"I ask Senate Republicans to drop the blockade," Obama said in the Rose Garden after meeting with his economic advisers."

Obama calls for passage of bill to help small businesses – USATODAY.com: ""

My Comments:

In general, I'm always in favor of greater access to capital for those who creates jobs in this country. The only problem I have with this Bill is it's about 15 months late and would have been more useful much earlier.

The company is open up 5 prototype stores with "Wellness Clubs" to expand their business into the services sector.

"We're opening Wellness Clubs in five prototype stores. It's potentially a new paradigm for people being healthy. All of the key diseases killing Americans can be largely avoided or prevented through healthy diet and lifestyle, but people don't know exactly what to do. Whole Foods will help educate them."

I find this fascinating for a company with $8 billion in sales that is the clear market leader in its niche. Instead of resting on its laurels, it decides to innovate instead.

Whole Foods CEO: Healthy food is affordable necessity – USATODAY.com:

In fact, I've been harping so much on this topic that I was interviewed by a reporter from Inc magazine about it.

In the following Inc magazine article, play close attention to the emphasis I place on cash management.

Many CEO's are sales oriented. The more financially sophisticated ones are EBITDA or net profit oriented. The most sophisticated ones are also cash flow oriented.

The 3 are NOT the same thing.

Unfortunately, many newer CEOs that have not been through a severe recession are discovering the nuance differences between sales, profits, and cash flow via painful real-world experiences.

Here's the link to the article – very appropriately titled:

How to Evaluate Your Company's Financial Position

As in, why can't I just take that cute doll out of the toy store… because it's not yours and you didn't pay for it.

Darn there's that money thing again.

So the other day she says, "Daddy I want some money… can you just give me some?"

Of course my answer was "Umm… no. If you want money you gotta earn it."

"How do I do that?"

"Remember how I tell you and your sister to not be problem "talkers" (aka whiners), and instead be problem solvers?" (I've been telling her this since she was 2 years old)

"Well to make money, all you have to do is solve someone else's problem and have them pay you for doing it."

"Oh okay… I want to open an ice cream store. Do you think I could make money that way?"

"I don't see why not… do your friends have a problem getting more ice cream?"

"Yes!"

So now she and her little sister are busy planning which flavors of ice cream to carry in their story.  Mint chocolate chip seems to be the leading contender.

Now of course there are lots of practical things wrong with this situation, but I'm glad she has the general right idea and want to encourage it as much as possible.

And sadly, I find many business owners in this economy are completely forgetting the basics.  Businesses exist to solve the problems of others.

Note the 3 of the last few words…. SOLVE… PROBLEM… OTHERS.

Lets tackle that in reverse order.

OTHERS – if there are no customers, there is no business. If the "others" (your former customers) have disappeared in mass from a particular market or geography, the simple (but admittedly painful) solution is to find a different group of "others"

PROBLEM – do your customers have a big headache?  If not, there is no business. If they have a little headache, that's great for business — 3 years from now. If you want revenue NOW, you need a customer with a problem that must be solved NOW. Pure and simple.

SOLVE – does your product, service, or an invented "bundle" (one of my favorite and easiest ways to innovate) actually make the customer's problem go away?  This seems like a very simple question, but it is actually quite profound.

Most CEO's think in terms of selling a product or service. I encourage you to think in terms of Problem vs. Solution.  What is the problem you are solving for customers? And more importantly what problem does the customer want solved?

Apple Case Study

Before Apple came along, all the MP3 players thought (incorrectly I might add) that the problem they were solving for customers is "I want a better, cooler, larger capacity, small MP3 player."

The initial genius in Apple's creation of the iPod was not just the product innovation, but their definition of the problem they solve for customers. The competitors focused on solving the "I want a better mp3 player" problem, Apple decide to focus on the problem of "I want THAT song right now."

They focused on cutting the lag time between deciding you want  a song on your mp3 player and actually getting it there and listening to it.

Before the days of itunes, people would listen to a song on the radio, really like it, decide they want to buy it… and then they would…

1) write on their to do list a trip to the music store

2) drive to the music store at the mall

3) find the album by that particular artist

4) pay for the whole album (even though they only wanted 1 song)

5) drive home battling traffic

6) insert CD into computer

7) "burn" the disc and convert the songs to mp3

load the mp3 song onto the mp3 player

9) play the song on your cooler, fast, higher capacity mp3 player

I guarantee you that every mp3 manufacturer in the world was focused on #9 above. Manufacturers culturally think about products. Steve Jobs at Apples thinks about problems.  Apple focused on Steps 1 – 9 of the WHOLE problem, while competitors only focused on #9.

The genius of the ipod/itunes combo wasn't the cool design (though it definitely was/continues to be cool). The genius was they figured out a way to eliminate the drive to and from the music store.

Clients often ask me to lead and facilitate their annual strategic planning process. They know they need to think differently, but everyone in the company is so deeply experienced in their industry that they find it hard to think "outside the box."–so they ask me to participate and challenge their thinking.

One of the things I will ask an executive team is to have them explain to me what does your customer do BEFORE they use your product/service, what do they do AFTER. This simple question often flushes out the entirety of the customer's problem (from their point of view) and not just the very narrow definition most companies have.

If all the mp3 competitors had asked that question, it's pretty obvious that before you use an mp3 player you gotta drive to the darn mall to get the cd.  This is hardly rocket science. It is so obvious to anyone who listens to music in the pre-ipod days… so like most brilliant insights, it's hiding in plain site (which is VERY common I might add).

In my next few articles, I will highlight several companies big and small that are solving customer problems in an interesting way — innovation at its core — and all are rocking in this economy.

In fact, I'm swimming in examples this week as I am noticing so many of these success stories this week (when it rains, it pours) that I can't keep up writing about them. I've actually started a file folder to keep track of all of them.

One thing is absolutely certain. Many companies are not just muddling through or surviving in the current economy. They are absolutely crushing it and blowing away their sales and profit numbers.  These are big companies and small. Low tech and high tech.

The magic is NOT their industry (most companies are in industries where everyone else is struggling)… it is HOW they run their business in a way that is STRATEGICALLY brilliant and different from competitors.

Two final thoughts for today:

1) In a shrinking market, the only way to grow is to take business away from a competitors (when the size of the pie shrinks, you must grab a bigger slice of it)

2) It's unrealistic to expect to take business away from competitors by doing the same things they do.  You have to be noticeably different to pull it off.

On a personal note, I have recently located to Bainbridge Island, WA – a small island in the Puget Sound, 30 minute ferry ride from Seattle.  After a combined 12 years in Silicon Valley, 7 years in Manhattan, and 2 in Boston, my wife and I decided to opt for the road a little less traveled.

As the kids are entering school age, we wanted a place with a slower pace of life. So for the first time in my life, I live in a place where the trees outnumber the people and cars — which I find very unusual as do the girls.

On a practical matter, my business continues to be nationwide and global – with clients in the US, Canada, Argentina, and the United Kingdom. I have several clients in Silicon Valley and am in the San Francisco Bay Area just about every month.

I also continue long term relationships with clients across the entire East Coast – New York, Washington DC, Florida. So on a practical matter, clients and prospective clients will not notice the slightest change in how, where, and when I do business other than a change in the phone number.

On that note, I will wrap up for today and encourage you to look forward to several case studies to be posted in the days to come.

As a kid, I walked around the 6th grade playground wearing one of my favorite T-shirts. It was a bright yellow and had black text on the front that read, "Happiness is Positive Cash Flow"

When I shared this story recently to a group of small business CEO's, someone blurted out, "Victor you must have been a babe magnet!"

My reaction, was hello… 7th grade… ya remember it?

Maybe as an adult cash attracts people, but in the 7th grade. It was the anti-babe magnet.

Actually, most the kids had no idea what the phrase meant. The teachers did, but they scratched their heads a lot because they couldn't figure out why I was wearing it.

Well it has to do with my mother. Yes, my mom.

My mom taught me lots of things as a kid.  One of them was the importance of cash and cash flow in a business.

You see my folks were business owners like you and me. They started one of the first computer stores in San Diego, CA in 1978 selling Apple computer. Yes 1978!

To put that in context, the IBM PC computer whose predecessors now run things like Microsoft Windows

was invented in 1981,  IBM hired a company that's now called Microsoft to create an operating system called DOS (these days called Windows) in 1980.

In 1987, there was huge stock market crash. You might recall losing 30% of your investments in 8 hours.  Yeah, that was a bummer for sure. At that time, my mom gave me first finance lesson.

She said, "Victor, you see this paper here. This is called a balance sheet.  It's the balance sheet for Apple Computers."

I looked at her, like umm okay Mom, like where are you going with this.

"You see that number there…"

Yeah, it's got a lot of zero's next to it.

"Well that's how much cash Apple has in the bank".

Well compared to my savings account book (remember those), I had like $7 bucks and Apple had well a whole lot more.

Then she looked at me with that that "I'm deadly serious" look that only Mom's can give.

"When you have enough cash in the bank, you can NEVER go out of business. Remember that!"

"Um, okay mom… like whatever… "

But I DID actually remember that. And her message was simple, when the amount of cash you have in the bank exceeds what you owe the bank, you can't go out of business.

(If you don't believe me ask the CEOs of Blockbuster and Borders what they think… both are on pace for bankruptcy by end of this year)

Sounds simple. Heck, my 10 year old brain remembered it… but yet, few companies actually pull this off.

And how do you get a lot of cash in the bank?

Well, have your business generate positive cash flow of course!

So I came across this T-shirt a few months later and thought it was a good reminder of Mom's wisdom:

1) Brush your teeth every night

2) Stop hitting your brother (even if he deserves it)

3) You'd better have a strong balance sheet or I'm going to smack you upside the head someday.

So I wore it around school lot, you know that anti-babe magnet that I was in the 6th grade.

Now as an old and wiser adult, I know that happiness doesn't come from positive cash flow (though the elimination of financial stress certainly does) but it's an excellent reminder none-the-less.

In the 1,000+ page health care reform bill, a new tax compliance burden completely unrelated to health care was snuck in unnoticed by the IRS. The full ramifications of this previously unnoticed paragraph is just coming to light the past few weeks.

Here's the deal.

The provision has to do with the 1099 forms that all businesses are required to file regarding payments over $600 to freelancers and contractors for personal services rendered.

This rule applies to sole proprietor businesses and excluded corporations.

The paragraph basically changes the definition from "personal services rendered" to "all services and goods" rendered from "all organizations" (including corporations)

Basically, this means anytime your company spends more than $600 with ANY other business, you will be required to file a 1099 form. The thinking is that by doing this your suppliers will be forced to report all of their income.

Unfortunately, the cost of this enforcement will be funded by you and me. Here's why.

It's kind of a hassle to get a W-9 form from a freelancer to request their Tax ID number. But most businesses, only have a small handful of these, so it's annoying but not the end of the world.

Now we have to do the same for every company where we spend more than $600.

For example, in my executive coaching business, I spend several thousand dollars a year with hotel chains like Marriott and Hilton. Now I need my bookkeeper to contact their CFO's office to request their Tax ID.

But wait, it gets better…

If I recall correctly, each Marriott location is independently owned and operated. This means that for EACH Marriott location I've stayed in for say more than 4 nights (where my bill would often be over $600), I need to have my bookkeeper contact their financial office and have each location send back a form with their Tax ID on it.

The same goes for the telephone company, Office Depot, Amazon, my web host, all of my favorite restaurants where I host business lunches or dinners, the airport shuttle service, the printer, Apple, Dell, AT&T, the Merchant Account, Hertz, the Attorney, the payroll service, the domain registrar, and more.

It's hard enough calling their customer service line to give them money, now I have to have someone call them to get a IRS tax form filled out?

I seriously doubt Marriott, AT&T or Hertz is under reporting the income they make from me — but now I'll need to take on the burden of a few thousand dollars in expense to go chase paperwork.

These are dollars that could have been spent with suppliers (helping them create jobs), or paying new or existing members of my staff (boosting their household incomes… and spending in their local economy), or to invest in marketing to get more new business (which in turn allows me to spend more with my suppliers and staff).

As a business coach, I have gone on record repeatedly to encourage clients and readers that the economy remains highly uncertain. The long term debt problem in the US in particular has not been resolved by the "recovery".

There are many unforeseen consequences that remain.

This is one of them.

And if by some small miracle enough people complain about the useless paperwork requirements before it takes effect in 2012, then I'm certain there will be another unforeseen consequence to take its place.

While I know many of you feel that the business environment has become hostile to businesses both economically and politically, I actually do think it's a mistake to let these external changes get you riled up emotionally.

Are these kinds of headaches a problem? Yes, absolutely.

Is it worth more than a passing moment of your time and focus? Definitely not.

Is it excuse for delivering sub-par financial performance this year? Heck no.  That's a total cop out.

As a CEO Coach, I tell my clients that good leaders deliver the numbers no matter what.

And keep in mind that your competitors face these paperwork burdens as much as you do. So while these kinds of these are a total pain, at least they are equally painful to everyone.

So take small mental note of these recent events, and continue to stay focused on your customers, your company, and your competitors — and generally in that order — and you'll do fine.

Yes, there are early indicators that a Double Dip recession is on the horizon.

While no official definition exists, generally speaking, a double dip recession is basically two back-to-back recessions separated by a brief period of economic growth (typically 6 – 18 months).

According to a wide range of economists, there's a 25% – 50% chance that the recovery we think we're currently experiencing is the brief "recession vacation" in the middle of a double dip recession.

There are two primary factors driving
a potential Double Dip Recession.

First, of the nearly $800 billion in stimulus money, half has already been spent. (See the home page of recovery.gov for an on-going tally)

The rest will likely be spent over the next year, with a disproportionate share of that spent before November 2010.

Why November?

Mid-term elections.

Numerous studies of voters show that putting money (in all its forms – benefits, jobs, tax refunds) into voters hands substantially increases the likelihood of voters re-electing whoever happens to be in office at the time of the financial windfall.

So the big question is when all the stimulus money money is gone (most likely sometime in next year), what happens then?

Who will be the big spender at that time?

Second, a substantial reason for the recent growth in business and consumer spending is back log. In 2009, most business severely cut back on everything — including raw materials, housing extra inventory, etc..

Early this year, these businesses were "too lean" and they had to replenish supplies once again. And since it looked like the worse was over, replenishment spending occurred in the first half of this year.

With most businesses done with their "catch up" spending, they will not shift into more of a maintenance spending in the second half of this year.

So why the urgent warning?

I urge you to not over commit your resources anticipating a recovery that can turn south very quickly.

FLEXIBILITY and ADAPTABILITY
remain two important mantras to live by.

A flexible cost structure, than can scale up to meet sudden surges in demand, and scale down to adjust to less demand is essential.

As a CEO coach, I have been urging all my clients to move the mix of fixed vs. variable costs to be towards variable cost.

Of the companies who have been hurt the most, a high fixed cost is one major commonality.

The second mantra is adaptability. For those of you who have heard me speak, you will remember my motto "Adapt or Die".

Many people assume that the worst of our economic woes are behind us. This is not necessarily a good assumption to make!

In speaking with owners and CEOs of hundreds of companies across the US this year, the consistent anecdotal feedback I'm getting is that sales are up a little from their worst periods last year.

In short, 2010 stinks less than 2009.

The temptation is to breath a big sigh of relief, assume no more bad news can come (the worst is over… or is it?), and get sloppy.

Or

You can use this "breathing room" to ask yourself the hard questions.

• What did I learn about my market from the past 2 years?
• What mistakes did I make?
• Do I have a solid and strong business? 
  
• Where are my weaknesses? Where am I exposed?

The next 12 months is an ideal time to do some re-tooling in your company. If you need to make some substantial changes to weather (or heck even prosper in) future economic storms, now is the time to do them.

The urgency of the immediate crisis has waned. Sales, margins, and profits for many are up (though not always by a ton).

In short, a window of opportunity exists to re-position a business, shore up glaring weaknesses, move away from poor market opportunities and towards new ones.

Now is the ideal time to make major moves.

Yet, I see complacency setting in.

All those tough decisions can be avoided — replacing mediocre team members no longer seems urgent, getting new revenue streams from "market experiments" suddenly seems unimportant, driving business from new distribution channels can take a back seat to sticking with the status quo.

If you don't force yourself to make the difficult choices now pro-actively, you will be forced into making those choice reactively.

One of the trademarks of my commentary and advice to others is I practice what I preach.

In the first 7 months of 2010, my own company's sales and EBITDA have exceeded comparable metrics for all 12 months of 2009. (If you'd like to understand the process I used to accomplish this, get a FREE copy of my book The Recession Proof Business)

In short, 2010 has been a good year by every measure — yet you wouldn't be able to tell based on my operating plans for the next 12 months.

These plans include:

• Overhauling my marketing with objectives of generating new business in 2011 from sources that generate none today
• Introducing new service offerings that over time will drive the vast majority of sales
• Adding staff in 3 countries
• Re-organizing team roles (including my own)
• Shifting of vendor agreements and selection to more variable based cost
• Re-evaluating and re-negotiating supplier contracts
• Delivering more than promised to clients
• Upgrading technology tools
• And more….

In short, I have maintained a "crisis mode" pace, a willingness to innovate / take risks, and a healthy sense of paranoia that perhaps I missed something…. all this despite having my best financial year ever.

I take nothing for granted, nor should you.

As my high school football coach used to say, you win championships by being mentally tough and exerting extra effort when everyone is tired, exhausted, and overwhelmed — it's precisely when everyone else slows down that you gut it out and speed up.

An awful lot of people have eased up including your competitors. Now is the time to leapfrog ahead. If you don't, someone will leap frog you.

Grow or Shrink because in this economy there isn't much in the middle.

The choice is yours.

If Netflix continues to thrive despite the economic environment, Blockbuster could very well be a thing of the past.

Mail-order service sets Netflix apart from competitors like Blockbuster but that alone  isn't enough to survive the recession. Their ability to recognize current trends and opportunities such as the expanding broadband market is a huge contributing factor to their recent success.

Netflix is poised to take advantage of this market and deliver new streaming services over the Internet at a time when people are downloading more often than popping in a DVD.

The folks at Netflix saw an opportunity to expand despite the recession and they took it. Expanding your business to solve a problem created by the recession can render your model recession resistant. In the case of Netflix, expanding the business and introducing new products aligned with current consumer trends has done just that.

Click here to get a FREE copy of my book The Recession-Proof Business.

While I continue to believe that the whole social media scene is way over-hyped (ahem… show me the money), it is probably under-hyped in one area — the speed in which BAD news can travel FAST.

Whether your company is engaged in social media (blogging, tweeting, facebook-ing, youtubing), you have to assume that all of your customers are (or could if pissed off enough).

There are allegations that Mel Gibson threatened the mother of his child with physical violence (after being accused of knocking our her front teeth earlier this year), insulted blacks, and further insulted latinos.

Okay, so what makes this hollywood scandal differrent?

An audio recording.

Yes, Mel was caught in a recording lashing out in a f-bomb laden conversation with Oksana Grigorieva.

And what makes this scandal even worse for Mel Gibson is the audio is posted online so you can hear it for yourself!

Here's the link to the actual audio recording:

Mel Gibson Implodes

[Warning: the audio is completely unedited. It pretty offensive. There are no censorship beeps. If you plan to listen to it, watch your volume controls be aware of who else might be listening in.]

So what's the big lesson in all this applicable to business owners?

HOW you treat your employees, customers, and suppliers is more important than ever.

HOW your employees treat your customers and suppliers is equally important.

ASSUME all bad, unethical, unprofessional, rude, obnoxious behavior will be broadcast globally (it only takes about 60 seconds to do so these days) and act accordingly.

Hey, bad news travels the globe in seconds… and sadly good news often does not (but I'll save that topic for another day).

In a search on twitter (which is lousy for business by the way, but very interesting to gauge national consciousness), the Mel Gibson story is lighting up the twitter-sphere with several comments added every second (literally). Watch this story as it progress through the twitter/facebook-sphere first, hit the blogs later today, and hit mainstream news by Monday at the latest.

His talent agency has dropped him as a client.

He is now considered untouchable by Hollywood. Apparently, Lindsey Lohan (who is heading to prison) is now considered a safer choice than Mel Gibson

And the only people cheering about this situation is British Petroleum because the Mel Gibson scandal distracts people from paying attention to the BP oil crisis.

Oh and if that's not enough, the two minute audio clip is just 2 out of 30 minutes of audio where Mel basically implodes.

The site that obtained exclusive rights to the audio will very likely continue to publish 2 minute snippets every few days for weeks… until all 30 minutes. (BP can only hope this will happen until that can plug up that darn leaking oil well in August)

The legend of talk television has suffered several years of bad ratings and the powers that be have decided that it's time for him to hang up his hat.

The big debate amongst media pundits is 1) who will replace him at CNN, and 2) should CNN even bother to replace him.

I mention this story because it is precisely this kind of dilemma that many business owners face.

Here is the gist of the problem.

Larry King's unbiased, politically neutral, approach to interviewing guests during prime time just does not attract viewership and ratings. And in the media business, no ratings = no revenues.

What's useful to keep in mind is that Larry King himself has not changed that much. He's still sharp, witty, charming, etc..

What has changed is the viewing audience.

If you look at prime time talk show ratings, what "sells" are talk shows led by hosts that are extremely liberal or extremely conservative.

Now you could argue that CNN's core expertise of neutral reporting is better for the American public that say Fox's right wing slant or MSNBC's left wing slant.

But the ratings show, viewers during prime time don't want neutral politics. They want heavily biased politics. It is what the market wants.

As a ceo coach, I constantly reinforce the following message to my clients:

"Your opinion is interesting but not relevant."

Trust me this is not what many successful, highly accomplished entrepreneurs want to hear from their executive coach.

The only opinion that matters is the opinion of the customer. And in the media business, there are two "customers" – viewers and advertisers.

All else being equal, advertisers only want to advertise on shows with viewers. Prime time viewers just don't want to watch Larry King (and presumably anyone like him).

The problem is CNN doesn't know how to be wildly biased to the left or right. They've been doing neutral reporting for decades. They are extremely good at it. But it no longer sells.

So what should CNN do in this case?

This is not an easy question to answer.

The short answer is they need to change from their current strategy. It's very clear its not working.

The wrong answer is to stay the course and watch ratings slide even further.

From a practical standpoint, since CNN is not good at highly partisan programming, they should start small and experiment with a variety of approaches to figure out what's going to work.

I call this "cracking the code" in the marketplace – the act of finding the right combination of customer and offering that really just clicks.

If it were me, I would have launched several efforts at more partisan programming in low viewership time slots — a place to experiment, take some risks, and find a model that works.

It would have been to have started this process a few years ago. Now the whole world is watching and CNN doesn't have a proven winner (even in lower profile time slot) to field in Larrry King's place.

CNN has some catching up to do.

In your business, you need to be brutally honest with yourself. Are you selling something that your customers fundamentally no longer want to buy?

If you are, you'd better stop and find something else to sell instead.

Thriving in a recession is matter of a few simple principles (in this case, sell what customers want to buy). Yet many business owners let pride, ego, security, and fear get in the way of making the tough call.