Aaron Hoos

Many small businesses are fueled by passion. They start because an entrepreneur has an idea (or is sick of working for a boss), they grow because their ideas solve a problem and somehow that solution is communicated to the marketplace.

Unfortunately, many small businesses fail… even ones that are seemingly successful and make profitable sales. The reason is, they’re simply existing day-by-day, sale-by-sale, without any real strategy or long-term vision to give their existence any direction.

If you’re an entrepreneur, answer these 100 small business strategy questions. The answers will help you to highlight areas of opportunity that you can exploit and areas of concern that you can mitigate. Bookmark this page and come back to it regularly to work through these questions every 3 to 6 months.

With your answers, create a list of to-dos that you can act on until you come back to these questions again.

1. What does your business do?
2. What does your business sell?
3. What does your business stand for?
4. What parts of your brand truly reflect your current business?
5. What parts of your brand do not (or no longer) reflect your current business?
6. What are the top 10 benefits your business provides?
7. Who is your perfect customer?
8. How are you adding value?
9. What are your products’ or services’ biggest flaws?
10. How do you define a lead?
11. Where are your leads coming from?
12. What demographic are your leads?
13. How are you creating leads?
14. How are your competitors creating leads?
15. How will lead creation change for your industry in the future?
16. How do you define a prospect?
17. What is your lead-to-prospect ratio?
18. What demographic are your prospects?
19. How is your prospect demographic different from your leads demographic?
20. How are you turning leads into prospects?
21. How are your competitors turning leads into prospects?
22. What objections do your prospects have?
23. What objections do you NOT have an answer for?
24. How do you define a customer?
25. What is your prospect-to-customer ratio (close rate)?
26. What demographic are your customers?
27. How is your customer demographic different from your prospect demographic?
28. How are you converting prospects into customers?
29. How are your competitors converting prospects into customers?
30. What has caused you to lose a sale?
31. How do you define an evangelist?
32. What is your customer-to-evangelist ratio?
33. What is your evangelist demographic?
34. How is your evangelist demographic different from your customer demographic?
35. How is your relationship with your customers?
36. What were your 3 most successful marketing campaigns?
37. What were your 3 least successful marketing campaigns?
38. What marketing and sales activities are you using in each stage of your sales funnel?
39. How do you measure company-wide success?
40. How do you measure personal and/or employee success?
41. How are you improving your relationship with your customers?
42. How can you improve the process for receiving and acting on feedback from customers?
43. How are you encouraging repeat sales?
44. How are you encouraging upsells?
45. Who else can use your products or services that you aren’t currently serving?
46. What is your business model?
47. What other peer-businesses use the same business model?
48. What can you learn from peer-businesses that use the same business model?
49. What other businesses (in other industries) use a similar business model?
50. What can you learn from businesses in other industries that use a similar business model?
51. Who are your top 3 competitors?
52. Who/what are your indirect competitors?
53. What does the most successful businesses in your industry do that you don’t do yet?
54. Why would someone buy from you instead of your competition?
55. When should someone buy from your competition instead of you?
56. What are your competitors doing differently?
57. What are your competitors doing better than you?
58. What are your competitors doing worse than you?
59. How are your relationships with your suppliers/vendors?
60. How can your supplier/vendor relationships be improved?
61. What does your organizational chart look like and what strengths/weaknesses are the result?
62. What are the next 3 roles you need to hire for?
63. What was the last thing you tested in your business?
64. When was the last time you tested a price change and what were the results?
65. What political changes do you see affecting your business/industry?
66. What economic changes do you see affecting your business/industry?
67. What social changes do you see affecting your business/industry?
68. What technological changes do you see affecting your business/industry?
69. What financial best practices have you implemented?
70. How have buying habits changed in your industry?
71. What trends are influencing buying habits?
72. How will buying habits change in the future?
73. How has your industry innovated in the past decade?
74. How has your business innovated in the past year?
75. Where does your business plan to innovate this coming year?
76. How are you investing in your business’ growth (i.e. innovation, new equipment, etc.)?
77. What is your plan to scale up your business?
78. If you had to get rid of 90% of your customers, what 10% would you keep?
79. If you kept 10% of your most profitable customers, what would that demographic look like?
80. How can you increase your ideal customer base?
81. How can you decrease your less-than-ideal customer base?
82. Where are people talking about your business online?
83. What are people saying about your business online?
84. What is your plan if your industry suddenly received a lot of bad press?
85. What is your plan if your business suddenly received a lot of bad press?
86. What is your plan if your marketing went viral and you suddenly had 10x the customers?
87. What contingency plans do you a have in place for natural disasters?
88. What would happen to your business if you were unable to work?
89. What has changed about your business since you started?
90. How has your income trended since you started?
91. How has your profit margin trended since you started?
92. What plans do you have to increase income next year?
93. What plans do you have to increase profits next year?
94. Where do you see your business in 1 year?
95. Where do you see your business in 5 years?
96. Where do you see your business in 10 years?
97. What strengths/assets can you leverage for growth?
98. Where are your blindspots?
99. What are the top 3 problems keeping you from advancing to the next level in business?
100. What about your business, industry, or customers keeps you awake at night?

Many small businesses are fueled by passion: Entrepreneurs get a great idea (or they end up hating their manager) and they start their own business. The business itself is loosely assembled and operates somewhat haphazardly.

Eventually, something has to happen.

Either, the wheels fall off and the small business crashes and burns (which is pretty common) or the entrepreneur realizes that things can be tightened up for a more efficient, more profitable operation (which is less common, unfortunately).

At this point, the business transitions from passion to plan. Of course the entrepreneur might still be motivated by his or her passion for whatever they’ve created but the business moves forward in a specific direction.

Making the transition isn’t easy (and if you ask many seasoned entrepreneurs, they’ll recall the passion-fueled years with great fondness) but it needs to be done to ensure your business’ survival. Here’s a simple way to transition…

1. DECIDE ON WHERE YOU WANT TO GO

What kind of business do you want to be in 1 year, 5 years, 10 years, 100 years from now? Do you want to be the biggest widget-maker in the world? Do you want to be rich and famous? Do you want to be the best at something? Do you want to leave a local, trusted business for your kids to run? Do you want your business to have a worldwide franchise? Do you want a steady income until retirement, at which point you’ll shut the business down?

This your exit strategy — either you exit your business (by selling it, for example, or by letting someone else run it after you retire) or you and your business exit the marketplace (by shutting your business down, for example). Every business/business owner will have an exit so you should think about it, create an exit strategy, and work toward it (instead of just letting it happen).

2. DETERMINE WHERE YOU ARE NOW

Next, you need to figure out where you are now. It’s easier if you compare your current business with your future one.

For example, if you want to be the next Walmart and right now you own one small corner store, then you know the kinds of measurables that you can use to describe Walmart and you can use those same measurables to describe your current business: For example, annual inventory turnover, annual revenue, annual dollars-spent per customer, etc. Use whatever measurables are appropriate for your industry.

You don’t have to use too many measurables — just a couple are fine.

3. CREATE A LIST OF MILESTONES, ACTIVITIES, AND RESOURCES

After you’ve developed an idea of what you want your business to eventually look like, and you’ve figured out where you are now, you need to build a series of steps to grow.

You’re going to do that by breaking your measurables down into milestones, creating activities to achieve those milestones, and then identifying resources to support your activities. Here’s what I mean in more detail:

Look at each of the measurables that you listed (in the example above, I listed inventory turnover, revenue, dollars-spent… but you might be using different measurables, of course). Break down those measurables into smaller “milestones“.

So if you’re measuring annual revenue, the journey from being a $10,000/year company to a $100,000,000,000/year company doesn’t happen in one step, obviously. Give yourself a realistic timeline and break it down. For example, decide to go from a $10,000/year to a $20,000/year company. Then from a $20,000/year company to a $50,000/year company. Then from a $50,000/year company to a $100,000/year company… and so on. Do this for each measurable you’re going to use.

Once you have these steps in place, figure out what activities you need to do to achieve that milestone. So, to continue using our example, to go from a $10,000/year company to a $20,000/year company you need to identify various marketing and sales activities that will double the number of people through the door or you need to identify various marketing and sales activities that will double the amount of money each person spends.

Create activities for each milestone. (Note: The sooner you plan on implementing this, the more detailed your activities are. You don’t have to plan as much for those 20-year-out milestones. Focus instead on what you can do in the next couple of years).

With your milestones and activities in place, you also want to figure out what resources you need to successfully accomplish those activities. You might need specialized staff or a specific tool or technology or some investment money for more inventory. This is where a lot of small businesses falter — they have some great ideas but they lack the resources to implement. If you know ahead of time what resources you need, you can invest effectively. If you don’t think you can afford those resources, you need to either get some investors, find an alternative, or adjust your timeline.

4. GET STARTED!

You’ve done a lot of work to get to this point. You’ve created what is essentially a business plan (although, in my opinion, it’s way more useful than the kind of business plan most people are familiar with). This business plan is a checklist of things you need to do to grow your business. It’s laid out for you in a measurable, step-by-step list that you simply do, cross off, and move on to the next thing.

• You’ve identified these activities as your key growth activities so build your schedule around these activities. Evaluate all other demands (on your time and on your investment capital) against whether or not they will support or distract from completing the activities and fulfilling your milestones.
• Check your milestones regularly. Are you moving toward them? Be extremely flexible and be willing to scrap different activities if they aren’t effective. Be sure to test your efforts, though, before you make major changes.
• Keep up with trends. There are many trends — in marketing and internet marketing, in your marketplace, in your industry, in your community, in the economy, etc. — that will influence your milestones and your activities and your resources. Make constant adjustments to your course all the time.
• Invest. Remember that you can invest time, money, and effort to accomplish your activities. Depending on which of those three are abundant and which of those three are scarce, you might need to constant revisit the resources section of your plan.
• In spite of all of this strategic planning, don’t lose your passion! Just harness it with this plan.

Whew! There was a lot of text here. Hopefully you weren’t scared off by what I’ve listed because although it can take some time, it’s really a very fun exercise. And the time you invest now to build this plan will help you grow your business in the way YOU want for the years to come.

When small business owners needed money to start and grow a business, they used to have three funding options: They could borrow against their own assets, could get a business loan or they could sell a portion of their business to family and friends.

Then the web opened up new possibilities with crowdfunding — a way for entrepreneurs to get their small business idea funded from angel investors. Kickstarter is one of the leaders in this space. With crowdfunding, angels would put money into an idea that they thought was cool or viable and when enough angels sent in money, the idea would be funded. In exchange for their funding, the angel would get the good feeling of having helped someone and they might get some kind of reward (like a mention on a website or a t-shirt or branded mug or something).

I really like the idea of crowdfunding a lot. It’s a way for entrepreneurs to get enough cash to start or grow. As an entrepreneur, I like that. But I’m also an investor and when I invest in businesses, I want to get a return for my money. Crowdfunding is cool but it doesn’t really provide a financial return.

Crowdinvesting is the next step: Once again, entrepreneurs present an idea and angel investors can fund that idea with cash… but now they get the potential of a financial return.

It’s an idea whose time has come! We have the technology and the payment systems and a ton of expertise available to people, plus I know many investors are looking for an alternative to the stock market and might see this as a viable opportunity.

One site that is pioneering crowdinvesting is ImpactCrowd. Here, investors can invest in 20 Euro segments to join a group of other investors and become partial owners in businesses. At this time, ImpactCrowd is pretty limited — they have a couple dozen ideas and only entrepreneurs from the Netherlands can post their idea and not all investors can participate (US-based investors cannot participate at this time but that should be changing shortly). But these things need to start somewhere and I’m glad to see it started.

I love the idea and I’m very excited about participating. In the interest of full disclosure, I’ll admit that there are bugs to work out of the system. But we’re on the verge of an exciting opportunity and I hope to see more crowdinvesting opportunities soon.

What are your thoughts? What opportunities and challenges do you see? Would you invest in a venture through a crowdinvesting site? Why or why not?

Old school capitalists succeeded because they were well-connected in an exclusive “old boys network”. Whether they succeeded in business or in the capital or real estate markets, it was largely because of who they knew.

But the internet changed everything. It levelled the playing field, making it possible for anyone to start a business or make money in the stock market or real estate market. True: Not everyone who tries WILL succeed, but the possibility didn’t exist and now it does.

There are still obstacles and unknowns but that doesn’t stop today’s scrappy capitalists from rolling up their sleeves and fighting for success.

The ones who will succeed will apply a specific set of rules to become successful. There are six rules of the scrappy capitalist. So far, I’ve covered five of them.

Here’s the sixth and final rule that a scrappy capitalists follow to be successful.

SCRAPPY CAPITALIST RULE #6: BE RELENTLESS

If success in business or the markets were simple, everyone would achieve it. But it’s not simple. It takes effort, guts, persistence, patience, confidence and an internal fortitude. Those who lack these things (and can’t acquire them) will never become scrappy capitalists.

Like hammering a nail, success takes relentless effort to make it happen. Here are some ways that the scrappy capitalist can be relentless…

• Starting a new project that takes an initial push to get into.
• Working through the middle of the project in spite of the temptation to quit when the details become too detailed or the work becomes too arduous.
• Finishing well even when other people have gone home.
• Consciously focusing on the desired end-state to help reduce distractions or project-bloat.
• Acting (i.e., working or investing or moving forward) when trusted colleagues and experts tell you you’re wrong.

Being relentless isn’t easy, and I think there are two huge reasons why:

1. It seems to go against what everyone else is doing. That’s hard because sometimes scrappy capitalists need to go with the grain and other times they need to go against the grain. It’s not easy to know the difference. (And if you’re waiting for me to tell you, you’re going to be sorely disappointed… because I don’t think there’s a formula).
2. Sometimes the smartest decision is to keep going when everyone else has stopped, and sometimes the smartest decision is to stop. It’s not easy to know the difference. (And if you’re waiting for me to tell you, you’re going to be sorely disappointed… because I don’t think there’s a formula).

The key here is to find something you believe in and stick with it through thick and thin. Push. Sell. Build. Convince. Learn. Struggle.

That effort will pay off. It might take years of toil and there will probably be times when the cost seems too high and the reward too low, but if you believe in it, keep moving forward.

Click here to view all six rules of the scrappy capitalist.

Businesses need to be liquid. They need cash to pay vendors and staff so they can sell their stuff; they need cash to make strategic investments in growth.

Liquidity is huge. It doesn’t matter what kind of business you run. For example…

• A big business (like a manufacturer) needs to pay for its raw materials and marketing before it sells its first product.
• A small business (like a freelance writer) needs to pay his or her bills so they have a computer, word processing app, and internet connection to run their business.
• A real estate investor needs to be able to pursue new deals and to service debt or pay for repairs on a property.
• A capital markets investor needs to be able to invest in that great stock when the price is right.

In some ways (and especially in the early days of running a business), liquidity is more important than profitability. Yes, profitability is important but it doesn’t help if you’re not liquid.

MEASURE YOUR LIQUIDITY WITH THE CURRENT RATIO

So, how can you tell how liquid your business is? The current ratio is a great ratio to use. The current ratio is useful to help you monitor the liquidity of your business, the liquidity of any potential investment you’re going to invest in, and your own personal liquidity.

I should tell you that there are other measure of liquidity — the working capital ratio and the acid test ratio — but the current ratio is my favorite because it’s the easiest to remember while also being pretty accurate. (The other ratios are either less accurate or too complicated or time consuming to be useful).

The ratio goes like this:

Here’s how to understand the ratio:

The two components in the ratio…

• Current assets include anything the business owns that can be converted into cash or used up in the short term — such as cash, short term investments, and accounts receivables. Assets that cannot be quickly converted to cash (such as land and buildings) are not included.
• Current liabilities include anything that needs to be paid within the coming year — such as loans, accounts payables, and income taxes. Liabilities that are longer term (such as mortgages) are not included.

The ratio is derived by dividing current liabilities into current assets.

In simple language, what you’re trying to find out is: How many times does our assets cover our debts?. This tells you how much soon-to-be-cash will pay for your soon-to-be-debts. If you have enough soon-to-be-cash covering your soon-to-be-debts, you’re liquid.

If you don’t have enough soon-to-be-cash to cover your soon-to-be-debts, you’re illiquid. That means, you don’t have enough money to pay your supplies, you don’t have enough money to pay your staff, and you don’t have enough money to market your products. Businesses shut their doors because of liquidity problems!

So let’s look at some examples:

Let’s say you have a lemonade stand and you borrowed $5.00 from your mom to buy lemonade and disposable cups. And let’s say that you sold all of your lemonade and were either paid cash for it or you sold it on account and you’ll send over Bruno your ugly step-cousin to collect if they don’t pay. And in total, you sold $10.00 worth of lemonade.

Your current assets (cash and receivables) are $10.00 and your current liabilities (payables) are $5.00.

Here’s the equation…

And we’ll plug in our numbers…

So our equation looks like this…

To make this equation useful (and as you probably remember from math class), you need to know reduce it down to the lowest reducable denominator:

Now let’s express this equation as a ratio:

2:1

Congratulations! You’ve just discovered that the current ratio of your lemonade stand is 2:1.

That means your assets are worth TWICE what your liabilities are worth. It means for every dollar that you owe, you have $2.00. Good… you want to have more assets than liabilities.

But it does happen sometimes that your liabilities are worth more than your assets.

Let’s consider another situation — one that is all too common right now. Let’s say that you have a wallet full of credit cards and each one has a limit of $10,000. Over time, you end up maxing out each card. You only have a $250 in the bank account to get you through to next payday.

Plugging these numbers into the equation…

That reduces down to:

Or…

.0062:1

In other words, for every just-over-half-a-cent of current assets, you have a dollar of current liabilities. Yikes! I just threw up a little in my mouth. And if your brother-in-law calls you up and needs bail money fast, you won’t be able to help him.

Current ratio is important so valuable no matter whether you’re a business owner or investor or someone who wants to manage your finances a bit better.

If you are a business owner, this is an easy metric to calculate to monitor your liquidity. Just find out what your current assets are (that’s easy because you probably know what your cash on hand and your accounts receivables are) and divide that by your current liabilities (probably all of your payables and maybe any other short term loans you have).

Let’s look at a few business’ balance sheets to get some numbers and make our calculations. (I’m using some numbers from the balance sheets published in Yahoo Finance).

Apple (APPL) (From their annual balance sheet, published September 23, 2011)

So their current ratio is: 1.61:1

Therefore, Apple has 1.61 dollars of current assets (soon-to-be-cash) to cover every dollar of current liabilities (soon-to-be-debts).

Here’s another one:

Everyone loves to hate Research In Motion (RIMM) (From their annual balance sheet, filed March 2, 2012)

Their current ratio is 2.02:1. Even though they are much smaller and more repulsive than Apple, they can cover each dollar of short-term debt with $2.02 of current assets, which is better than Apple’s ratio of 1.61:1.

Or, let’s take Berkshire Hathaway (BRK-A) (From their annual balance sheet, published December 30, 2011)

So their current ratio is 2.42:1. In other words, for every dollar that they owe in the coming year (debt obligations, income tax, etc.), they can cover it with $2.42 in easy-to-convert-to-cash current assets.

Here’s one more that you might find interesting:

American Electric Power Company (AEP) (From their annual balance sheet published December 31, 2011)

Their current ratio is 0.63:1.

That’s right! For every dollar of current liability (of short term loans) they have only $0.63 of current assets. Now, it might not be the end of the world (and with utilities, people are pretty reliant on them so they’re pretty entrenched even if the owe money).

Want to learn even more? Here’s a useful video that lays it out nicely for you. This one is good if you’re a business…

… and this video is good if you’re an investor…

If you’re a business owner, your current ratio is easy to measure and will help you to see if you have the liquidity to pay your financial obligations.

If you’re an investor, you can use the current ratio of potential investments to make sure that they are liquid enough to stay in business and continue selling stuff.

A FEW MORE THINGS TO NOTE

• There are many ratios to use. Current ratio is just one of them and you shouldn’t use it as the ONLY measure.
• I’ve given numerous examples above from different industries. But it’s important to remember that if you want to compare businesses, you should really compare businesses from the same industry. It’s not useful to compare a company from one industry to a company from another industry because what’s healthy in one industry might not be healthy in another.