are due to expire at the end of this year. The biggest question remaining is will these limits be extended beyond December 31 and be made permanent? Certainly California needs the $729,750 Conforming loan limit. Also, who gets elected this fall may have an impact on that decision. In the Jumbo marketplace for loans over $729,750, there is some bad news and some good news. The bad news is that lenders that sell Jumbo mortgages to the secondary market are finding that investors still have no appetite. Rates for all loan programs, fixed or adjustable, are disproportionately high. They are above 7% with many quoting rates well above 8%. This is the hangover from the bad investments made in the sub-prime mortgage marketplace that has left investors shunning anything perceived as having additional risk. They would rather buy five $200,000 loans than one $1,000,000 mortgage. The good news is there are still a handful of portfolio lenders who are making loans up to several million dollars at rates near or below 6%. Such lenders keep the loans on their books instead of selling them to investors, and service them (meaning they collect the payments also). By not selling mortgages to investors, they don’t have to conform to investor guidelines or the current high market rates. The product choices are limited to three, five, seven and 10-year fixed, some interest-only, and straight Adjustable Rate Mortgages. Be forewarned, however, that these lenders are extremely busy and backlogs mean their turn times from application to funding are between 45 and 60 days, with some as long as 90 days! If you are contemplating buying or selling this year, do yourself a favor and build in a longer escrow period of at least 60 days. You can always close sooner by mutual consent between you and the other party if things come together sooner than expected. We are seeing some extreme “cherry picking” by portfolio lenders. Underwriting criteria can be rigorous and at times very frustrating. Financing for condos and townhouses is more difficult. Firsttime home buyers are certainly facing discrimination. I recently saw some very strong (I’d venture to say near-perfect) first-time home buyers declined on the basis of payment shock (meaning they are going from a modest rental payment to a much larger mortgage payment). Keep in mind their qualifying ratios were very low, they had continued on page 12 B

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BY TONY TRAVEN

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HEN YOU WANT TO CHANGE THE CONVERSATION IN YOUR COMPANY FROM PROCESS IMPROVEMENT, PERFORMANCE REVIEWS, COM-

P & LS INTO A TRUE STRATEGIC/ANALYTICAL DISCUSSION, WHERE DO YOU START? START WITH “STRATEGIC PEOPLE.” PANY EVENTS AND

Many companies have annual strategic planning meetings where a couple of days are set aside to focus the key executives on strategic discussions and ask questions like: Where do we want to be in five years? How are we going to get there? How can we improve internal communications? Maybe even conduct a Strengths, Weaknesses, Opportunities and Threats analysis (SWOT). Sometimes the meetings even include team building workshops and fun exercises to help bring people together. These are all good practices and can benefit a company. However, this is not where strategic planning starts. In reality, most strategic planning meetings are very wellplanned, scripted presentations designed to communicate where the company is headed, build consensus and make everyone feel part of the team. The real strategic planning is done before the meeting. The fact is strategic/analytical people are always thinking strategically. It is not something to be turned on an off like a switch, but it is the way the person processes information and determines what needs to be done. Strategic people are the fact finders — not the fault finders in a company. They are constantly looking for facts to verify the existence of a new 10 S

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trend or figure out a complex problem to help move the company forward. They are continuously breaking things down and putting them back together to figure out a better way of doing business. Strategic thinking people naturally think in the future text and are asking “what if” questions both internally and externally. Future thinking is not something that is easily controlled, and often contributes to feelings of frustration because strategic thinking people clearly see what needs to be done and yet may have little power to affect change. Many scholars will debate and even condemn this overly simplistic viewpoint and reference hundreds of books and classes designed to teach strategic thinking skills and how following specific processes can set a clear strategic direction for the company. They will state emphatically that you can teach strategic thinking… and I would agree with them in part. Education, intelligence and work experience all contribute to how effective an individual will be in the context of strategic planning. The in-depth discussions and classes that take place at campuses throughout the country are extremely helpful in

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The biggest challenge most companies have is that the planning committee or executive team is already in place handling all areas of strategic planning. If the team is strategic and forward-thinking, great! If not, then that’s the way it is… However if you are a person who cannot accept this as fact, needs to challenge the status quo, likes to take risks and needs to push things forward for the sake of the company, that is also understandable. understanding the steps, building the framework and providing the structure needed for creating a comprehensive strategic plan. All this education is valuable and highly effective when it challenges a strategic mind. They grasp the concepts and start to think about how this information and knowledge applies in the future. But it starts with a strategic mind. Of course this by itself does not make a strategic plan come to life. A welldesigned and comprehensive strategic plan also includes input and a significant amount of discussion with individuals who ask, “Have you thought about…?” or, “Do you remember the last time…?” kinds of questions. These are the folks who look at the outline of a strategic plan and start to fill in the details. This process is similar to how a major construction project goes from concept to being built. The big picture concept is pitched along with a beautiful rendering, estimate of the overall cost and cash flow projections based upon consumer or business trends. Those in this business know this is only the beginning. Now the project gets broken down into specific projects, the hundreds of steps within those projects all the way down to the smallest detail. The same holds true with an effective strategic plan. So you need both the big picture strategists along with those compiling and questioning the details. Both types of individuals need to work in concert and have an understanding as to the others point of view and mental reference. One is looking forward, mentally grinding on what is possible and weighing the risk. The other is drawing upon continued on page 12 2

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knowledge, referencing the past and trying to eliminate or reduce risk. There are very few people that do both effectively. Of course you have people in any organization who feel strategic planning revolves around what the CEO or their bosses want them to think about and are positioning themselves politically for the next promotion. They can even parrot what they have heard that sounds good and makes them seem progressive. In this case be careful, because what sounds good may not end up being good for your company or division. The biggest challenge most companies have is that the planning committee or executive team is already in place handling all areas of strategic planning. If the team is strategic and forward-thinking, great! If not, then that’s the way it is. If you accept this as the way it is, that is understandable. However if you are a person who cannot accept this as fact, needs to challenge the status quo, likes to take risks and needs to push things forward for the sake of the company, that is also understandable. But how do you know precisely “who” is “who” within your organization and is it really that important? That depends on whether you want to be mediocre, good, great or the leader in your industry. In this case, let’s assume you want to be great or the leader in the industry. How do you start to put together highly effective teams and strategic plans that will grow your business and your profit? The fact is you can measure, through various assessment tools, someone’s primary point of reference and if that person is strategic and forward-thinking. No need to guess. You can also determine who would be a good complement to this type of person and start designing highly effective teams. You can change your company from a reactive to a progressive, strategic company. But the first step in the process is to identify and develop your strategic people.

perfect credit with very high scores, and came in with a large down payment and plenty of money remaining as cash reserves. Ironically, had they been renting a larger and more expensive home, they would have demonstrated their ability to make the new mortgage payment. Yet clearly, they would not have saved nearly as much for a down payment and cash reserves. In 30 years in the real estate industry in the South Bay, I have never seen more qualified borrowers declined. They did get financed at another bank. The ability to put 10% down is quickly disappearing. Lenders willing to provide Home Equity Lines of Credit (HELOC) and fixed rate seconds to piggyback behind an 80% first mortgage to avoid having to pay Private Mortgage Insurance (PMI) have discontinued second mortgage lending altogether. Many have reduced the maximum loan-to-value to a combined 80%. That means the first mortgage added together with the new second mortgage can’t be more than 80% of the home’s value. When purchasing, especially with Jumbo loans, a minimum of 20% down is the rule with few exceptions. With loan amounts up to $729,750, you can still get 90% financing with PMI. It can either be built into the rate or, if paid separately, can be tax-deductible if your income is $110,000 a year or less. And for loan amounts over $1 million, it could require 25-30% down. It seems that second mortgage lending also falls into the dreaded “additional risk” category being boycotted by investors and, consequently, lenders today. I can’t stress enough how important good credit scores have become. Learning how to manage your credit will be crucial moving forward. People make what they think are logical decisions about how to maintain high credit scores, but oftentimes what they do actually hurts their scores. There is much misinformation being disseminated to the general public about what to do and what not to do to retain a high score. Some of it is outdated information passed on to the consumer by well-intentioned loan officers. The credit bureaus themselves are finally giving more information about how credit scoring is determined. Go online and learn how credit scoring works. It could save you thousands of dollars as lenders for real estate and even consumer loans move more to risk-based pricing based on your

Tony Traven is a licensee for Culture Index in the Los Angeles metro area. Tony works with strategic business leaders in developing highly effective teams and can be reached at 310-6833607 or [email protected].

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Safe, But Never Sorry: Farmers & Merchants Takes Conservative Approach to the Bank BY BRIAN SIMON

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OR MANY FINANCIAL COMPANIES, UPPER LEVEL PERSONNEL

CHANGES ARE SO COMMONPLACE they barely elicit a yawn

from shareholders. But when it happens at Farmers & Mer-

chants Bank, it’s time to stop the presses. On March 11, 2008, Henry Walker became Chief Executive Officer of the 101-year-old, Long Beachheadquartered institution, succeeding his father who had merely held the post since the Carter administration. Given that Henry is only 42, it’s likely we won’t be reading about another CEO coming aboard until close to mid-century; and when we do, rest assured it’ll be someone named Walker assuming the reins. continued on page 14

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SAFE BUT NEVER SORRY continued from page 13

“Most banks have not been willing to chart the course for long-term returns and running a safe and sound bank. But the allure on high returns on equity has a price. When the economy turns, you’re going to take losses.” — Henry Walker, CEO Farmers & Merchants Bank

It is just that level of consistency and steadfast adherence to tradition that has allowed Farmers & Merchants to navigate through the decades, weathering significant industry shifts and various economic storms along the way. The term “conservative” is often used to describe the bank’s philosophy, but that suits Henry Walker just fine. A 21-year veteran of F & M who has really spent his entire life in and around the business, the new CEO has no plans to reinvent the wheel. In fact, the bank’s strategic direction had been well planned out by its executive management in advance to Walker’s promotion. “The course is to continue to be one of the safest banks in the United States — that is paramount to is,” he said. This recipe for safety has a number of key ingredients. On top of the list is a stubborn insistence on a conservative loan to value ratio. “It is critical to maintain a safe and sound loan portfolio,” Walker said, noting that the bank typically maxes out at a 50 percent LTV on collateral. While such a ratio eliminates a certain range of loan candidates, this is exactly how the bank wants it. “Our typical borrower is also conservative and has a profile that matches the bank, so we end up with the best borrower,” Walker continued. “It’s a great marketing plan and few banks have the fortitude the follow it. They are pushed to follow return on equity instead of safety and soundness.” Loan to deposit (or asset) ratio on the other hand, is considerably lower than many other banks. “We are 70 percent loan to deposit, while most banks are 100–120 percent and therefore highly

leveraged,” said Walker. “When you put on top of that liberal advances, it creates a problem in a slow economy because that bank counted on Wall Street being able to fund the takeout loan, which isn’t happening anymore.” Typically, such loans would be paid off through cash accumulated, sale through collateral, or refinance (permanent financing). According to Walker, Wall Street is not funding credits like it did in the past. “I know of more than a few situations where the financing dried up in this credit crisis,” he said. As an example, Washington Mutual recently had to raise $7 billion by selling stock to a private equity fund. Henry Walker’s brother Dan, Chairman of the Board of F & M with 32 years in the industry, explained why. “They needed to issue stock because they couldn’t maintain the cash flow necessary to continue lending to their customers. Prior to this, they would sell their loans to create additional cash flow. Because their focus is fee-driven, they would then sell the loans off on a second profit to supplement income.” Dan Walker said F & M avoids this problem because it doesn’t sell its loans. “We make good loans for our own portfolio and don’t rely on other outside sources in order to fund the

“Our focus on long-term banking is to create a portfolio that doesn’t allow the economy to put us in danger. We have to manage those dollars as well as our own capital to not risk our livelihood and to continue lending and supporting the communities we’re in. Dan Walker, Chairman of the Board Farmers & Merchants Bank

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loans,” he said. “We fund with our capital and depositors’ funds and that’s it. This has always been the case. We’re one of the few banks that operate this way. It’s a tradition that has served us well for our entire lifetime.” Asked to conjecture on why Washington Mutual would allow itself to get into such a bind, Dan Walker continued, “Wamu has a different business plan and they set it up to generate the income they have and are willing to accept a higher level of risk in their lending portfolio. When the market turns, they are required to supplement their losses and their loans with additional capital by making an offering to continue their operation and banking plan.” Henry Walker added, “They have to raise capital or sell. The big banks are doing it and getting away with it. I don’t know if the small banks have the resources.” F & M’s conservative approach serves to protect the bank, its depositors and its shareholders while also making a good return on investment. Ultimately, it comes down to patience and lots of it. “Most banks run with a short-term philosophy; we run with long-term,” Henry Walker explained. Though it is difficult to compare the different economic downturns the Unites States has withstood over the last century (e.g. during the Depression of the 1930s, farming was the primary industry and the country’s economy did not have the diversification it does today), certain thought patterns have always been in place whether the year is 1933 or 2008. “Most banks have not been willing to chart the course for long-term returns and running a safe and sound bank,” said Henry Walker. “But the allure on high returns on 2

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equity has a price. When the economy turns, you’re going to take losses.” It’s hard to argue with the Walkers’ way of thinking. F & M is rated the safest bank in California and has managed to thrive as an independent, family managed operation from its inception. With over $3 billion in assets, it also has the flexibility to assist people who are being turned away from lenders to help refinance existing mortgages or consolidate other forms of debt. The bank’s legal lending limit exceeds $100 million due to its unusually strong capital position. “Our focus on long-term banking is to create a portfolio that doesn’t allow the economy to put us in danger,” said Dan Walker. “We have to manage those dollars as well as our own capital to not risk our livelihood and to continue lending and supporting the communities we’re in. We are maintaining the customer relationship through the loans we have. The customers affected greatest today are in real estate — either in financing, or in sales — because of limited cash flow. But we can be patient because our LTV still allows for a good loan to give our customer time to turn things around.” Conservatism and safety do not equate to being stuck in the Dark Ages, however; even though a stroll through the bank’s historic downtown Long Beach branch might make one think the year is still 1923. The Walkers say F & M is committed to maintaining a high level of technology in order to serve the growing customer base on the information side. Other important fringe benefits come with the package as well. “Borrowing from us is relatively inexpensive; there are no points and low rates,” Henry Walker said. “We also provide a strong level of customer service, which candidly we do better than anyone else in our competitive field.” Dan Walker echoed the sentiment. “We prefer to have a relationship with our customer through deposits and then service the loan. We want that customer coming back to F & M. That’s why we have so many multi-generational customers.” 2

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Through careful management of its money, F & M has also grown by delving into expansion when appropriate. Of its now 22 offices, most are de novo (start-up from scratch) branches, though the bank is also open to purchasing facilities inside or outside its current marketplace areas if the deal makes sense. The majority of its new branches broke even within the first two years of operation as compared to the normal four or five industry-wide average. F & M now has roughly 80,000 customers combined on the consumer and business sides, though more than three quarters of the bank’s portfolio is real estate related. Despite documented downturns in that market, Henry Walker noted that the bank’s bases of operation — Los Angeles and Orange counties — are among the better economies nationwide. “Consumer spending hasn’t dropped significantly in the regions we serve,” he said. “Business is still moving along and doing well, though some sec-

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tors are in a big hurt.” Though cautious in assessing the future direction of the economy, Henry Walker can only control what’s right in front of him. “With respect to banking we are doing it right,” he said. “As for the economy, we’ll see what happens with consumer spending.” In any case, the Walker brothers and the rest of the executive team (four people with a combined 158 years of banking experience) are poised to ride out any storm. “From our point of view, we are very excited to continue in banking,” said Dan Walker. “We enjoy our jobs day in and day out. We are on call to our staff 24-7 and are here to continue the longevity of F & M. The livelihood of this bank and shareholder responsibility is not something we take with any ease in our minds. We live this bank…” Brian Simon is a freelance writer who lives in El Segundo.

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Processing Your Own Payroll Creates a Drag On a Growing Business BY STEVE GOLDSTEIN

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FTER 25 YEARS IN THE PAYROLL OUTSOURCING BUSINESS, the most common

drag on the process. Part of growing smart is knowing how to outsource properly and payroll outsourcing is a smart way to help keep your costs in line as your business grows. There is also the added risk to consider by handling your own payroll, especially as your business gets larger and more complicated. Every single paycheck includes at least five required tax deductions in each state which then must be added to other employer taxes and voluntary deductions. Every one of these items is an opportunity for a problem to occur. The late or incorrect deposit of these tax liabilities can result in costly penalties and interest for a business owner. For a company with as few as five employees, a small boutique provider of payroll services might charge as little as $20 per pay period plus $1.65 per check to completely outsource the task of calculating payroll and properly paying all state and federal taxes. The time

misconception I deal with every day is that by processing their own payroll, employers save money or maintain a degree of control they would otherwise have to give up as if their time is worth nothing and there is no risk involved. Like rent, payroll processing is a task that produces no revenue, though it is a necessary evil for business owners who wish to stay in business. Time spent processing payroll is time not available to add to the bottom line, whether that might be increasing sales, collecting receivables, developing new products or strategies or even taking some time to relax and recharge the batteries. All of these things are more productive than payroll processing, which can only create risk for the owner as well as cost time and money. If you are trying to grow your business, all these procedures can become a

spent on payroll can be reduced to simply reporting the hours worked. The payroll service provider shoulders both the workload and the liability of the payroll processing and business owners can now focus on bottom line — running and growing their business. The employer maintains complete control over when and how the payroll is processed as well as wages, raises, reviews, hiring, and benefits. Access to information is also not a valid consideration as business owners have complete access to all reports, history and personnel data plus report writing capability with a Web-based service. Since there are no “contracts” in payroll, no employer is ever forced to stay with a service they find unsatisfactory for any length of time. All payroll services can be terminated with a simple letter or phone call. The biggest benefit of tax filing service is that if ever a notice arrives from the IRS or EDD, a client simply faxes that to a service provider to be handled. These notices often result from a mistake by the IRS or EDD and are cleared up very quickly — all without any effort from the business once that fax is sent. Employers who do it for themselves (for “free”) will spend many hours responding to such notices — hours away from the business that can never be replaced. Steve Goldstein is the founder and owner of Payroll Management Solutions, a South Bay provider of payroll services for local companies. Steve can be reached at 310-491-3467 or by email at [email protected].

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The Benefits of IT Investment in a Down Economy BY R. BOYD ZACK

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URING AN ECONOMIC DOWNTURN, CUTBACKS ARE OFTEN UNAVOIDABLE.

However, IT is among the business cate-

gories in which cutbacks can actually cost a company more in the long run. As a business owner, it is extremely likely that you are seeing price pressures all around your office. Insurance costs seem to be on a space race to the moon. Energy costs to power our offices and factories are becoming very noticeable line items on our financials and blowing our budgets beyond belief. Not to be left out, even the post office is getting into the practice of raising rates.

Another area where technology investment can provide a high return is through server virtualization. The computing power of today’s computer servers is so great that through the use of special operating system software we can deploy several logical (or virtual) servers on a single physical server. Virtualized servers not only provide a higher level of reliability and availability, but they also consume less energy.

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While the price of the technology may not seem to go down, the amount of usefulness of the technology will go up at a higher rate than the actual cost, thereby reducing the effective cost of the technology. In other words, a $500 computer might cost $500 or even $550 in the future, but what that future computer can do will exceed what the current $500 computer can do by far more than the price increase. This fact will help offset other rises in the cost of doing business. History has shown that companies that make strategic investments during down times often emerge as leaders at the time of the upswing. In recent years, declining revenue in the entertainment industry has been very rough on some of the giants in the field, allowing for the rise of underdogs such as Apple with its iTunes technologies. While icons such as Warner Music Group were slashing costs in every area of their business, Apple was investing heavily in its unproven technologies in an area it had not previously even had a presence. Some areas of technology investment in tough economic times can be easy to show a reasonable ROI in labor costs alone. Take system integration: the process of connecting systems together in such a manner that they can share data and become a common source of information. By integrating systems together, reductions in labor costs through a decrease in redundant data entry or elimination of work or errors can be realized. At the same time, increases in production or in features can be achieved without increasing costs associated with providing the products through increases in efficiencies. Another area where technology investment can provide a high return is through server virtualization. The computing power of today’s computer servers is so great that through the use of special operating system software, we can deploy several logical (or virtual) servers on a single physical server. Virtualized servers not only provide a higher level of reliability and availability, but they also consume less energy. This means they generate less heat, which can further reduce energy costs associated with server room cooling. Again, when calculating the ROI from such an investment, we cannot assume that energy costs will remain

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constant or even increase as they have historically. Instead, we must assume they will increase at an ever climbing rate. Additionally, we should expect and even plan on making greater use of our computer and technology resources to enable us to do more with less. With current versions of Outlook, users are finding they can retrieve voice message through e-mail and hold meetings without leaving their desks. Through the use of remote desktop applications, workers are finding increased productivity operating from home, while still having the full computer resources found in the office. And with current cell phone (and PDA) technology, we can access our e-mail anytime and anywhere. Lately it seems we can’t pick up a paper, watch the news or visit any on-line news source without hearing about the economic forecast. Are we headed toward a recession? Are we in a recession? How bad will it get and how long will it last? The answers to these questions become crystal clear only after change has taken place. And we know we are through the worst of it when we see a sustained improvement. One challenge we must face and try to understand is that what we do and how we respond while we are in it has a dramatic effect on the downturn itself. Sometimes a seemingly logical response to a bad situation does nothing more than make that bad situation even worse. For example: A logical response to a downward trend in sales may be to cut costs across the board. The problem with this type of response is that it can very easily make the trend worse. If sales have declined due to additional features of a competitor’s product, an increase in product development funding could have a much more positive effect on the overall health of the organization. If the decline is the result of perceived value, an increase in marketing or even an increase in price might better align the company with its targets. Unfortunately, business is not always as simple as analyzing the situation and brilliantly coming up with the solution that is counterintuitive. When faced with higher costs, we tend to look at either 3

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passing the increases to our customers or cutting back in other areas. One problem with taking either of these two approaches is that they are simply unsustainable. When we pass our increased costs to our customers, it forces them to either do the same with their customers, cut costs in other areas or reduce their spending with us. Similarly when we cut costs in reaction to increases in costs in other areas, we tend to be perpet-

uating the issue in those areas. What we need to do is find ways to get more from what we have without the wholesale cutting and slashing that diminishes our value to our customers. Often, accomplishing this can be challenging at best and downright painful or potentially fatal at worst. One example of a counterintuitive approach to raising costs is to invest

continued on Tech Guide page 4

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DME

Computer Consulting Services

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18402 Hawthorne Blvd., Suite C, Torrance, CA 90504

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BENEFITS OF IT INVESTMENT continued from Tech Guide page 3

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ment of a system (or systems) can save you a significant amount in labor costs through increases in efficiencies. When evaluating returns on such investments, we cannot take prior constants as constants. The world is changing and will continue to change at an everincreasing rate. Prices for many things are going up and will continue to go up, while some are going down and will effectively continue to go down. If you were considering purchasing a Toyota Prius about 18 months ago, you may have looked at the mileage, number of miles you tend to drive and the price of the car and then compared that cost to the truck you were driving at the time that was paid off and getting 15 miles per gallon. With the average price of gas at $2.14/gallon it could have come to a 15year payback, assuming the price of gas was going to increase at the slow rate it had been over the prior several years. Taking the current $4.00-plus/gallon price, you could be looking at an eightyear payback. More realistically, the price

in people. While we often look at training in times of plenty, we must not set it aside in lean times. Take management training, for example. The goal of management is to accomplish objectives through others. With effective management training, we can often learn to accomplish more through others, thereby either reducing our costs or increasing our offering. With effective time management training, we can learn to spend more time in our high payoff activities and less in our lower return tasks. Another means of getting more from what we have in the area of IT is to expand or refine our systems to do a better job at saving us time and money. Take a poll of the business system users within your organization and ask them what could make their job easier and what areas of the systems are difficult to use. Often you will find that with relatively minor adjustments to the systems, major productivity gains can be achieved. You may also find that a complete replace-

of gas is not going to do much else other than continue to increase at higher rates, resulting in an even quicker payback. We can bank on the fact that commodities produced from natural resources will continue to go up while technology products will effectively continue to fall in actual cost. Putting it into context, the actual cost of a loaf of bread will continue to rise due to the costs associated with producing a loaf of bread and the amount of natural resources that go into the bread, while the effective cost of a piece of technology will continue to go down. While seeking the magic bullet that will enable our businesses to survive these rough economic times, we need to look at payoff over longer periods of time than we may be used to considering. Technology is going to continue to progress at a very rapid pace, even keeping up with the raising price of gas. Our challenge is to make effective use of the technology available to us and to not waste it away as we have done with gas. You have more computer power on your desktop than was on board the first space shuttle, and more in your cell phone than our astronauts brought to the moon. Are you using it to the potential under your fingertips? R. Boyd Zack is the president and CEO of R.B. Zack & Associates, Inc, a Torrance, California-based company with 27 years of experience in developing, integrating, implementing, maintaining and supporting custom business software and IT services. “Building Business Applications that Work Since 1981.” Boyd can be contacted at [email protected] or via the Web at www.rbza.com or by phone at 310.303.3320. The 2008 South Bay Technology Guide is a special supplement of:

Main Website: www.BusinessInsider.us Classified Advertising Site: www.TheBizBoard.net BIM Publications — Business Insider Magazine P.O. Box 1032 Palos Verdes Estates, CA 90274 (310) 872-9732 [email protected] ©2008 BIM Publications All Rights Reserved

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Technology Providers Alpha Computer Support, Inc. Alpha Computer Support is a small office-home office/small business consulting company. We are customer oriented and as a small business ourself, we understand the value of keeping an eye on the bottom line. We have experience in all of the Microsoft Windows operating systems. Our server and desktop support includes: migration, new systems and servers, training, back-ups, fault tolerance. disaster recovery, anti-virus, hardware, workstations, laptops and upgrades. Network services include: VPN, LAN/WAN, firewalls, routers, wireless networking, network cabling and troubleshooting and DSL/cable modems. 310-374-0666 611 Green Lane, Redondo Beach, CA 90278 www.alphacomputersupport.com

The Cyber Boardroom The Cyber Boardroom offers three amazingly equipped conference rooms of various sizes and unique character that are ideal for any occasion. Every room (The Royal, The Lennox and the Manchester) comes equipped with a 40-inch monitor that can be used for everything from television viewing to projected presentations, a telephone capable of conferencing up to four outside parties, and our exclusive “Gigabyte” high-speed Internet access either through a wired or wireless connection. Each room is an independent sound zone with an adjustable volume control for presentation audio or ambient music. The Cyber Boardroom also has a Wi-Fi lounge and a full range of powerhouse computers for office or graphic work, scanners, faxes and printers. 310-393-7904 4451 Redondo Beach Blvd., Lawndale, CA 90269 www.TheCyberBoardroom.com

DME Computer Consulting Services If you run a small- to medium-sized business in the South Bay, save time and money by outsourcing your IT department to DME Computer Consulting Services. Keep your network running efficiently, improve your workflow and benefit from custom programming and support. We also handle vacation fill-ins for your IT staff. Get a fast response and quick solutions from an A+ Authorized service center with experience in a wide range of industries. 310-991-1464 3418 W. 224th St., Torrance, CA 90505

Holden-Andrew Corporation Since 1991, Holden-Andrew Corporation has delivered systems integration and support services to its clients. With principal staff coming from security, finance, and aerospace related sectors, the firm has always maintained systems security as its foundation. With Holden-Andrew Corporation, you’re not only bringing on a company with industry partnerships, but a leader in the Information Technology field. Through its suite of Evolution Connect Services, HoldenAndrew is leading the way for companies looking to utilize managed and cost effective technology solutions. Using products like VoIP Systems that deliver powerful reporting tools, hosted application servers, electronic and print marketing, interactive website design and data storage services, Holden-Andrew gives companies the opportunity to consolidate their business operations costs. Going beyond the desktop, Holden-Andrew Corporation is your total IT and business solutions provider. Ask for account executive Melissa Stewart or e-mail her at [email protected] for more information. 310-792-4999 3528 Torrance Blvd, Suite 320, Torrance, CA 90503 www.holdenandrew.com

IMiN Instant Messaging IMiN is the first true secure instant messaging solution designed specifically for business users. IMiN is a fully

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Want Website Visibility? Get Prepared For Spiders BY CAYLEY VOS

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O, NOT THE CREEPY CRAWLERS THAT INVADE YOUR HOUSE…

THERE’S NOTHING CREEPY ABOUT THE SPIDERS WE’RE

TALKING ABOUT —

these crawlers (that’s the other

name for them) move through the Internet at nearly the speed of light. Dispatched by search engines like Google, Yahoo, and MSN Live, these spiders zip over every attribute of your website to see how it measures up. They judge your site by algorithms that will determine if a search will return your site listed on results page one, page seven, or page 62.

Because search engine algorithms are kept secret and are frequently changed, preparing a site for high ranking and keeping it there is a demanding task; one that is never finished. There is no right and final answer, but there are much discussed guidelines that follow search engine best practices and can virtually guarantee you a slot on page one. Search Engine Optimization, or SEO, is the generic term for the process of tuning a website so that it achieves the best possible search results — as close as possible to a page one listing. Your website must be designed for effective communication with a human being, and part of that design must be satisfying the search engines that bring it to the visitor. A site must have strong elements that visitors can connect and engage with, as well as copious copy, well labeled images and keyword-rich title tags for search engines. This is not a slam dunk task. Search engine spiders like an interesting buffet of copy, keywords, text and links. You want to have 200–500 words of copy per page, well labeled images, plentiful navigation links and a keyword-rich title tag. Common problems are sites that are heavy in graphics, interactive media/flash/video and audio. An easy test to see if your website fails the text test is to use the view source button on your browser or use this auto22 S

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mated tool: www.netpaths.net/tool/spider . The web crawler has not dropped in to try an entrée or two. It’s there as a sort of Digital Health Department with a critical eye and a long checklist: — Are there incoming links from other websites? — What is the quantity and quality of content? — Is the content grammatically correct with no misspellings? — Is the site unique or redundant? — How many internal links are there and how many are broken? — How many unique visitors, page views, revisits and conversions can be measured? — Is the source code technically precise? It may seem like an intimidating checklist, but a fundamentally sound website will have a good chance at ranking well in the search engines. We may not be afraid of spiders, but if we want good search results, we must prepare for them. The spiders are coming. But don’t call an exterminator. Update the text on your website and prepare for more business. Cayley Vos is the owner of www.Netpaths.net, a forward thinking Web design company that focuses on providing high value services to the online market. You can improve the value of your business with a well-designed and promoted website. Cayley can be reached at 310-372-3086.

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TECHNOLOGY PROVIDERS continued from Tech Guide page 5 scalable and secure instant messaging and communications software solution adopted by some of the top financial, legal, gaming and entertainment businesses. The IMiN instant messaging server lets you capitalize on the powerful new advantages of real-time enterprise-accelerating revenue growth, productivity, operational efficiency and profitability. Make faster, better decisions. Empower managers and associates to do more in real time. Available through our network of channel partners and alliances, IMiN secure instant messaging software is the securest, simplest and most scalable instant messaging solution available in the market. 310-303-3320 23844 Hawthorne Blvd. #101, Torrance CA 90505 www.ebs-imin.com

range computer environments. RBZ&A brings more than 26 years in computer services to the table with an excellent management team promoting a contagious “can do” mindset. It also has an uncanny ability to understand complex business problems and to accommodate the needs of even the most sophisticated customer. RBZ&A’s extensive experience with both mainframe and client server technology coupled with an in-depth understanding of business processes makes it uniquely qualified to migrate older systems onto new platforms. 310-303-3320 23844 Hawthorne Blvd. #101, Torrance CA 90505 www.rbza.com

WeFixPrinters.com WeFixPrinters.com has been repairing laser/ink jet

printers and fax machines in the Greater Los Angeles area for almost 20 years. We also sell toner, ink and other office supplies via our Redondo Beach retail store and e-commerce site, which features over 6,500 office products. WeFixPrinters.com provides on-site service to small and large companies, and services most major makes and models. We are the South Bay’s only authorized service facility for Canon inkjets, photo printers and scanners. WeFixPrinters.com offers full service printer repair and supplies. Our goal is to make servicing your equipment hassle-free so that we can reduce downtime, while extending the lifetime of your equipment. Call today to set up your corporate account! 310-937-4588 2895 190th St., Redondo Beach, CA 90278 www.WeFixPrinters.com

Konica Minolta Business Solutions Konica Minolta Business Solutions USA Inc., a leader in advanced imaging and networking technologies for the desktop to the print shop, brings together unparalleled advances in security, print quality and network integration via its award winning line of bizhub multifunction products (MFPs); bizhub PRO production printing systems; magicolor desktop color laser printers and all-inones; and Pagepro monochrome desktop laser printers and all-in-ones. Konica Minolta also offers advanced software solutions, wide-format printers, microform digital imaging systems and scanning systems for specialized applications.Headquartered in Ramsey, NJ, Konica Minolta delivers expert professional services and client support through an extensive network of direct sales offices, authorized dealers, resellers and distribution partners in the United States, Canada, Mexico, Central America and South America. 310-214-6696 879 190th St., Suite 200, Gardena, CA 90248 www.konicaminolta.us

Netpaths You can get a website anywhere, but Netpaths can get you to the top of the search engines. Find out more about how your website can be at the top of Google. We offer you a forward thinking Web design company focused on providing high-value services to the online market. You can improve the value of your business with a well designed and promoted website. We design search engine-friendly websites that can attain top placement in the big four search engines. We offer custom e-commerce solutions and organizational website development. We also offer economy development models for smaller start-ups and non-profits. You can view our new automated website builder. Create your own website with a Web-based automation tool for free. We have been in the online business since 1998 and have successfully moved hundreds of businesses online with an individually customized Web presence. We have been doing search engine optimization before Google existed and have a 100% success rate for all online marketing campaigns. Netpaths’ Web design is consistently ranked among the top Web development and SEO firms with a long history of strong customer support. Get a fresh perspective on your online initiatives and see how your website can work for you. We make you look good. 310-372-3086 23940 Madison St., Torrance, CA 90505 www.netpaths.net

R.B. Zack & Associates, Inc. R.B. Zack & Associates, Inc. focuses on the development, implementation, maintenance and support of custom business software. The firm specializes in browser-based and desktop applications for the business world. RBZ&A can help you unleash the power of the Web and realize its potential for your business application. The company also has an extensive background in database design work garnered from many years in client server and Web development as well as an extensive past entrenched in the mini and mid-

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Strategic Planning Made Easy Steps and Lessons for Trailblazing a Path to Long-Term Business Success BY LORI WILLIAMS

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OMPANIES OFTEN HAVE TROUBLE MAINTAINING GROWTH even in favorable economic conditions. The

modern business landscape is ever changing: The information highway remains supercharged; technology continues to develop at warp speed, distribution channels change unexpectedly, and new competitors spring into action every day. And if growing a business wasn’t challenging enough, business leaders now face another uphill battle. Whether or not current economic uncertainty gives way to a full-blown recession, most economic pundits agree that a business slowdown is unavoidable. In today’s complex business environment, strategic thinking is essential for sustaining a long-term competitive position. Corpora-

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tions recognize this necessity and invest ample resources towards strategic planning efforts. However, small-to-mid-sized companies often fail to engage in strategy development activities. As a result, subtle changes in the competitive landscape go unnoticed and once a new technology, process or change in cost structure enters the marketplace, the incumbent’s competitive advantages disappear. In response, the corporation goes into reactive mode and ends up playing catch-up instead of proactively embracing new opportunities. The dearth of strategic planning in smaller-sized companies is often attributed to an absence of time and understanding. Owners and company executives tend to become absorbed with the daily continued on page 27 B

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The Pros and Cons of Popular Growth Strategies BY DAVID WHITEHEAD

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S AN ENTREPRENEURIAL PUBLISHER WHO HAS worked for

companies. And all too often they are rationalized by making false assumptions about the feasibility of building on the company’s initial success.

both large and small publishing organizations, “growth strategies” for businesses is a topic I have strong feelings about. I went through a misguided fiveyear strategic plan at a regional newspaper that crashed and burned in three. I also served on the front lines with another company that destroyed itself while executing an aggressive growth strategy. Executing a deliberate growth strategy is something most companies do at some point. Sometimes growth makes sense when the demand is there and new markets are wide open. However, highly questionable growth strategies often originate from pressure by creditors or investors, especially with publicly held

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Know the Risks in Growing a Business I leaned from personal experience that certain elements must be in place before any decision should be made to deliberately grow a company beyond its natural parameters for expansion. First, the principals need to be fully aware that any growth strategy is a venture into the unknown. This holds true regardless of the level of research conducted up front. That means aggressive growth is always a calculated risk. The principals must evaluate their own toler-

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ance for risk as they would if they were to engage in a speculative investment venture. It’s really no different when you think about it because any investors you bring on board are certainly speculating on your success. Ask yourself if you would invest in somebody else’s company who’s proposing what you are; and base your decision on answers to tough questions you would surely ask if you didn’t own the company yourself. The answers to these kinds of questions will determine if you are headed in the right direction.

Grow for the Right Reasons Second, never decide to grow an existing venture simply because you want it or you think you are somehow entitled to it as a reward for your early success. The market must genuinely demand your heightened presence or you are doomed from the onset. Never fall in the trap of ignoring market data or not bothering to gather it when your company’s internal rhetoric makes it sound like the best idea ever conceived. All departments, especially the finance and marketing teams, must do their due diligence to determine viability and weigh risks before any decision is made to go forward. And for the good of all, they must be prepared to disappoint people if they determine it is not the time — or temper their plans if they are reaching too far. continued on page 29 2

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SMART GROWTH STRATEGIES continued from page 25 operations of the company and focus on immediate tasks instead of long-term goals. Some company owners may recognize the importance of strategic planning but simply lack clear understanding of the process. While vast libraries exist on the subject of strategic planning, many authors focus on the concerns of large corporations and key in on issues that are non-applicable to smaller organizations. Strategic planning shouldn’t be complicated. In its simplest form, a strategic plan is a clear vision of a company’s long-term position based upon the value-add it provides to customers and shareholders. Strategic plans require knowledge of fundamental industry shifts and how customers and competitors are expected to respond to those changes. Flexibility is an inherent characteristic of strategic plans, which should be easily adaptable to the current market. Evaluating strategic options is based on identifying choices that are most capable of providing value for all stakeholders and align with the organization’s vision and core competencies. So, where to begin? First, become aware of the major changes impacting your industry and begin to align those changes with your organization’s core competencies. Your answers to the following three questions can help develop your starting point.

1. What business are we in? The answer to this question isn’t always the most obvious. It is not necessarily tied to the product or service your company offers. For example, insurance companies have long recognized that they are in the business of selling security and assurance. Small retail outlets such as 7-Eleven stores understand that they are in the business of selling convenience. Whole Foods realized that it was in the business of social responsibility and identified a large consumer base that would respond to this message. As a result, the market chain has been rewarded with higher margins than commonly seen in a traditional grocery store. Companies that understand what business they are in are more adept at identifying niches, following trends and responding to market demand. This flexibility makes them more successful at formulating sustainable businesses models.

2. What changes are occurring in our industry? New technologies can change the competitive landscape overnight. Moreover, competitors may emerge from the most unexpected places. Today, candy bar companies compete with digital music providers for teenagers’ discretionary income. Make it a point to maintain a constant dialogue with your customers, suppliers and industry experts. Schedule quarterly meetings with your sales staff to learn what they are hearing in the marketplace.

3. How can we continue to make money? Recognizing the core competencies of your organization is critical to building strategic flexibility. The best way to preserve your competitive edge is to continually innovate. Upgrade your technologies, hone your internal processes or develop more efficient distribution channels. Core competencies can be repackaged, stripped down, re-bun2

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dled and reconfigured in order to appeal to a changing marketplace. Technology companies have a firm understanding of this concept. New electronic gadgets are introduced to the market and are quickly followed by advanced models. These products are in turn succeeded by stripped-down, less expensive models that appeal to a large consumer base. Fast food chain McDonalds built an entire marketing campaign around the Happy Meal , a shining example of a product bundling strategy at work. By answering the three questions above, your organization can begin to think in a more strategic manner. Independent of size, all companies must participate in strategic planning activities. In the new economy, knowledge has trumped raw materials as the essential business resource. Strategy development and execution is crucial for long-term business success. Don’t get blindsided by your competition. Playing catch-up has never put a business in a good position. Markets are not destroyed overnight even though executives may feel that a loss is swift and unexpected. Markets deteriorate slowly over time and leave a trail of clues along the way. More often than not, these clues go unnoticed. Usually the cause of a company’s failure was an inability to identify looming changes in the business environment and adjust corporate strategy accordingly. One of the contributing factors to the lack of business acumen is an executive’s false belief in continuity. Companies are firmly convinced of their own perpetuity and envelope themselves in a misguided sense of security and invincibility. This is especially true of generation businesses or legacy organizations. Where once a business model could be counted on to provide a successful foundation for at least a decade, today’s companies may need to revamp themselves in as little as a year or two. Creative destruction is constantly reshaping our business landscape. As a result, companies cannot expect to operate from a position of assured continuity. TM

Financial Considerations Strategy without financial analysis is incomplete and subject to failure. Continual growth under any economic condition requires a strong financial plan. CEOs often find themselves in right-brain, left-brain quandaries — how do you commingle visionary optimism with cost-conscious pessimism? Executives often adopt strategies that do not consider the financial implications. Ineffective strategic plans are devoid of comprehensive ROI analysis. Smaller firms are particularly at risk since they may lack a qualified CFO. Controllers with only basic accounting procedures are missing the advanced analytical skills required for close financial examination of a strategic plan. Industries are not created or destroyed equally. Some companies are better positioned for economic uncertainty. Executives who strive to become increasingly strategic in their financial decisionmaking and engage in vigilant oversight of the company’s financial condition have an edge over their competitors. Financial vigilance includes evaluating the company’s fundamental economic position by analyzing the industry, customer profitability, financial performance, cost structure, availability of capital, debt leverage and retained earnings. The balance sheet will reveal your debt leverage and the continued on page 28 B

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SMART GROWTH STRATEGIES continued from page 27 strength of your borrowing power. Retained earnings examine the past performance of your business model and your management team. If the retained earnings reveal past negative growth, the business model’s ability to take an additional hit will be questionable at best. Revenues and costs should be carefully monitored. A revenue loss may be attributed to an overall reduction in demand or foregone market share due to a competitor’s introduction of a new product. Operationally, the cost to bring the product to market may increase or it may become necessary to invest in new technology or human capital. If additional costs cannot be passed on to the consumer, pricing power squeezes margins and net profit is ultimately reduced. Cost structures delineate your profit margin and your company’s ability to absorb overhead costs. Higher margins allow greater cost flexibility. Additionally, a reduction in overhead may be easier than cutting production cost, particularly if infla-

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tion is a competing factor. In the case of a company with a less favorable financial position, innovation may be the only solution. Since negative growth and declining retained earnings impact the balance sheet and reduce a company’s ability to obtain debt or equity investment, your business may need to form a strategic alliance or joint venture to allow reorganization without a substantial reinvestment of funds. How do you ensure that your firm’s desire for high product quality and superior customer service transfers to the entire partnership? Incorporate best practices and monitor processes as you would if they were operating directly under your sole supervision. Meet with each partner to share your goal of creating a seamless existence and work together to adopt common procedures, forms and processes across the organization. Your partners will likely be more than happy to support the goal since it is in their best interest to do so. If conformation proves impossible, look elsewhere. There is always another firm willing and capable to take their place. The following outline provides a brief summary of key takeaways to help you develop your company plan: • Watch for future trends and be prepared to change your strategy • Use technology to reduce cost and drive efficiencies • Strategic alliances (if well formed) can provide a competitive advantage • Keep a close eye on your financial position • Profit margins are not guaranteed — competitors can change everything. What’s the bottom line? Regardless of economic conditions, your industry, business model or financial position, company executives should have a growth strategy that is inclusive of financial performance measures. Lori Williams is the Chief Strategist for LW and Associates (www.lwandassoc.com), a strategic advisory and research firm, providing businesses with growth strategies designed to increase revenues, profitability and productivity. She is best known for developing strategies that integrate financial modeling with strategic marketing to build long-term sustainable growth. She can be reached at [email protected] 310-473-9064

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PROS AND CONS OF POPULAR GROWTH STRATEGIES continued from page 26

Make Sure You Are Capitalized Beyond Your Projections Smart growth is a process of calculated risk that must be capitalized well beyond your expectations with money you can afford to lose — or better yet, money that belongs to someone else who’s in a better position to lose it than you are. Know that any data you gather that returns positive indicators for growth can be immediately vanquished by unexpected variables, including a change in trends in your industry, a downturn in the economy, competition you didn’t anticipate and changes in the structure of your company that alter your profit/loss statements in an undesirable way. That said you must choose the growth course that fits your tolerance for the level of risk you can at least calculate and also realizes your desired objectives.

Growing by Your Own Bootstraps First let’s examine the most common growth strategy, which is also one of the most tedious, resource-consuming and often the riskiest. That is growing by your own bootstraps using a direct sales effort with your own money or borrowed money that requires the principals to personally guarantee debt even if their status is LLC or incorporated. If you are a small operator trying to get to the next level, expect credit terms that pierce the corpo-

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rate veil if you want to borrow serious money and expect this situation to get worse as the credit crunch continues. This approach requires the accumulation of overhead that will not be paying for itself for some time — if at all. Even if your early sales numbers sound exciting compared with your previous efforts, your spending on the growth process will likely be much greater than your early returns. You won’t really be boosting your profits for some time and only if the new economics of your modified business model allow that to happen. This strategy really can put the principals in a position where they are going to get buried if it doesn’t work out. This is especially true when they commit essential personal capital or worse, and go heavily into debt with the payback entirely dependent on the growth strategy’s success. Whatever your projections, you won’t really know how long it will take or how much it will cost until you are well committed. If you misread the market before you start, you are dead. If you’ve dug in deep, you have put yourself in a position where there is no good exit strategy. I’ve known people who dug in so deep they risked personal financial ruin whether they ceased operations or not. As a result, they didn’t quit when they should have and only made things much worse for themselves and everyone else in the end. Suffice to say, the “grow or die” position is best avoided. If you are not a gambler by nature and conservative in your financial outlook, this is definitely not the strategy you want to use. It continued on page 36

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rapid, will capture a significant amount of market share and will require an investment in staff, marketing and an acquisition or two. Or you’ve created a new product extension that is hot, but needs capital to properly launch, create a marketing campaign, and hire staff. The money required is substantial and having the company solely bear the full financial risk could put a stranglehold on an otherwise well-running operation. Having an investment partner may be the way to take advantage of the opportunity and put the pedal to the metal on growth. So how do you begin? Where do you look and what will you need? In his book Seven Habits of Highly Effective People, Steven Covey coined the phrase, “Begin with the end in mind.” To be successful with your opportunity, you must help other people be successful by helping you. Begin your process by clearly envisioning what the end result of your opportunity will look like and determine how those who help you also add to their own success. When attracting outside investors, one of the first things they will want to know is: What is the exit strategy, how will value be created and how long will it take before there is a liquidity event? The businessperson who has spent the time thinking this through stands a much better chance of attracting the right kind of partner for the desired result. There are financial investors, strategic investors, investors with a relatively short time horizon, those with patient money who can wait 10 years or more before an exit, and many other types. One of the first questions to ask yourself is what are you looking to accomplish? Is the goal to create an asset for future 30 S

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sale or do you simply enjoy running the operation and have not really thought about what you’ll do in 10 years? Either one is fine, but each one requires a different way to set up and manage the business. Building an organization to maximize value means taking a hard look at the management structure and the processes to produce the product or deliver the service. Is the company driven by a charismatic CEO or is there a strong management structure in place with policies and procedures that will easily allow the business to continue should the CEO suddenly pass away? A company that has invested in management and developed processes and procedures allowing the business to run on its own will generally attract investors more readily and command a higher sale price than one that has not invested in such an organization. Conversely, someone who is happy running the company and has no real desire to look too far down the road can run a very nice and profitable business. It just means the search for capital will have to take that into consideration and find investors who are a good fit for that kind of business. Take a good hard look at how much money you think you’ll need and then reevaluate considering how much money you will likely need to do it right from the start. Most businesspeople tend to underestimate the amount of capital they need and end up throttled back; the opportunity may not make it. Do the hard work to come up with the numbers to implement the project and don’t forget to include any marketing, advertising and additional labor or management that might be required to do it right from the start. Much of the work to find an investment partner can be done on your own, provided you have a considerable amount of time to invest in the process and are adept at writing com-

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pelling executive summaries for financial markets. The process is actually kind of fun, but it really does take commitment and time to create a summary, contact the appropriate people, go to the networking meetings where money gathers, and ultimately get a deal done. A good investment banker or financial consultant generally has the resources to get connected with the right people and knows where to go to find investors for specialized companies. At the end of the day, you’ll still need representation from an investment banker or lawyer who has expertise in capital to draft, review and provide counsel on the documents and the process. So how do you find and qualify an investment banker? Talking to your trusted advisors first, the CPA, lawyer, insurance agent, investment advisor, they should each be able to point you in the right direction if not directly recommend someone. Calling a trade association in the particular industry could help generate a lead. You can always try to Google “investment banker” and the desired industry. Like any other business relationship, chemistry is key to success. The more you “click” with your consultant or investment banker, the better and more enjoyable the process will be. And the better your relationship, the easier their job will be in finding not only the money for your venture, but also the capital partner with a personality that will fit with yours. A good investment banker becomes an integral part of your team of trusted advisors. Be clear in your mind on the timeline to reach your goal and be sure to convey that to any interested party. Some investors like to see an exit strategy between four and five years. Some are more patient and can go longer, while others may go indefinitely if the business is profitable and adds value to an investment portfolio. Debt financing through banks or other sources is beyond the scope of this article, but it is a viable option depending on how much money is needed, how the loan will be collateralized, how much leverage the company’s balance sheet can support and how much free cash is available to service the debt. Debt allows the owner to maintain 100% control of the company and doesn’t dilute any ownership.

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Like any other business relationship, chemistry is key to success. The more you “click” with your consultant or investment banker, the better and more enjoyable the process will be. And the better your relationship, the easier their job will be in finding not only the money for your venture, but also the capital partner with a personality that will fit with yours. The drawback to debt is that there may be a personal guarantee required. If it’s an SBA loan that’s federally guaranteed, the U.S. Government will usually want borrowers to put up their primary residences as collateral in case of default. A realtor friend once shared a very simple, very smart adage: “Never encumber where you slumber.” It might seem like things are going great and nothing can go wrong, but unexpected things happen (e.g., 9/11). Business owners have enough to keep them awake at night without adding the risk of losing a house into the mix. Please ponder this very carefully before personally guaranteeing anything. Friends and family are the tried and true way to go if the amount you’re looking for is not that substantial. Amounts ranging from several thousand dollars to sometimes even hundreds of thousands may be possible to gain from friends, family and business friendships. This route does have a way of souring friendships and straining family relations when the business venture doesn’t turn out as well as it sounded when they lent you the money. In my opinion, if money is coming from friends and family, it’s best to borrow it and pay it back. Having a family member as an owner in your business may not make for the best situation. It just depends on the kind of relationship you have with family members. If things do go south, could you see yourself continued on page 32

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FINDING THE RIGHT INVESTMENT PARTNERS continued from page 31 involved with them in the business? Or having a family member force a sale of the business to get money back? Angels may be more inclined to risk investing in a startup company than other investors might be. Angel Investors or Angel Groups are generally composed of high net worth individuals who have made their money in particular industries and wish to invest in other businesses, generally in the same or related industries. For example, Angel Groups in Silicon Valley may tend to skew more toward technology companies. Many groups can be found on the Internet; most require some kind of pre-screening process to evaluate the Executive Summary and/or an introduction through someone who is connected to the group. Once invited, there may be a fee required for the opportunity to make a presentation, filtering only those who are very serious about their search for capital. Angel Groups can provide valuable feedback on refining the presentation and, if an investment is made, a good pool of brainpower to help guide the project. An Angel investor may take a minority ownership position. They may stay out of your way as long as you’re making the projections or they may want to have a seat on the board of directors. Or, they may not. Angels may provide more patient money; that is, they may not necessarily be looking for a three- to five-year exit strategy — although they certainly will want to know what their exit strategy will look like before making the investment. Private Equity groups are similar to Angels but they manage significantly more money and require much higher investment levels than the others. They’ll definitely want a seat on the board and, like Angels, may stay out of your way or they may demand a significant amount of control. It really just depends on the “personality” of the Private Equity group. Some are comfortable with a minority position and others want majority. Private Equity groups generally want to invest in companies that have a track record. They also like to see good management. They’ll invest in growth strategies, acquisitions, management buy-outs, etc. There are groups that specialize in troubled companies and turn-around situations and the Turnaround Management Association is a good place to look for help. There are other investment options, including Venture Capital groups and Mezzanine financing, to name a few. If you choose to make some calls yourself to Private Equity groups, please be respectful of their time by having a very brief synopsis of the opportunity you are presenting, the amount of money you are looking for and ask if this is the sort of project that interests them. If not, then ask if they know of someone who might be interested. If they are interested, they’ll ask for a write-up. In that case, send your Executive Summary. If it’s not a right fit, then don’t be discouraged; just move on to the next one until you find the right fit. A good investment banker will already have an idea of whom to to contact for direction. Having gone through the 32 S

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Having a strong idea of how much money you’ll need is critical — not only because you want to make sure the venture is properly capitalized, but also because the amount will determine what kind of capital is best for you. Generally speaking, an investment below $10 million these days is considered a small deal and is a little more difficult to find. process both on my own and with an investment banker, I now tend to lean toward having a good investment banker to help. Having a strong idea of how much money you’ll need is critical — not only because you want to make sure the venture is properly capitalized, but also because the amount will determine what kind of capital is best for you. Generally speaking, an investment below $10 million these days is considered a small deal and is a little more difficult to find. Crossing the $10 million mark puts you on the radar screen of larger investment partners, private equity groups and funds that hold so much money that they are forced to do fewer (and larger) investments due to limited manpower to review so many prospective investments. Good investment bankers will help work through the plan and the financial requirement. Usually, they’ll write the business plan for you. A clear Executive Summary is the opportunity to showcase the way. It is a simple document giving a 40,000-foot overview of the opportunity being presented. Keep it brief, concise and to the point. Tell a little about the market, what you propose to do, discuss the opportunity, describe the competition and how yours is unique. Include bios of the senior management and show summarizing financials. Briefly discuss the operation and finally how you see the investor benefiting financially at the exit. So what associations are there to help in your quest for capital? Some useful organizations include The Association for Corporate Growth, the Turnaround Management Association and the Commercial Finance Conference of California. There are many other terrific organizations, both local and national, that can help. Turn to your trusted advisors for guidance, use the Internet for resources and get a good investment banker on your team. Begin with the end in mind and the extra horsepower that you’ll get from outside investors will both challenge you and help speed you along on your way to realizing your goals. Ed Burzminski is a Business and Management Consultant helping business owners realize maximum performance and value from their business. He was President and co-founder of Performance Publishing Group, Inc. in El Segundo, CA. You can email Ed at: [email protected].

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STIMULUS PACKAGE continued from page 12 credit score. If your credit score is one point lower than a benchmark set by a lender, you pay more — a lot more. Before last August’s credit crunch, the pendulum had swung too far in the loose direction, with what some have called “mirror underwriting:” Fog a mirror and you’re approved. Now the pendulum has swung waaaaay too far in the opposite direction. For all lenders, times have changed. The message is when getting real estate financing today, be prepared to jump through numerous hoops. Expect guidelines to defy logic. You will have to write letters of explanations for trivial things. You will need to provide full documentation and in some cases, even over-document every source of income you have. Cash reserves are very important, with many banks requiring 6–12 months mortgage payments in reserve. If you have circumstances, tell the story of what happened and why. Banks are returning to the days of subjective underwriting, and a human being will make a judgment call about your qualifications. If one bank says no, another may say yes. Appraisals are being scrutinized and appraised values are being reduced or cut in appraisal reviews. The rates for Jumbo loans should creep closer to Conforming over the next year or so. Normal will never be as things were just a year ago. This is all an overreaction that will ease some over time. Right now, banks and lenders want to lend money only to people who clearly don’t need it! So as long as you go into a mortgage transaction today with eyes wide open and

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expectations in line with the new tightening trends in lending, you won’t be blindsided by the sometimes arduous roadblocks erected in your path along the way. Make sure you plan ahead. Consult with a mortgage professional months in advance of your intended purchase or refinance. Find out about your options. Identify the strong points and weaknesses in your qualifications. Have a game plan. Gone are the days of being able to make a few calls, collect

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some rate quotes, choose the lowest rate, and then you’re done. Isn’t it about time you put as much planning into financing your home as you do planning a vacation? If you do, it can pay off big. Either way, it promises to be very stimulating! Ken Roberts is a mortgage planner with nearly 30 years experience in the South Bay real estate market. Ken can be reached at (310) 792-7090.

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Cash Management for Growth During Hard Economic Times BY MICHELLE KING

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ROWING A BUSINESS DURING HARD ECONOMIC

times can be challenging. Yes, a business can still actually grow during an economic downturn. How is this possible? Oftentimes, opportunities for growth arise out of economic downturns. Planning and a sound strategy can maximize a business’ readiness to improve current and future performance. Preparation to fully leverage strengths can also serve as the catalyst for creating the fundamental strategies necessary to survive within the most hostile business environment. This is the perfect time to improve the most critical financial function — cash flow management. The old saying “cash is king” garners renewed respect during economic downturns. Those with cash and/or access to it are positioned well to navigate hard times. Given that 80% of all businesses struggle with cash flow issues, chances are an economic downturn equates to magnified problems for small to mid-sized businesses with limited working capital. But those with good business practices and minimum resources can also emerge as solid, well-managed operations after an economic storm. By investing time into gaining a comprehensive understanding of its financial strengths and weaknesses, a business can often realize higher actual profits than by simply growing sales. During economic downturns, a business must do more than just increase sales. It must also have the full picture on how to best use its limited assets to ensure longevity. Some techniques for managing assets for optimal return on investments are simple and easy to identify and implement. For instance, revisiting your company’s credit policies and understanding industry averages may lead to a decision to reduce accounts receivable days outstanding. Reducing accounts receivable just slightly, a two- or three-day reduction, often results in noticeable improvements in profits. Freeing up cash from accounts receivable can provide cash to take advantage of unique opportunities created by competitors

Optimal utilization of a company’s assets can only be gained when an entity is working with a focused and detailed plan for conducting business. Cash management strategies should clearly align with the company’s goals and visions.

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exiting the marketplace. Cash can give your company negotiating strength as suppliers and vendors struggle to manage their cash flow. This may be the time to invest in more assets — those that aren’t subject to trends and obsolescence. Cash speaks loudly! This may be the time to invest in securing more efficient equipment or reducing high-interest debt. For many businesses A/R is often a key cash driver. Yet if A/R is not a function of your business operations, there are other significant cash drivers that can be managed with moderate modifications. Many areas may need the attention of management, but the process must start with clearly understanding the components of your company’s cash flow cycle. Securing the assistance of an outside consultant can provide insight into industry standards and risk management guidelines used by lenders. However, the process must start with a clear direction and understanding of the company’s goals and visions. Optimal utilization of a company’s assets can only be gained when an entity is working with a focused and detailed plan for conducting business. Cash management strategies should clearly align with the company’s goals and visions. Techniques enlisted to improve profits cannot exclude tactics to improve cash flow. As a crucial element of growth and longevity, sound cash flow management should be based on a comprehensive view that incorporates factors from the following:

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A Dynamic Business Plan: This is a plan that incorporates “what if” scenarios and projections. The business plan should provide a framework for operating with agility within different economic environments. The business plan should also be the start for identifying plans for growth and thus, future cash needs. Cash Drivers: Recognizing the true cash drivers is essential. Oftentimes, resources are not expended on the products and/or activities that have the greatest positive impact on cash, and thus ROI. Are you investing time and energy into products or services that are truly generating the highest profits? Incorrect cost allocation techniques and hidden cost may serve to undermine efforts to improve ROI. Be careful not to overlook and underestimate products or services that could hold hidden profits.

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pitfalls while maximizing ROI. Early signs of trouble can serve as opportunity for change. Seek professional assistance from consultants and bankers as early as possible. Remember, banks really do want your company’s business. Banks want to lend money, and investors are always seeking a sound operation to invest in; but if you wait until things are desperate, your options become limited. The keys to strength in financial man-

agement are knowing your options, maintaining many options and utilizing only those options that match your company’s goals and objectives. Michelle King, CPA-MBA, is a business consultant and coach specializing in energizing cash flow. For more information about her services, log onto [email protected] or contact her directly at 310-782-7920.

Industry Standards: Although your operation may be unique, lenders will use industry financial standards and ratios to evaluate your performance. It is essential that you know how your business compares. The more informed you are about your business’ financial performance, the better prepared you are to negotiate and leverage appropriately. Loan Covenants: Since maintaining good business relationships is essential to positioning your company for growth, it’s important to monitor your company’s performance as it relates to current loan covenants. Failing to maintain key ratios can result in your bank reducing your available line of credit; or worse, calling your loan for immediate payment. For many businesses, this could mean the end. But since most financial crises don’t emerge without warning, they often can be circumvented. Financial analyses that provide a formula for monitoring key indicators are relatively inexpensive to implement. Consistently and proactively monitoring your company’s financial performance is essential for growth and longevity. Evaluating your business’ strengths and weaknesses is the first step in creating a roadmap to circumvent 2

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PROS AND CONS OF POPULAR GROWTH STRATEGIES continued from page 29 forces principals to commit money they either don’t have or can’t spare. It will cause tremendous tensions with partners and employees at all levels. It can damage marriages when personal assets, such as one’s home, are put at risk. And it really does cloud everyone’s ability to make thoughtful decisions. Before crossing that line, keep a cool head and change priorities instead of digging in deeper than you know you can keep under control.

Bringing in Outside Investors The next strategy, which is less risky for the principals financially but is not desirable if you are committed to maintaining full control of your business, is to seek investors. If you go that route, you want to be in a firm financial position before considering an aggressive growth strategy. You must accept the fact you are going to have to give up some control if you want to get to the next level with far less personal risk. The key to success is finding investors who are like-minded with you, are unambiguous about how much ownership you will retain in the company (and willing to put it in writing), have realistic expectations about the financial commitments required, and have a willingness to see it through if unexpected problems arise. Find investors with experience in your industry so they know what to expect and aren’t shocked every time you hit a bump in the road. It is important to negotiate an arrangement while your company is on solid footing so you are leveraged to negotiate a genuine merger that leaves you with meaningful ownership and an acceptable degree of control. Naturally, you should seek competent legal counsel to protect your position during and after the merger. But realize you may no longer be the majority owner and that is the correct position if others have a bigger financial stake in the business than you do. It’s important to find investment partners who really want to work with you and not obtain a leveraged buyout of your company in the guise of a merger. Contrast this with certain venture capitalists looking to make a quick return on what they undoubtedly see as one high risk venture among many they may have going at any given time. If you have a good thing going, these folks will be knocking on your door from time to time. Remember, if all you have is a good idea that could potentially be executed by others, people with money can take it from you if you leave yourself vulnerable. These are not the folks you want to work with if you want to keep your dream alive and as much of it as possible in your own hands. Avoid investors who want to own your company from the onset, flip it when performance levels are attained, dump it if it underperforms, and leave you out of the money stream as much as possible. And remember, nobody is going to tell you that up front. Remember, the easiest investment capital to obtain is usually the least desirable.

Growing by Acquisition Another approach requiring investors, unless you are heavily capitalized, is to grow by acquisition. If you are looking to 36 S

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Another approach requiring investors, unless you are heavily capitalized, is to grow by acquisition. If you are looking to double or triple the size of your company, it can actually be more cost-effective to buy out competitors when they are struggling or perhaps when a principal with no succession plan is getting ready to retire.

double or triple the size of your company, it can actually be more cost-effective to buy out competitors when they are struggling or perhaps when a principal with no succession plan is getting ready to retire. Yet there are pitfalls in trying to merge the cultures of the businesses together. Even if you execute a buyout of the company’s assets, or just the seemingly desirable assets, you can’t completely avoid inheriting some of its problems, especially if its reputation was tarnished prior to the buyout. Struggling companies always create problems with their customers and the extent of this damage to their market position often requires a concerted effort on the buyer’s part to investigate. Damage to the company’s reputation needs to be taken into consideration in determining the value of the business and its customer base if purchased as a separate asset. Suffice to say, a largely dissatisfied customer base has far less value than a base of satisfied customers, but it is up to the buyer to mend fences and keep customers satisfied following the merger. There will of course be unknown costs and headaches involved as you learn what you really purchased. However, compared to the enormous cost of trying to outsell strong competitors, acquisition can be a desirable option for companies that want to reduce their risk while growing fast.

Growing by Diversification Another approach is to diversify your product lines so you have other viable markets you can move into without competing with yourself or exacerbating competition in your own industry. This involves finding a complimentary market niche to the one you are currently serving. This approach is often safer because it allows you to dabble in something else at a level where you can keep your costs under control and exit the growth strategy easily if it doesn’t work out. In other words, launch a new product or service line that works within the framework of your existing business without bringing on a lot of new people, equipment or overhead. If the new venture is bigger than you can work into your existing business, set up a second business, keep it completely separate from your main business and if you don’t have capital you can afford to lose, fund it with investor

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money at the onset. This strategy allows you to use investor capital for a new venture without risking your existing business while still retaining a viable exit strategy. A local South Bay entrepreneur once told me a good way to test-market a new idea is to set up a “shell company,” which for him was really a new division of his own company that was nothing more than a website and a sales kit used to test the market to see if there was any interest before committing to invest further. This is a low-budget way to do some in-the-trenches R&D with immediate feedback and reduce your risk considerably when you launch a new venture.

Keep Your Emotions at Bay Never get emotionally caught up in your business. A business venture should be entered into thoughtfully. It should be maintained and built upon if the idea pencils out. And it should be just as thoughtfully abandoned or scaled back when all the best information indicates it is the right thing to do. Still, some people get so caught up in it emotionally that they simply can’t let it go and end up ruining themselves financially as a result. There is the humiliation of failure, which in many cases friends and family exacerbate because most people have never owned a business themselves and simply don’t understand the entrepreneurial life. But it is a worse failure to keep digging the holes deeper when there is no hope for recovery, and this is extremely hard to acknowledge when you’ve put your heart and soul into a business. For those who have been through challenges, it makes eventual success all the sweeter when it finally happens. Whatever course you choose to grow your business, move cautiously. I can’t overemphasize the need for due diligence at all levels. As much as you strive for success, always make sure you have an exit strategy that leaves your core business intact. David Whitehead is the publisher of Business Insider Magazine 2

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Calendar of Events Save the Date!

Architectural Icon Frank Gehry to Move World Headquarters to El Segundo

El Segundo Chamber of Commerce For more information about the events listed, call 310-322-1220 or visit ElSegundoChamber.org

Internationally renowned architect Frank Gehry has selected El Segundo as the home for his new offices and design studios. The public announcement was made to a large group of civic and business leaders by Mayor Kelly McDowell during the annual State of the City address. The move to El Segundo from west Los Angeles resulted from Gehry Partners outgrowing their current facility. Gehry’s new world headquarters will occupy 60,000 square feet of space in two adjoining buildings that can accommodate all the firm’s roughly 250 personnel. “To have someone of Frank Gehry’s stature headquartered here is a great coup for our city and fortifies El Segundo’s growing reputation as a prime destination and center for design, the arts and creative media,” stated El Segundo Mayor Kelly McDowell. “Frank Gehry is truly a giant in the field of architecture and his works are worldrenowned for their synthesis of architecture and art. We are proud to welcome him to our community.” Gehry’s arrival continues a trend that has seen several prominent design, arts and media companies migrate to El Segundo in recent years. In 2007, advertising agencies Ignited Minds, LLC and David & Goliath moved to El Segundo, as did Internet media firm Tandberg Television. “It’s no accident these companies are choosing our city,” added McDowell. “We provide a number of appealing amenities as an ideally situated coastal community not to mention a favorable tax base, prime and reasonably priced office space and unparalleled customer service.” Gehry is expected to move into the new space by the end of 2008 or early 2009. A Toronto native who moved to California at the age of 18, the Pritzker Prize winning architect burst onto the scene in 1972 with his innovative Easy Edges furniture designs that incorporated cardboard as a medium. Over his career, he has completed dozens of widely acclaimed high-profile buildings, many of which have become tourist attractions. His best known works include the Walt Disney Concert Hall in Downtown Los Angeles; the Guggenheim Museum in Bilbao, Spain; Weisman Art House Museum in Minneapolis; Dancing House in Prague; Experience Music project in Seattle, and his 1978 residence in Santa Monica. Gehry is currently working on more than 20 new designs, including the $2 billion Grand Avenue Project to revive Downtown Los Angeles and a new massive-scale Guggenheim art museum in the Persian Gulf.

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Evening Mixer: Thursday, July 17, 2008 5:30–7:30 P.M. Chevron Mixer in the Park Chevron Employee Park (corner of El Segundo Blvd. & Illinois St.)

Palos Verdes Peninsula Chamber of Commerce For more information about the events listed, please call 310-377-8111 or go to www.palosverdeschamber.com. Evening Mixers: Evening Mixers take place the third Thursday of every month from 5:30–7:30 P.M. Admission is $5.00 for chambers, $10.00 for guests and includes one drink ticket. Call 310-377-8111 for schedule. Breakfast Mixers: Time: 7:15–9 A.M. on the first Wednesday of every month. Admission is $15 for members with R.S.V.P. or $18 for members without R.S.V.P or for guests. Wednesday, July 2 Marmalade Café, The Promenade on the Peninsula, Rolling Hills Estates.

Redondo Beach Chamber of Commerce & Visitor’s Bureau For more information about the events listed, call 310-376-6911 or go to www.RedondoChamber.org Business After Hours Mixers Time: 5:30–7:30 P.M. Admission: $5.00 Members, $10.00 Guests Wednesday, July 23, 2008 Location: Splash Mediterranean Bistro 300 N. Harbor Dr., Redondo Beach, CA 90277 Thursday, August 28, 2008 Annual Regional Mixer Location: Seaside Lagoon 200 Portofino Way, Redondo Beach, CA 90277 Be a part of the Redondo Beach Chamber’s

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largest networking event, the annual Regional Mixer! Mingle with members of many chambers from the South Bay as well as your local friends. Sample fabulous fare from a variety of local restaurants in this family-friendly atmosphere! Don’t miss this annual opportunity! The Regional Mixer is THE Mixer to be at in August! Network Café Time: 11:30 A.M.–1 P.M. Enjoy a great lunch and learn about your fellow Chamber members and their businesses while promoting your own. Each will get to present a 30-second commercial in front of the whole group. Advanced reservations are required and will save you $5. Members with reservations are $20 and guests and members without a reservation are $25. Please call 24 hours in advance to cancel. No shows will be invoiced. Bring a door prize to further market your business. Thursday, July 10, 2008 Catalina Restaurant 320 S. Catalina Ave., Redondo Beach, CA 90277 Thursday, August 14, 2008 Red Robin Restaurant 1815 Hawthorne Blvd., #150, at the South Bay Galleria Redondo Beach, CA 90278 Thursday, September 11, 2008 Location: Captain Kidd’s Fish Market 209 N. Harbor Dr., Redondo Beach, CA 90277 San Pedro Chamber of Commerce For more information about this event, call 310-832-7272 or go to www.SanPedroChamber.com. After Hours Mixers: Time: 5:30–7:30 P.M. Admission: $5 for members, $10 for guests. 2 free drinks with paid admission. Wednesday, July 23, 2008 Plaza Automotive Center/Park Plaza Shell 990 N. Western Avenue, San Pedro, CA 90732 Wednesday, September 24 2008 Puesta del Sol 1622 South Gaffey, San Pedro, CA 90731

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BUSINESS MEETING, EVENT, & BANQUET RESOURCES Banquet & Meeting Rooms DoubleTree Hotel LAX-El Segundo Our six conference and banquet rooms and 4,500 sq. ft. of modern meeting space can gracefully accommodate 10 to 150 guests. Whether your meeting calls for state-of-the-art audio-visual equipment or an elegant dinner party, our experienced staff is dedicated to providing flawless service for every event. If you have attendees coming in from out of town, we have 215 newly renovated rooms and free 24-hour complimentary shuttle service to and from LAX. 310-322-0999 1985 E. Grand Ave. El Segundo, CA 90245 www.DoubletreeLAX.com

Meeting Rooms The Cyber Boardroom The Cyber Boardroom offers three amazingly equipped conference rooms of various sizes and unique character that are ideal for any occasion. Every room (The Royal, The Lennox and the Manchester) comes equipped with a 40-inch monitor that can be used for everything from television viewing to projected presentations, a telephone capable of conferencing up to four outside parties, and our exclusive “Gigabyte” high-speed Internet access either through a wired or wireless connection. Each room is an independent sound zone with an adjustable volume control for presentation audio or ambient music. The Cyber Boardroom also has a Wi-Fi lounge and a full range of powerhouse computers for office or graphic work, scanners, faxes and printers. 310-303-7904 4451 Redondo Beach Blvd. Lawndale, CA 90260 www.TheCyberBoardroom.com

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