Entrepreneur Roundtable

Entrepreneurs seemingly come out of the proverbial walls when recessionary periods surface, but what does it take to be a successful entrepreneur, and what kind of help does the owner of a startup business need?

Free advice for entrepreneurs is often nothing more than cheap advice, lip service, leaving entrepreneurs to ask for more concrete answers.

The Santa Clarita Valley Business Journal invited a diverse group of business experts in the business of consulting, small business support and financial service industries to sit down with a growing entrepreneur for a heart-to-heart discussion.

Entrepreneur Susan Handley, president, founder and designer of Beijo handbags; Steve Tannehill, director, Small Business Development Center; Tamara Gurney, president, CEO and one of the original investor/founders of Mission Valley Bank; and Warren Cooley, vice president, operations, for Valley Economic Development Center and former retailer, all sat down to discuss the trials and tribulations – as well as opportunities – for an entrepreneur to get the help they need and become successful.

What does it take to be a successful entrepreneur?

Handley – Certainly it’s motivation, determination. There’s the ability to really know yourself and be prepared as you enter the business or start a company to achieve personal growth because your business development coincides directly with your personal development. When you stretch your own personal goals you also have the ability to stretch and reach for your financial and professional goals as well.

You have to be a risk taker to do this. You have to be analytical, but not to the point that it’s crippling. You also have to have the self discipline and boundaries to know when to stop because you can think yourself right out of making a move, and timing is critical.

What advice would you give to a startup business?

Handley – I absolutely think you should have a business plan, but my business plan changes. My vision and my focus do not change but my business plan does alter because the needs of the market dictate to me what it is that I need to do and how I need to adjust. I had to adjust my business plan three times. It’s not easy but you have to have a plan, especially in the beginning. But you have to have a little bit of flexibility because what you think you want is not always the case. There’s a version of what you want and what you believe is going to work but may not be the exact version that you’ve put down on paper. So keep the flexibility in the plan and keep revising it.

Cooley – Being a business person is very interesting because you can’t blame it off. When you have a business, you’re the one responsible. I didn’t keep my eyes, as much as I should, on the financial aspects, actually using the tools that are available to manage your business. And I think that’s one of the things a business plan does for you.

Tannehill – A lot of people view a business plan as a way to get a loan from somebody. The business plan is a living, breathing document. It tells you what you need to do, where you’re going to go, what are your metrics, how do you measure success, how do you know when you’re making or losing money. A business plan that sits on the shelf is not an effective business plan.

Gurney – I’m not as concerned about a written business plan. If we can sit and talk and you can articulate it – I know it’s here between your ears. But I just want to hear that it’s well thought out. The financial information is critical and that’s what we try to drive them to. People need to do their homework. The best business plan I ever read was a 10-bank turndown until she came to me and we just pulled everyone together in a room and said “We need to brainstorm how make this work.” Your business plan is a road map. You’re planning to fail if you don’t have a plan.

Aside from business plans, what do you find that startup businesses need?

Cooley – Marketing, marketing, marketing. Somehow these businesses that are successful have got to find a way to communicate this idea, this concept, this service that they’re providing to a defined group of people – which we call target markets – which are not in their living room. When finances are not the reasons that business fail, the (reason) that’s right after it is the lack of understanding of how to market the product or service that you’re selling.

Gurney – If you build it they’ll come. They aren’t going to come if they don’t know you built it, so you’ve got to find a way to get that message out there. You sometimes have to be willing to give it up, in a sense, to get that interest level. Offer your service to a constituency that you know that if you get them to be your raving fan, you’ve got a sales team out there and the word will spread. The one thing I encourage is to just challenge your own thinking, which is to throw it out to folks and say, “Kick the tires, punch a hole in it. What am I missing?” Because you get incredible feedback.

Tannehill – Once they’re in business, what do they need? They need sales. They need to sell their goods and services. So, you need to have that target market, you need to know how to reach that target market. And just like a business plan, the way you reach that market is constantly changing. It’s a dynamic process. You can’t just run an ad or attend a public function and think, “Okay I just marketed my business.”

Handley – What I see as a common mistake is cash gets tight and marketing is one of the things to go. Because it’s not tangible – you cannot associate or identify the direct impact of your marketing efforts. And I see people make that mistake frequently. In this day and age, you have to be creative; you have to be really quick. The world of marketing is just growing at light speed.

For startups, there are some very creative ways you can market through social networking. But it’s important to not lose sight of that.

Cooley – Marketing is the first thing you unknowingly think, “You can cut this out.” But if you logically think about it, that’s the way you’re communicating to the people who are going to buy from you. I owned a chain of retail stores. I know I could not spend less than about 6 to 8 percent of gross sales on marketing. Once I finally learned the value of not cutting that first, then you begin to see the benefit.

Handley – But it’s the fact that when you’re faced with the decision, you’re thinking, “I’m going to pull it this month because I can’t afford it and I’ll get back to it in a couple of months.” If you hit that point in your business, do not just cut it up completely. There are so many ways in this day and age to do some inexpensive things.

Gurney – Some stuff is just branding, it’s getting your name out. Use social media, the Internet.

How can lenders boost lending even more to small businesses?

Gurney – Small businesses are struggling. The cash flow isn’t there, sales are down. And so they’re having a hard time and they need help. But when they go and you look to underwrite that credit, you can’t establish a way for them to pay the money back. And in the banking space, it’s hard because your regulators are coming in and saying, “Okay that loan you made last week is a classified asset and you’re going to have to allocate a pretty significant percentage of your capital over into your reserves that you now can’t touch, and it doesn’t show up in income because of that.” So most bankers are saying, we want to lend but we can’t make these loans because we don’t have the capital to support the regulatory classification.

Cooley – From our standpoint – non-regulated lenders – most of what we read about is that small businesses have a hard time getting money. So you draw the conclusion that there’s a whole bunch of qualified businesses that have money and they can’t find anyone to loan money to them. That’s not a true picture because even in our world, when we loan money we have to be able to see how we’re going to get money back. And with many, many small business today you can’t see that. Which is one of the reasons that we provide technical assistance – to help people see a way to organize their business so that they can get to a place where you can identify getting your money back. There is money available but there’s not as much expressed demand as the press would lead you believe. Many small businesses don’t want to borrow money anyway; they are as skittish about the economy, as a lot of people are. But I would contend that any business who is fundable, there’s money available.

Tannehill – There’s a whole capital landscape. The commercial banks are going to lend and that’s probably the cheapest cost of debt capital you can get. But they’re only going to lend to who is capable of paying it back. Either the business is profitable, or you have personal guarantees or other collateral. If you don’t qualify for that, there are SBA loan products which are offered through the banks. They offer slightly more favorable underwriting terms, maybe a longer tern to pay it back but you’ll pay a little bit more for it. If you don’t fit there, there are organizations like VEDC that are a source of debt that you can access. They want to fill that space if you’re not going to qualify for a commercial bank loan. Some people just don’t qualify for debt. It is important for small businesses to understand that the first dollar of capital comes from you, your family and your friends.

There are other sources of capital; there are private equity funds, angel investors, and private capital funds. We show a lot of businesses to these firms and they do fund some but they might see 100 and fund five, so it’s a very small group that qualify for those types of funds. One thing that could be done in this community is create a Santa Clarita capital venture firm or you can try to leverage off those that already exist.

From a lending perspective, what is it that you guys fear most when you’re looking at the needs of the business. Do you fear seeing that someone is coming to you for inventory or is it that someone is coming to you to be able to help in their marketing efforts?

Gurney –We do a lot of inventory financing. People have come to me and said this is the plan and I need marketing dollars. Whatever you need the cash for, I’m more concerned about your complete grasp and understanding of the impact – what you’re going to do with it and the result that’s coming back, that you get that. If you don’t, I’m scared and I don’t have an interest in lending money.

Cooley – People think we don’t want to loan money. Most people’s perception is these banks, these VEDCs, don’t want to lend money. And the actual reverse is true – we want to lend money, that’s how we make money. If we had confidence in you and you’ve got a great product, we’d loan you money.

Tannehill – Some (lenders) love restaurants, some hate restaurants. Some hate retail and consumer products, some people not so much. I think there’s a commonality of the ability to pay it back and your personal relationship with the lender. But just because one bank doesn’t like your product line, have a conversation (with another) where maybe it fits better.

How do you find angel investors and how do you get in front of them?

Tannehill - There are community resources like the SBDC to be that kind of channel. That would be one way – call us up. Or you can do your own research. Over time you build those networks and a lot of it is you show up and meet those people. An entrepreneur can do that but it’s very time extensive and you’ll burn a lot of time. So organizations like ourselves can help you with that and steer you in the right direction.

Gurney – Venture capitalists have an expertise. Some of them are tech-oriented, and some want products.

Tannehill – There are over 58 angel investor groups in Los Angeles County and they range from wealthy women that want to invest in purses to tech and biotech. Part of our role is to try to filter that out for you.

What mistakes do entrepreneurs make in the lending process?

Cooley – Small business owners have such a lack of financial literacy and the options available to them and they put themselves in such a disadvantage. If you’re not prepared, you’re not going to get the time of day.

Gurney – Sometimes I feel some of my own clients aren’t honest. You’ve got to put it all on the table and ask for a collaborative meeting. So we can say, “This is the cold, hard reality. Let’s figure out what we have here.” If you come in and put on a pretty face and hide the warts, we’re going to find them. What we try to do is develop the relationships where we’re invited to this table with their CPA, their attorney, their management team and we say, “Where are you going in 12 months?” We don’t do well when you come to us at the eleventh hour and say “I can’t make payroll.”

Handley – Do not make the mistake of approaching these lending opportunities in a defensive mode. That is what can happen with entrepreneurs after being rejected. Your strength may not be numbers and balance sheets. Immediately you’re put in a situation you’re not necessarily comfortable with, so when people get insecure, they get defensive.

Gurney – But some banks have done a poor job. The entrepreneur comes in and says, “I need $500,000” and we run the numbers and say “You don’t qualify.” There you go. You have no idea why, the dialogue doesn’t occur.