Tuesday, March 26, 2013

Advice Based on “Selling to China: A Guide to Doing Business in China for Small- and Medium-Sized Companies”


By Stanley Chao

China’s market may be an alternative for many small- and medium-sized businesses that are seeking revenue and profit growth especially when we here in the US are suffering from economic stagnation, continued high unemployment and a lack of direction from the federal government. But who has the money to travel to China to investigate the market or hire new employees to handle China?

Not so fast. Here’s an inexpensive and fairly accurate way to determine whether your products or services can succeed in China without having to get on an airplane or spend thousands of dollars doing a market study. Simply answer the four questions below and if you can answer three out of the four positively then your chances of succeeding in China may be pretty good. Of course, one can’t tell for sure until a deeper dive is done, but I’ve had a better than eighty percent accuracy with this initial, low-budget analysis.

Do your products or services have at least 25% in cost savings or have a nine-to-twelve-month payback period for your customers?

With a calculator and industry-related data like labor rates and fuel costs in hand, I meticulously punch out payback analysis for promising foreign industrial equipment, accounting software packages, energy-saving air conditioners, and hand-held medical devices. Unfortunately, most don’t make the cut, having payback periods of well over four years.

That’s not to say a market does not exist for these longer-payback items: large Chinese state-owned companies may have an interest, as they have longer-term business outlooks. But Western small businesses are most likely to sell to other Chinese small businesses and they just don’t have the appetite for high-capital, long payback investments.

Vision inspection systems, sophisticated cameras that can detect manufacturing flaws in precision parts, is an example of a successful product used in Western countries but failed in China due to its over 4-year payback period. I was thrown out of sales meetings ten years ago for introducing these systems, but the product is gaining traction now with increased China labor rates.

Do your products or services not have local competitors? Can they not easily be pirated?

You must absolutely make sure your products cannot be copied in China. Legal protection through trademarks or patents is not a remedy. There must be a foolproof method that ensures that your product cannot be physically copied, pirated, or altered. Without these protections, don’t even bother trying to sell to China. In fact, you could risk your existing sales outside of China, as the Chinese will find ways to penetrate international markets with pirated products.

I introduced a well-known company’s line of torque power tools to China in the early 2000’s. After 2 years, we started seeing serial numbers on returned tools that didn’t match our records. At least four Chinese copycat companies were making, selling and, worst of all, exporting to the States the exact same product lines.

Do your products or services have the China sales potential to make up 20 to 25 percent of your total revenue within two to five years?

I see no reason to go to China unless the sales potential will make a great and everlasting impact on your total business. The reason is simple: too much sweat is required to succeed in China- so make it worth your while. Why do it unless it becomes a major part of your total revenue stream?

I know my “25 percent in five years” plan is subjective and each business has its own ideas as to what constitutes a big number. The main purpose in asking this question is to make businesspeople think about their long-term China strategy. Don’t ever go to China thinking you can make a quick buck. Where do you want to be in five years, and is it worth the undertaking to reach the goal?

Do you have products or services have a technological advancement that saves or improves lives, reduces energy consumption, or serves the present policies of the Chinese government?

 Chinese hospitals want to save more lives with better medical equipment, Chinese consumers will pay more for 3-D televisions, and the Chinese government will, at almost any cost, find ways to reduce pesticides in the nation’s water supply.

The key is to find opportunities that are serving the present interests of the Chinese government since they’ll be your eventual customers via state-owned and smaller, privately-owned enterprises. Beijing is now promoting products and services in the health-care, aviation, alternative energy, clean technology, nanotechnology, aviation, oil/gas exploration, and biotechnology markets.

Conclusion

I must admit that some prior knowledge of China is required to answer these questions, but it certainly can be done with some on-line research, a few phone calls to colleagues already doing business in China or a visit to a regional trade show in the States where many Chinese companies exhibit. If the results are positive, then by all means take the next step, spend some money, and do a market study by actually visiting China and meeting potential partners, distributors, and just about anybody associated with your business. You should get the full picture after such a comprehensive visit. I wish you all the best in your China endeavors. 

Monday, March 11, 2013

Small Business Entrepreneurs Beware: The Bonds That Tie Down


Financial expert outlines common start-up struggles and steps to avoid the traps
WILMINGTON, N.C. – Initial 2013 indicators show a rising number of people taking the plunge into small business ownership. While some might see this uptick as a positive economic sign, one unsettling trend is still prevalent.
Financial expert Adam Shay warns that one of the largest risks to start-ups in the new year is an age-old issue – one that is both foreseeable and avoidable. According to Shay, entrepreneurs can bypass major risks if they would simply learn from failed business practices of the past.
 “History tells us that businesses struggle from both lack of planning and being more reactionary than proactive,” said Shay, owner of North Carolina-based accounting firm Adam Shay, CPA, PLLC. “Small businesses most often struggle from cash flow issues and a lack of working capital.  This can result from many situations, such as not properly monitoring the business, growing too quickly or taking on debt when they are not in the position to do so.”
As a CPA, Shay plays the role of business coach for many entrepreneurs who face these common obstacles. From his experiences, he has discovered three main factors that most often attribute to “start-up suicide” – an absence of planning or organization, a lack of discipline and the neglect of measurement tools.
“Without strategic planning or organization, owners are not just unaware of what’s causing their success or failure, but in some cases are unsure of whether they’re considered profitable,” Shay said. “Without discipline, owners don't stick to plans, causing them to exceed their budgets and end up in a deep hole. Lastly, without taking advantage of measurement tools they cannot find out what they are doing right or wrong because they haven't identified key factors to their success.”
In order to avoid these damaging factors, Shay has outlined a three-tier approach he suggests entrepreneurs follow when first starting out:
  1. Plan: Develop a strategic plan.  How are you going to get from point A to point B?  The plan will be living documents that grow with you. Develop a financial plan that encompasses anything from budgeting to tax planning.  Plan for your numbers – don't let your numbers control you. 
  2. Manage: Manage your people, processes and systems. Again, manage your numbers. Set up an accounting system to track and measure on an ongoing basis.
  3. Measure: Compare how you are performing against your plan and goals frequently. Develop Key Performance Indicators (KPIs) that give you a quick check on the health of your business and your progress towards goals. 
Although Shay cannot promise these steps will prevent all start-up struggles, he has seen firsthand the positive influence they can have on businesses in all types of industries. From his perspective, so much can be avoided in both the business world and beyond if everyone would take the time to consider the past and improve the present.
“Every time I meet with a new client and hear the same problems, I think, ‘new venture, old tale,’” Shay said. “If only owners would realize that it really can be as easy as one-two-three. It’s all about moving forward once you understand where you currently stand.”

Wednesday, March 6, 2013

Is the Gen Xer Lost in Marketing Translation? No ... No, No They're Not


by Sonia Martinez 

They're the MTV and the Internet generation. The "latchkey" kids. The "lost" generation. But the X is far from lost in the 21st century. They're happy to sit snugly between two very different generations. On one side are the baby boomers who are aware that living healthier keeps them young and thank goodness considering they command 70 percent of the nation's spending power, reports imediaconnection.com. On the other, the Y generation, who know nothing of a world without technology. They typically use social media and crowdsourcing as their means of making decisions.

 

Know the X

To market to them, you must know them. Generation X is made up of adults who were babies in the late sixties and early seventies. They witnessed the introduction of the home computer and the Internet. As kids, they often came home from school to empty houses and their favorite babysitter was MTV. With both parents working or divorced, they often had to grow up on their own, and fast. The line that defines this generation has been hazy in the past, so marketers tend to overlook them. Stop the madness!
The X Generation isn't stuck in the middle. They're stronger than ever. Here's how to capture them.

 

Cross-Channel Marketing

To get people to trust your brand and buy into what you're selling, it's important to center your approach around creating an "experience." Adopt new technologies and trends. Expand your outreach to include online, in stores, mobile and social platforms. Cross-channel marketing isn't just appreciated it's expected. Tailoring your campaigns to fit a certain demographic will get your voice heard and your brand recognized.
Email: Great for targeting an audience and then tracking them with situation analysis through JangoMail. Email campaigning can inexpensively reach users across the globe. The ability to gather feedback, which this generation loves to give, is also a plus.
Mobile: Information is available anytime and anywhere. Are we slowly losing our patience? Probably. It's more important than ever to get your brand mobile.
Social: While the Gen Xers aren't as prone to crowdsourcing as their younger brothers and sisters, they'll share an honest opinion on social networks. Through websites like Yelp and TripAdvisor, they're getting their once suppressed voices heard, finally.
Print: The personal experience doesn't stop at involving them on the web. The tangible is important to Xers, too. But do it environmentally responsible and inexpensive. They will appreciate you printing business cards for less and to have that tangible collateral to file away in their wallet.

 

Considerations

Get on Board: In "The State of Mobile America," a project done by the Pew Research Center, it was found that 53 percent (and rising) of generation X own a smartphone.
They're more private: Only 22 percent of smartphone owners will share their locations with retailers, according to shop.org.
Get mobile: The Pew Research Center reports that 40 percent of Gen Xers download mobile apps.
Earn their trust: Creating personalized experiences and loyalty programs can help build that credence your small business needs.
They're an educated bunch: A customer relations management website (destinationcrm.com) reports that 79 percent of Gen X women were employed in 2012 at this time as found in "The State of Consumers and Technology: Benchmark 2011" by Forrester.
Get good reviews: Gen Xers tend to do research online when shopping, so advertise on search engines and increase visibility on opinion websites like Yelp and Facebook.

Monday, March 4, 2013

INVESTMENT BANKING BLOG SERIES – CAPITAL RAISE PROCESS (ARTICLE 4 OF 4)

WHAT IS MICROLENDING?
By: RKJ Partners, LLC (Cyril Jones & Gregory Ficklin)

As investment bankers, RKJ Partners possesses a breadth of knowledge and experience in
advising clients that seek growth capital. In our latest blog installment, we define and discuss the
evolution of microlending. Before the economic collapse, microlending (also called microfinance) was a concept typically associated with developing and emerging countries. But the growing disparity of income distribution, the loss of blue-collar jobs, the shift from relatively well-paying manufacturing jobs to minimum wage service-sector jobs, corporate downsizing, outsourcing, and unemployment all have contributed to the increased demand for smaller loans in the United States. As a result, the popularity of microlending is currently at an all-time high and has the potential to have a real impact on the business culture and climate of the United States. Microlending was specifically earmarked in the 2009 economic stimulus bill which granted $54 million to the Small Business Administration (SBA) for lending and technical assistance to microlending groups. In addition, cities such as San Francisco and New York have taken initiative by expanding and/or introducing their own microloan programs. Microlenders expect their loan applications to continue to rise as other financing streams remain unachievable for most entrepreneurs and small companies.

THE EVOLUTION OF MICROLENDING IN THE U.S


The foundation for microlending in the United States was laid in 1977 through the passage of the Community Reinvestment Act (“CRA”), which first started the process of banks being rated by regulators based in part on their participation of funneling resources directly or indirectly (through nonprofit organizations) into low-income communities. It was not until 1991 that the SBA first recognized “microenterprise” as a separate category of business and established the Microloan Demonstration Project. microlenders, the Association for Enterprise Organization (“AEO”), was founded. By 1992, only a year after this official recognition, there were already 108 separate organizations working in American microfinance. Even with this sudden surge of interest, by 1995 no microlender in the United States had come anywhere close to breaking even. Each individual microlender was functioning strictly as a charity, unable to make a sustainable difference. In 1999, federal funding for microlending programs increased through the passing of the Program for Investment in Microentrepreneurs (“PRIME”) Act; however, during the Bush administration era from 2001 to 2005, federal funding for microfinance was cut drastically. By 2002, there were 650 separate organizations Also in 1991, a trade organization for in microfinance. Between 2002 and 2008, the total number of microenterprises in the United States grew from 21.5 million to 25.4 million, which was a growth from 13.1 million in 1999. Microenterprises now make up roughly eighty-eight percent of the total businesses in America. Today, virtually all microlenders in America are organized as non-profit organizations and serve as local intermediaries for federal funds. The federal funds are first loaned to the specially designated nonprofit, community-based organizations that then deal directly with the borrowers. The SBA dominates the American microloan market with approved loans averaging approximately $13,000. There are also a few non-profit organizations in the private sector that issue smaller loans without federal backing.

HOW MICROLENDING WORKS

Microlending involves providing small, short-term loans to small business concerns and entrepreneurs. Mainly through the SBA, funds are made available to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries make loans to eligible borrowers. Each intermediary lender has its own lending and credit requirements. guarantee of the business owner. The maximum loan amount is typically in the $35,000 to $50,000 range, but the average microloan is about $13,000. Loan terms vary according to: size of the loan, planned use of funds, requirements of intermediary lender, and needs of the borrower. Each intermediary (lender) is required to provide business training and technical assistance to its micro- borrowers. If you apply for microloan financing, you may be required to fulfill training and/or planning requirements before your loan application is considered. This business training can be helpful to you as you launch or expand your small business. Microloans can be typically used for the following business purposes: 1) working capital, 2) the purchase of inventory or supplies, 3) the purchase of furniture or fixtures, and 4) the purchase of machinery or equipment. Typically proceeds from a microloan cannot be used to purchase real estate. Generally, intermediaries require some type of collateral as well as the personal

KEY STEPS TO TAKE FIRST


There are some steps you can take before asking for a microloan:
  • Put together a business plan that includes an analysis of your market and its competitors.
  • Update your resume and obtain the resumes of other senior managers.
  • Pull your business and personal tax returns for the last three years.
  • Provide revenue, cash flow and profit expectations for the next three years with thorough explanation.
  • If you have an existing business, assemble your financial statements for the last three years.
  • Prepare as detailed an explanation as possible for why you need the loan and how it will help your business prosper.
  • Identify microlenders in your area. You can find them at The Small Business Administration, or SBA, and at Microenterprise.
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RKJ PARTNERS, LLC (www.rkjpartners.com): Cyril Jones
and Gregory Ficklin are Managing Partners with RKJ
Partners, LLC. RKJ is a minority-owned, Atlanta, GA
based investment banking firm formed to assist lower
middle market growth companies in execute transactions
between $2MM and $75MM. Specifically, RKJ provides
buy-side and sell side M&A advisory services, capital
raising services and strategic advisory services.