The Small Business Sucess Index

I was interviewed today by the SBSI and thought I would share some of my Q&A. I had never heard of the Small Business Success Index before. I’d love your comments on my answers!

1.    Why, how and when did you start your own business?

I launched my online business  in late 2005. I started it up myself with the limited programming knowledge that I had and it was meant to serve as a resource to provide motivation and strategies to help entrepreneurs grow their businesses. It now has the largest collection of famous entrepreneur stories online and boasts over 400,000 entrepreneur visitors every month.

2.    What did the study reveal to you about the success of small businesses in 2008?

What I loved about the results was that small companies are taking clients away from big business by providing excellent customer service. Consumers are no longer willing to be put on hold and being treated like a number. Small business owners understand that and are leveraging this need to build successful new companies

3.    The study captured six dimensions for measuring success: Capital Access, Marketing and Innovation, Workforce, Customer Service, Computer Technology and Compliance. What do you think are the top priorities for making small businesses more competitive?

Customer service will continue to be the driver of small business success. By paying attention to the needs of their customers, entrepreneurs can build more profitable relationships, better understand their needs, and bring to market better products and services that will deliver real value.

4.    According to the results, Capital Access and Marketing and Innovation were the two biggest inhibitors for success. Do you agree? Why or why not?

I disagree with this on a number of fronts. I disagree that access to capital is the most heavily weighted part of this index. To say that customer service is only 1/3 as important as access to capital would be a slap in the face to all the entrepreneurs who have built a successful business by paying attention to the needs of their clients.

As far as raising capital goes, most entrepreneurs bootstrap. They do whatever it takes to get the money they need to get going and often start small by offering a service which requires less capitalization as opposed to a more costly product. After selling my first company I joined the venture capital world and learned first hand what it takes to raise money. I also noticed that only one in ten companies who got funded ever made it big and most companies either failed or were referred to as the “walking wounded” – still struggling along but not going anywhere. The venture capitalists expect this and know that the one company that makes it more than pays off the other failures. Throwing money at a problem does not solve it and access to capital is not the most important driver to small business success.

I do think that marketing and innovation are extremely important as success factors. However, I disagree with the scoring of C- for today’s entrepreneur. The small business owners have been behind almost every single revolutionary idea that this world has seen. Because they don’t have a lot of money, entrepreneurs have to be innovative not only in how they invent new products and services but also in how they market them. Small business owners will be some of the most innovative people you will ever come across and it shows in every facet of their operation. Marketing and innovation are definitely important success drivers for small business owners and entrepreneurs definitely are doing better than a C- score.

5.    How does the current economic state effect Capital Access and Marketing and Innovation?

The current economy definitely makes access to capital more difficult. It will force entrepreneurs to go out and get customers and build a real business. Investors are no longer funding ideas, they want to see that a company has traction and customers. It will, however, make entrepreneurs more innovative with both their offerings and their marketing. Necessity is the mother of invention and entrepreneurs will be pushed to the wall with an ultimatum: if their companies do not pull through then they will not be able to feed their families. This is a powerful incentive to find alternative ways to tackle the challenges ahead of them and achieve success. Remember that innovative concepts like the supermarket (founded in the Great Depression in the early 1930’s) were born out of difficult times and small business owners will continue to be the driving force behind innovation.

6.    The results show that 1/3 of small businesses feel they are successful in building the profitability of the owner. What is your advice for entrepreneurs and small business owners in terms of increasing the value of their company?

The best way to increase the value of your company is to build long term value with your customers that is not tied to you personally. Entrepreneurs often have a difficult time selling their companies for the multiple that they want for one of two reasons. The first is that the business is not very profitable and does not have a steady revenue stream. It’s great to have strong revenue streams but they have to flow to the bottom line if you want to get a good valuation. Also, do you have enough brand equity with your customers so that they are repeat clients and keep coming back? A business based on repeat business and long term contracts is always worth more because it provides stability for the company.

The second reason why a company doesn’t sell for a high value is that it’s too tied to the owner. Could your business thrive without you? You have to create a system where you can eventually remove yourself from the operations entirely. If your business relies on you always being there then you haven’t built a business, you’ve just bought yourself a job. However high paying it might be, it’s still a job.

7.    According the study, “small businesses rely on a range of Internet business solutions and computer technologies to succeed.” What online services do you think best help entrepreneurs and small businesses? Why?

Online marketing has shown to be the most cost effective way to get the word out about your business. Entrepreneurs are using a variety of tactics including search engine optimization, pay per click advertising, newsletters, and social media. Make sure to focus on what is bringing you tangible value. Coca Cola can afford to spend millions on a Super Bowl commercial but you need to invest where you are able to quickly measure if it’s working or not. Pay per click advertising is a great example. For every dollar you spent you can directly measure how many leads or, in some cases, customers you have generated. If it’s not working, you can cancel the campaign and try a new one.

Many small business owners are quickly taking advantage of the market inefficiencies online. Big corporations are still far behind and there are still many opportunities on which you can capitalize. Entrepreneurs need to either get themselves versed in online marketing or bring someone on their team who is an expert.

8.    In your opinion, how can entrepreneurs and small businesses use the SBSI to their advantage?

I think the SBSI is a useful tool for entrepreneurs to look at to gauge what other entrepreneurs are doing to grow their companies. Entrepreneurs are also often caught in a vacuum and don’t have a base of other business owners to discuss strategy with. The SBSI is a valuable resource they can turn to in order to understand the current pressures other entrepreneurs are facing and make strategic adjustments in their own businesses.

Evan

Matthew Toren

Matthew Toren is an Award Winning Author, Serial Entrepreneur, and Investor. He Co-Founded YoungEntrepreneur.com along with his brother Adam. Matthew is co-author of the newly released book:Small Business, Big Vision: “Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right” and also co-author of Kidpreneurs.