Make Sure You Solve the Right Problem

Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity
and are able to turn both to their advantage.

VICTOR KIAM

People often charge into action, only to discover they’ve set out to solve the wrong problem. Take the case of the major dog food manufacturer who introduced a new line of food at a cost of millions of dollars. Despite a high-profile marketing effort and plenty of shelf space at the local supermarket, the product just stuck to the shelves. Already worried after only a few weeks, the company rushed to solve the problem.

First they changed the packaging. “It must be the wrong color,” said one. “It’s the design,” said another, while a third suggested the dogs in the picture weren’t the right breed.

Back on the shelves it went with a bold new look and still nothing happened. Next, after brainstorming all kinds of wonderful ideas, they changed the name of the product to one that was sure to delight any canine lover. Still the product stayed on the shelves. Finally, the product team agreed it must be the price. It was, after all, at the higher end of the doggy food scale. After much debate, a new price was decided upon, significantly lower than the original introductory price. The product was rolled out once again, with new packaging, better looking hounds, a cuter name, and super pricing. It still didn’t sell!

The CEO was so discouraged that he went personally to his local supermarket to observe buying habits in the pet food department. After a few minutes, a boy of eleven or twelve marched up to the dog food section and pulled down a large bag of competing chow. The CEO casually wandered over to the boy and politely inquired why he had chosen brand X instead of his brand. The boy cheerfully replied, “My dog hates the taste of that stuff. He just won’t eat it.”

Problem solving is often not as hard as problem identification! The first step in problem solving is to identify the real problem. Exactly what is the problem you are going to solve? Clearly define your problem on a piece of paper and list its individual components.

For example, say your business is not profitable. This is the first problem statement. Using a piece of paper, list all the components of the problem, or clearly write down what the problem is. Your business is not profitable because sales are down, the product is faulty, your accounting system doesn’t track your expenditures, etc. The problem must be clearly identified if you expect to solve it.

It is important to note that many problems are very complex and thus need to be broken down into a series of smaller component problems. The trouble in solving most everyday problems is that they are often ill defined. The actual problem runs into another problem, and the desired outcome seems hazy at best. For example, I need more money. That is a vague problem that must be further defined into a specific amount—say $5,000. This gives you a clear problem with a clear outcome in mind. Now we can go about trying to solve the problem.

This step in clearly identifying the problem will ensure that you face the problem with the understanding necessary to solve it. A problem that is extremely complex and has multiple facets will only be a source of frustration because it is too large to tackle in one effort. Breaking the problem down to smaller, more manageable pieces will yield the desired effect…solving the problem.

As Peter Drucker said, “Once the facts are clear, the decisions jump out at you.” Problems must be defined in detail and looked at from all angles and points of view before a problem statement is generated.

Examine the problem and define it clearly.

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cce-buynow-2

Five Timeless Tips on Negotiating a Lease

Negotiating means getting the best of your opponent.
Marvin Gaye, singer

Rates vary so much from place to place, even in the same city, that it’s very hard to be specific about lease negotiations, but here are some general rules to keep in mind. First, let me say that the landlord or leasing agent will kick, scream, feign insult, and tell you about the three other prospective tenants bidding on the very same place you are interested in—despite the fact it’s been empty for six months. But follow these principles and you’ll get a good deal.

1. Everything is negotiable. I usually start offering about 25–30% less than the asking price per square foot and usually settle for a discount of about 15–20%.

2. Always ask for free rent to get started. It is standard policy in most places to allow one free month for every year of lease you are willing to sign. Therefore, if you sign a three-year lease, you can expect to get three months free rent, but always ask for more.

3. Ask the landlord to help you with the needed improvements. About half the time they will, or will opt to give you some other consideration instead. Ask for the walls to be painted or carpet to be put in before you take possession of the premises. In some cases where the landlord really needed a tenant I’ve even had them build out the entire space exactly to my specifications. The rule is simple: You don’t get if you don’t ask.

4. Always rent less space than you think you will need. It’s very easy to be seduced by the vision of how wonderful your store will be and how much money you are going to make. Remember this: I’ve never seen anyone go out of business because they leased too little space! I can, however, give you hundreds of examples of small business owners who went out of business because they rented too much space.

cce_25. Cheap rent is usually cheap for a reason. Like TV time at three a.m., cheap rent usually means little traffic in the center.

Try figuring out in your mind what extra money you will need to spend to build up traffic at a less-than-ideal location. Sometimes it’s worth it; many times it’s not.

You don’t get if you don’t ask. Make the deal work for you.

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Finding the Perfect Location for Your Business

The three most important things about real estate are location, location, location.
-Virtually every real estate agent on earth

The oldest adage in real estate is that the three most important things are location, location, location. While the advance of computers and communications has given us a whole new segment of work-anywhere type businesses, for the majority of small business owners the same old adage holds true. The selection of the correct location is critical to all retail business success. It doesn’t matter what you are selling. The more people who physically see your store or office, the more business you will generate.

I have owned small businesses where the walk-in traffic was zero and others where 50 people a day came through the doors. The difference in rent was staggering but so too was the amount of money that had to be spent on marketing to get traffic to visit the poorer location.

The importance of a great location cannot be overstressed; it will make you or break you. High-profile fast-food chains dealing in high-volume sales, such as McDonald’s, Taco Bell, and Burger King, spend tens of thousands of dollars to research and choose high-visibility locations with the maximum level of foot and road traffic. Pizza Hut won’t put a store on 4th and Main until they know “X” amount of people will pass by their doors each and every day.

When is the last time you saw a local premier fast-food franchise like Taco Bell or KFC bite the dust? It does happen, but rarely. The fast-food “kings” know that 15,000 cars drive by 4th and Main daily. Experience, plus careful research, has taught them that a minimum of 200 vehicles will drive past the drive-through window between 4 and 8 p.m. and their occupants will purchase a specific, average dollar amount of food and drink.

cce_2People volume is a life-and-death affair to a fast-food franchise. Can you estimate just how much the average franchise must sell to realize $1 in profit? In some cases it is as much as $20.00! What does this mean to a business located near a successful fast food operation? Success by association—at least in traffic volume.

The more people who pass your business and notice it from the road or sidewalk, the less money you will need to spend on advertising or marketing. Over the years, this could add up to an extremely large sum of money.

Look for a retail location within direct view of a fast-food chain. It guarantees traffic volume.

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Buying Your Building

In a real estate man’s eye, the most expensive part of the city is always where he has a property to sell.
Will Rogers
Sometimes buying office space makes more sense than renting. The way my company works, I’m able to consider a virtual off, but a lot of businesses need a space for customers to visit, or for manufacturing or storage. Buying a building can be an investment that grows in value, but it still needs careful consideration. I have often had clients tell me they are building more space than they need so that they can rent it out to others and essentially get their space free. Sounds great in principle and it can work, BUT…
It can also be a nightmare of empty units, broken leases, and terrible tenants.
Do YOU really want to be in the commercial real estate business? Because that’s the business you are in when you own a building, even if you are the only tenant.

 

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• Is there an excellent chance the value of the property will grow substantially?

• Are you located in a high-growth area where there is likely to be a buyer when you want to sell it?
If you can answer yes to both of the above questions, then buying a building is probably a good idea.
If you do buy, seriously consider renovating the building (another HUGE hassle). With the right fix-ups, you can increase the value of your building to gain instant equity.
If at all possible, buy a property where adding space is an option so you can expand later as needed rather than overbuilding now in anticipation of future needs.
If you fancy trying your hand at the commercial real estate business, fine. But if not…use your home, patio, garage, trailer, handcart, table, tent, or the smallest possible space you can get away with before you even think about buying or building office space.
Buy smart; build small; expand only as needed.

 

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Play The Hand You’re Dealt!

In any problem, business or personal, there will be some constraints that are real and some that are perceived. Each must be examined and explored so that perceived but unreal constraints can be removed, permitting clear thinking on the real ones that remain.

Make sure the constraints you believe are in place really are. List all such constraints that you believe are in place and carefully analyze them to make sure they are real. Often, when you take yourself through this part of the problem-solving process and look carefully at each constraint, you will expose false constraints that can be removed. This may offer quick and easy solutions on which you can act.

Many Partnerships End Ugly

Do not trust all men, but trust men of worth; the former course is silly, the latter a mark of prudence. - Democritus

It’s easy to take on partners or investors early in a business and give away small chunks of equity. I used to think this made perfect sense but it does not. Promise riches, promise bonuses, promise pay raises, cars, vacations, eternal gratitude, but try to keep ALL the equity to yourself.

Is this greed? No, it’s simple self-preservation because when the partner, employee, or spouse goes south, the business often goes with it.