Small Business

How Customers Define Your Business


What might be holding back your company's growth, the skinny on pension plans and early-stage companies, and more

How Do Your Customers Pigeonhole You?

I am struck by how many young growing companies have three or four product or service lines—for example, a computer-services company that designs Web sites, maintains client networks, and does IT consulting; or a lawn maintenance company that installs sprinkler systems, does landscape design, and mows lawns. Yet when I inquire how the sales divide up, it's never one-third or one-fourth each. Invariably, one of the lines accounts for 60% or 70% of sales.

The reason for that is customers want to identify you. You're the Web designers, or the sprinkler guys. But once you are pigeonholed in a particular way, it's difficult to change the perception enough that you can sell the Web design customer on your ability to do IT consulting at the same high level. While you might establish multiple services or products as "protection," against dips in revenues from one or the other, you may actually be holding back your company's growth.

Sure, exceptions exist, such as successful restaurateurs who operate equally successful catering services. But with so much competition out there, customers usually don't have the imaginative bandwidth to identify you in more than one way. So if they're in the market for sprinkler systems, but have seen you doing lawn maintenance, they may assume you're not top-notch with sprinklers, and seek out someone who specializes.

Angel Investors Back Fewer Deals, But with More Funding

During the first half of this year, the number of early-stage companies being funded by private investors declined 6% from last year's first half, while the 24,500 ventures that attracted funds received 15% more cash, for a total of $12.7 billion, reports the Center for Venture Research at the University of New Hampshire.

Two industries, health care and software, attracted nearly half of all funding, with other high-tech areas garnering 10% or less of funds. Angels also continue to prefer somewhat later-stage investments (see BusinessWeek.com, 7/24/06, "A Rumor of Money for Entrepreneurs").

"This increase in post-seed/startup investing continues a trend that began in 2004 and represents a significant increase in historical levels," says Jeffrey Sohl, director of the center. "While angels are not abandoning seed and startup investing, it appears that market conditions, the preferences of large formal angel alliances, and a possible slight restructuring of the angel market are resulting in angels engaging in more later-stage investments."

Are Pension Plans Truly Essential for Early-stage Companies?

Many entrepreneurs feel compelled by all the personal-finance media coverage of retirement planning, to quickly set up a pension program when they launch their businesses. But Carol Mentyka, president of the Atlantic Pension Company, a Danvers, Mass., benefits administration firm, suggests that more often than not, entrepreneurs are better off delaying.

"They can't meet payroll, and they're looking to set up a 401(k) or a profit-sharing plan. A startup business shouldn't be worrying about that." Rather than spend the $1,000 or more for the documents from a benefits administrator, entrepreneurs are usually better off simply contributing the maximum to an IRA.

The "Journey" of Success

What I like most about Success Built to Last: Creating a Life That Matters (Wharton School Publishing), is that it avoids making "success" seem easy. The authors, Jerry Porras, Stewart Emery, and Mark Thompson, emphasize that successful individuals not only endure failure along the way, but episodes of significant emotional, and even physical, pain as well. One example is the case of an Indian physician who overcame debilitating rheumatoid arthritis upon graduating from medical school, and so instead of practicing medicine opened a hospital specializing in free and low-cost eye surgeries.

I don't care especially for its tendency—the practice in many such books—to focus on famous people such as Nelson Mandela and Charles Schwab, nor its tendency to state the obvious, such as the importance of learning from your failures. But it backs up its central argument about the challenges associated with success with a survey of more than 300 individuals of varying degrees of success who most strongly value being able to "make a difference and create lasting impact" rather than simply making money and accumulating material things (See BusinessWeek.com, 9/14/06, "Entrepreneur's Favorite Mistakes".

David E. Gumpert covers business/health issues and also writes the biweekly What Entrepreneurs Need to Know column.

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