Online Business Relationships

“Business Relationships” used to sound like an oxymoron- there was business, and then there were relationships, friendships, you had outside of the business or work world.  Companies classically (and probably still do in many places) discourage workplace romantic relationships, as possibly undermining productivity and morale.  Let’s face it- when you get all “mushy and emotional” in business, your steely eyed judgment and practical decision-making can get clouded.  This leads to the whole premise of Dan Ariely’s book,  Predictably Irrational- the fact that we don;t always make the right decision, but frequently the wrong one, based on our emotional appartus swaying our judgement away from the facts.

But now, business relationships have become the currency of the day.  We want to get back to the time where we dealt with people, not just machines.  We want to know people, have a face and a feeling about a business or brand.  The cold, hard, calculated monolith of business is being infiltrated by the social scientists, who are convincing us that it’s okay to have both business and emotions in the same place and still succeed.

The problem with this over the old Ayn Rand/Mr. Spock way of operating business is that injured feelings heal much more slowly than injured bank accounts.

As a lawyer, I’ve see this all the time.  People get themselves into difficult circumstances because they’ve done things for emotional reasons without weighing all the practical ones as well.  Here are a few examples:

- Divorce is all about rash decisions, either from marrying someone who doesn’t really suit you or share your dreams for the future, or because you decided to go off and deal with your on priorities without a careful balance of what the impact might be on your spouse.

-Trusts & Estates- there’s an old saying- where there’s a will, there’s a relative.  It basically means that people get crazy when someone dies and people have to settle up their affairs.  More and bitter fights have divided families over a deceased loved one’s money and accumulated objects than divorce, I would be willing to bet.

-Family Business- here’s another loaded topic.  Dad has a business, he thinks he is preparing for his son to take over.  Son has no interest whatsoever, and wants to make his own way in the world.  Dad sells business, and son is bitter that his safety net/back-up plan is no longer there for him.  Or Dad gives business to one child and not the other…. you can imagine the discord from here.

And this doesn’t even get into the problems and hurt feelings that ensue when friends go into business together.

Whenever I approach a business relationship with friends, I always want to have the business particulars drawn out in writing.  This tends to seem really formal and silly at the time, but without “ground rules”, people quickly get in over their head.  Even when you have ground rules, the relationships aren’t always perfect, and it’s hard to keep the business and personal from creating toxicity if things go bad.

I was recently involved in a business relationships with good friends whom I trusted completely.  I trusted that because we were friends, they would obviously deal with me in an upfront manner.  I trusted that they would do everything they agreed to do pursuant to our contract.  I also thought they would value the relationship highly, since we were friends as well as colleagues.  I executed everything on my end to the letter, but the same hasn’t always been true on their side of the arrangement.  And what’s worse, the communication has been dreadful.  Despite many attempts to chat with them about it, they haven’t responded promptly, if at all.

The crux of the matter is this:  Because the trust implicit in our personal relationship bled over into the business relationship, I expected them to act more like friends and less like a corporate monolith.  Our business relationship took on corporate monolith -like failure to communicate overtones, which has damaged the trust I had in them both as business partners and as friends.  After all, if you don’t have any information to go on, you start to make stuff up and fill in the blanks yourself.  You might start out with excuses, but excuses quickly wear thin and all that is left is a feeling that they don’t care and you feel you are being treated with contempt, whether that was the intent from their side or not.

Taking a broader scope, this kind of story happens all the time online.  We think we have established a trust and friendship with people we do business with.  The conversation we can have on twitter, social networks, and even by email creates a sense of closeness and expectation that isn’t entirely reality based.  Because these are not people in your immediate daily social circle, there’s no sense of enduring personal obligation like there is with your neighbors or your child’s teacher.  We move ahead in business, thinking we have this incredible bond and relationship, based on how we feel, but in the end, business is business.  When someone disappoints us in an online relationship, the trust evaporates even more quickly than when your neighbor forgets to pick up your mail as promised.  You still have to live with that neighbor- the guy online is more distant, so your ability to rationalize and contextualize your relationship is significantly reduced.

This leads to trust being a very volitile currency on the web.  It can work extremely well, but it needs significant care and feeding to remain healthy.  It’s fragile, and can easily be damaged and lost.  And with the infinite choices available, people will easily find someone else to do business with.  But because the voices of dissent and distrust can always be heard, blog posts, comments and the like about bad relationships will haunt you through the power of Google and the Internet Way Back machine for years.

This means if you are going to play in social networks and social media, the one thing you can never take for granted is how you are building your trust and your relationships, and the ability to maintain those relationships is another currency you need to manage as wisely as the one in your bank account.

What do you think?  Is this true?  How do you build your trust relationship online?

Tags: business, currency, Dan Airely, dan ariely, new media, predictably irrational, trust

The Knack- an Entrepreneur’s Manual

I picked up a book the other day that sounded intriguing- The Knack- How Street-Smart Entrepreneurs Learn to Handle Whatever Comes Up, by Norm Brodsky and Bo Burlingham.  The authors both work for Inc. magazine, and Norm writes their Street Smarts column.  Norm also happens to have degrees in both law and accounting, so I am probably pre-disposed as a fellow member of the bar to take what he has to say seriously (professional courtesy.)

I started reading last night, and I’m having a tough time putting the book down.  It talks about business basics in a very direct, non-professorial way, so that everyone trying to find their way in this roller-coaster economy should find it a good read.  More important, it highlights the things that get new businesses into trouble-  such as not understanding cash flow and margins.  He covers everything from being the boss to how to deal with growth, and this is something so many people need as a touchstone for their own business efforts, whether its on their own or for an employer.

Business confuses people because they get caught up in sales = cash, but never fail to account for the cost incurred in making that sale, or the cost of tying to collect once the sale is made.  A sale is a promise- the difficulty always comes in the execution.  If you make a sale, you have to deliver as required, which is not always as easy as it looked up front- you may have to get supplies from others, or perhaps spend time and money up front for travel and preparation- and that is a cash outlay, up front.  You then depend on the other person executing their promise to pay you right away, but sometimes they don’t write the check for months.  They are waiting on their creditors to pay them, so they can pay you….giving you some perspective on why the credit crunch has a ripple effect across the economy.  If people aren’t paying you, you can’t pay your bills, and without cash, you are out of business.

I’ve written about all of this stuff before, but Norm Brodsky and Bo Burlingham put it all together in one book  that every consultant, entrepreneur, or anyone with any business ideas or illusions should pick up and read before you quit that day job.  If you don’t enter into the business with your eyes wide open and adequately prepared, you may end up out of business, not because your business isn’t viable, but because the cash flow crunch sinks you before you’ve had a chance to swim.

Gotta check this one out right away.

Tags: books, brodsky, burlingham, business, economics, entrepreneur, Inc, new media, social media, the knack

Books About Business-What You Need to Know

I am a big fan of the Business section of the book store. This might seem odd to some of you who will say “This woman does a podcast about parenting and education; She’s a lawyer- so what’s the deal with recommending business books?” Here’s the connection:

Managing People is pretty much the same whether

the people are 4 or 40 years old.

Sure, kids are still developing, and you need some specific tweeks to really understand how they think and how to explain things so they will understand, but basically, managing other humans is based on psychology, not business skills. This is why some of the best business management books are great for parents and managing a home- the science and tools are identical.

By the way, while checklist books- ie. The (insert number here) Keys to Success- often have catchy titles, but the devil, as we all know, is in the details. The title sells books, but making your business, or your life a success is much more complicated than checking items off a list.

*My Favorites:

Anything written by Marcus Buckingham. From “First, Break all the Rules” to “Now, Discover Your Strengths” to the latest “The Truth About You”, Marcus Buckingham’s work helps you discover what your personal strengths are, and for anyone, you have to start with knowing what you are best at, in order to make any project/business a go.

Seth Godin’s “The Dip” and “Meatball Sundae”- these books help you sort out the questions of what you are doing, why you are doing it, and whether or not you’re in a dead end or just a lull.

The Pirate’s Dilemma by Matt Mason. This book is about how businesses can deal with the fact that times are changing so fast, it’s the Pirates that are taking ideas, transforming the into businesses, and profiting from it.

Buying In by Rob Walker. This book talks about marketing and branding is changing and evolving quickly, and how to understand what is going on.

Then there’s all that finance and legal stuff. Good reads on this front are harder to come by. This can be pretty dry stuff, on the whole. But I would suggest doing some reading of blogs, newspaper articles and more to get at least a passing knowledge of the following:

• The basics of copyright law is not a bad thing. – Important for doing anything online, so you don’t get sued by using stuff you don’t hold the rights to.

• The basics of economics – you really need to know a bit about how you plan to handle money, cash flow, accounting, taxes, compliance with applicable business licensing laws and the like before starting any business, big or small.

• You have to understand cash flow and risks. Many businesses fail, not because it was a bad idea, but because they didn’t have enough cash in the bank to weather the tough times along with the good. Just look at big retailers who are struggling- part of it is a cash-flow issue, and part of it is falling behind its competitors who are doing the same thing, only better and cheaper, without the same cash issues.
• You have to read the news and understand your marketplace and sector. Your competitors will eat your lunch unless you offer something that makes you special. How to you differentiate yourself from everyone else out there with the same idea

Most importantly, besides reading great books, understanding yourself and your strengths, and knowing how a business makes and loses money, you need to:

Draw up a business plan. Not many new businesses go through this process unless they are getting a loan or looking for funding. However, if you can’t explain the ins and outs of your business to yourself, how will you ever be able to explain it to other people? The Small Business Administration has a great outline of How to Write a Business Plan. This process also requires you to look at things like competition, marketing plans, income projections, etc. and gather all your documents in one place. (There may be lots of excuses to avoid writing a business plan, but it’s never a bad idea to articulate how you think you are going to make money and when you hope things will become profitable.)

I’ve drawn up business plans for my family and for my podcast/blog projects from time to time, because the structure provides me with an opportunity to really think about what I am doing, why, and outline strategy to move the project forward, even when that strategy is not necessarily all about profit.

Jut remember, families are also small businesses, and you need to manage them like a business in order to get ahead, and that includes saving for the rainy day and inevitable problems and unexpected expenses that pop up. Whether it’s paying for Prom Night at home, or a worker’s comp claim at work, the unanticipated costs or events can be what tips the balance between the red and black ink.

See? Managing Business and family isn’t so hard, after all, if you realize the skill set is the same for both.

*For convenience, I’ve linked this to my Amazon affiliate store- if you look under the link for Business/New Media, you’ll find all these books and more.

Tags: business, business plan, economics, management, marcus buckingham, matt mason, rob walker, SBA, seth godin

Are High Interest Rates Bad?

Here’s a thought- cheap money is not always a good thing.

Today, one of the major financial houses on Wall Street, Lehman Brothers, filed for Chapter 11 bankruptcy.  Not a good thing.  And, it’s a result of the housing crisis as well.

Let’s turn the clock back a few years.  Interest rates were at about 12%.  People had bought homes, but were in foreclosure, because they could not keep up with the payments.  They bought property on variable interest rate products, and as rates increased, they ended up owing more than the property was worth, and they lost these homes and investment properties because they simply could not afford them.  A lawyer I worked for before I went to law school owned many of these properties with his friends, and rented them out.  When interest rates went down, he refinanced or sold many of them, making a nice profit for himself and his friends.

This is what happens when interest rates are high.

When interest rates are so low there is essentially no interest, where can you invest your money?

When the same sort of housing boom and bust happened when interest rates were at historic lows, there’s no way to flex.  You can’t have negative interest…. then you are paying people to take money from you- not a really good idea.

At high interest rates, there was still some flexibility in the market.  Rates could go down.  You could play with rates and things would remain pretyy stable.  Now that interest rates are so low, there’s no give left in this lever to controll our economy, other than to jack up rates.

If interest rates go up, people swimming in debt will get seriously hurt.  If interest rates go up, people will also have to be more fiscally responsible, and the necessity and incentive to save will also go up accordingly.

Interest is merely the “price” of money.  When gas prices went up, people had to adjust their budgets and behavior to accomodate for this price hike.  Likewise, a raise in interest rates long ago would have avoided some of this silly housing crisis, and have made both borrowers and lenders more cautious with their money.  Instead, people have been spending money like drunken sailors in a new port of call, whether they had any or not.

As painful as it will be, the only way I see out of this financial mess is a gradual, even clockwork raise in interest rates, giving people the ability to prepare and adjust for the coming changes.  Oh, and a nice helping of economics and finance in our highschools would be nice, too.

What do you think?

Tags: business, fix, housing crisis, interest, lehman brothers, possible solutions

Being Smart With Money

One of the things I think we do REALLY poorly in this country is teaching our kids how money works. I didn’t get a course in economics until college, but most of the best lessons I learned about money were through various jobs. One was working as a customer service rep for Citibank Student Loans during college, as a summer job. Another was working for a law firm that did a large amount of collections. If you want to see what happens to people and the bad choices they make, look at someone who is getting a home foreclosed, evicted from an apartment, or having various possessions seized for not paying their bills.

Since I know many people starting small businesses, I thought I would lay out some of the basics of money and business I’ve learned over the years, hoping it can help you avoid learning some painful lessons.

1. If you can’t pay for it in cash, now or in the next month, don’t charge it.
People get into trouble with credit all the time, because whipping out a plastic card doesn’t “feel” like paying for something. This is why I make my kids pay for things in cash, or immediately on returning to the house, pay me in cash for whatever I have “fronted” for them at the store. Anything you don’t feel the pain for at the moment of purchase is likely to be forgotten, and then it’s easy to end up with a surprising and overwhelming credit card bill at the end of the month.

Secondly on this point, the interest charged by credit card companies is enormous. It would be usury, except most credit card companies have located themselves in states like Delaware and South Dakota where there are virtually no caps on the interest that can be charged on consumer loans.

If you need help getting this under control, remind yourself that taking anything from a store without paying for it would be stealing. Also consider how many months it would take you to pay off said item, add the interest you pay on your credit card to the purchase price, and decide then and there, whether that price is such a bargain.

2. Understand how Companies Calculate Interest, and How Your Payment is Applied.
When you send in a mortgage payment, loan payment, or credit card payment, the interest balance gets paid off first, and whatever is left over gets applied to the principal. So if you want to reduce you debt the fastest way possible, consider doubling up payments on that student loan, for example, or tossing a little more money towards your mortgage every month. All that extra money goes directly against the principal, meaning the interest charge is less in the long run (it’s being calculated against the principal owed each month) and you make faster progress paying off that loan.

We used this process to accelerate the pay off of our student loans. Between my husband and myself, we had about $40,000 worth of loans for college and graduate school. By doing this for one loan at a time, we gradually managed to have more monthly money to then pay down the next loan, with the process leading to paying off the loans within three years rather than 10. we are currently planning to start the same process to keep our mortgage balance decreasing at an expedited rate as well.

3. Understand What You Need and What You Want (and how to tell the difference).
I do like nice things, like Coach handbags. The leather ones are pretty attractive and very well made. But I frequently get items like these from consignment shops and ebay- gently used items in good condition. I can have the luxury goods I want at a fraction of the price. And spending $40 for a bag that may have originally cost someone $250 or more works for me- I get what I want, for a fraction of the price. And even if I want a “new one”, I make sure I save up for it- a few dollars each week in the “mad money” jar. Surprisingly, even when I reach the goal, I have a hard time converting that money into one item, and I rethink the purchase, avoiding buyer’s remorse in the meantime. When I do buy it, I feel it’s well earned and value the subsequent purchase more than I might have had I just whipped out the credit card at the time.

Do I need a fancy handbag? Maybe, but unlikely- it may help me feel polished at client meetings, but mostly it’s utilitarian. I may want one, but other bags can fill the need just as well. So if you can merge the want and need and find a cheaper alternative to the want part, you win on both fronts. You get a want and need satisfied.

4. Understanding Necessity.
People get this one wrong all the time. I once had to evict a college student out of an apartment when they were three months behind on the rent. Instead, they were paying credit card bills, the electric, etc. Well, the credit card company will not give you a roof over your head. Having paid the electric won’t help you much if you can’t live in the place where the electric is turned on. So you need to prioritize your spending, big and small. Priorities should be Food & shelter, then other items on the list.

a) Having a roof over your head. Pay the rent and mortgage first. Without a roof over your head, then you have no where to put the other stuff you might want to buy. Owning a house or condo rather than renting means those monthly payments are giving you an ownership interest in your home, so to speak- it’s investing money you may get a return on in the future, as well as the privilege of living in a place. So when you get ready to move, you get money you can use towards buying your next place to live, rather than having to save up for first, last and security on a new rental somewhere.
b) Next, pay utilities. You need electric, gas, water, etc. they make your home livable. Not optional expenses.
c) Food and clothing. Buy reasonable groceries- you can eat at home for less than you can eat out. You need to be able to buy clothes for work, but consider things that don’t cost you after the purchase, such as things that you can launder at home versus dry cleaning, which is expensive.
d) health insurance. If you have kids, you need health insurance. No way around this one. That next snotty nose could cost you big time.
e) Cash flow and Income Stream.
Before you quit your comfy job because you are bored or want to try something new, make sure you have a way to afford health insurance. I would rather moonlight on a new project and be tired than give up something that is guaranteed to pay the bills. You have got to make sure all the basics are covered, month after month, before you can even consider moving to a job with a more speculative income stream. Being your own boss seems like a great thing, but if you get sick, you can’t work and there’s no money coming in. And bad things happen.

In addition, the escalating costs for fuel and its downstream effect on food and consumer goods means everyone’s budget is in flux. Your budget may not be constant now, and you need to have some “play” in your cash flow to be able to compensate for this moving target. Without a savings cushion, or enough room in your budget to allow for “cost over-runs”, you will quickly find yourself in deep doo-doo.

The deep, dark secret about money is that it is a tool. When you have more of it, it actually becomes harder to make financial errors- you get preferential treatment at the bank, over-draft protection, and the like. When you don’t, you get nailed for a ridiculous amount of added costs penalizing you for not handling your money well- bounced check fees, higher interest rates, etc.

You can’t afford not to understand how money works. Little mistakes will cost you financially, and put your road towards security in jeopardy. Understanding money, budget priorities, and how to get ahead will make it infinitely easier to do.

Take it from someone who used to have to collect money from people, or find legal ways to make them pay what they owed. You can’t avoid the debt collector forever- and if you manage things well, you’ll never have to talk to one of these people ever.

Tags: business, economics, planning, priorities