Business Banking E-Newsletter - December 2011

The Best Year-End Strategy May be to Invest by the Book

It has been a textbook year. That is, if your textbook is the Stock Trader’s Almanac. The old stock market chestnut “sell in May and go away” proved to be good advice this year. But that was not the only old adage of Wall Street traders that worked in 2011 — they all worked.

This has been the year of the stock market cliché in that all of the time-worn axioms based on the calendar actually were worth following this year:

  • The “January effect” (the market tends to rise in January attributed to individual investors putting money to work after taking tax losses in December) worked this year as the S&P 500 posted a 2.3% gain in January. The “January barometer” (stock gains in January often lead to a gain for the year) and the overlapping “first five days” indicator (stocks rising during the first five days of the year indicate a high probability for a gain for the year) have both proven accurate, so far.
  • “Sell in May and go away” (suggests investors sell and avoid the summer months) worked with stocks peaking for the year on April 29.
  • October, the “bear killer” month (stock market downturns famously end and reverse in the month of October), ended the 19% peak-to-trough stock market decline with stocks bottoming for the year on October 3.

If this “year of the market axiom” pattern continues, what comes next? Perhaps a “Santa Claus rally” is in store for December. Markets must still move past the uncertainty of November that includes key policy events:

  • Government transitions in Europe.
  • Action by Congress to avoid a government shutdown.
  • The Super Committee proposals to find $1.5 trillion in deficit reduction measures.

But then a year-end "Santa Claus rally" may cap off a volatile year of modest single-digit returns for stock market investors.

What may be the trigger for the textbook year-end rise in the market known as a "Santa Claus rally?"

  • A rebound in investor sentiment as Europe takes long overdue actions to avoid a financial crisis.
  • Improvement in the job market as foreshadowed by the recent decline in initial jobless claims below the 400,000 level in recent weeks.

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The Five Habits of Highly Innovative Leaders

Forbe’s is proud to be publishing the first appearance of the World’s 100 Most Innovative Companies, a ranking that they hope to make an annual (maybe even quarterly) event highlighting the companies that investors believe to be the best at achieving consistent and profitable innovation.

The list and its methodology is the result of years of research on corporate innovation, encapsulated in the new book, The Innovators DNA, by professors Clayton Christensen (Harvard Business School), Jeffrey Dyer (Marriott School of Management at Brigham Young University) and Hal Gregersen (INSEAD).

The great insight from their work is that innovation is well within the reach of mere mortals not named Steve Jobs or Jeff Bezos. Successful innovation requires the right culture but new or incumbent leaders frustrated with a slow pace of innovation can start making change happen by behaving differently. It takes work, and may require some retraining, but the authors’ point is that anyone can innovate if they follow the five skills of disruptive innovators. They are:

  1. Questioning: which allows innovators to challenge the status quo and consider new possibilities. Example: Howard Schultz of Starbucks and Pradeep Sindhu of Juniper Networks.

  2. Observing: which helps innovators detect small behavioral details in the activities of customers, suppliers, and other companies – that suggest new ways of doing things. Examples: Rakesh Kapoor of Reckitt Benckiser and Jean-Paul Agon of L’Oreal.

  3. Networking: which permits innovators to gain radically different perspectives from individuals with diverse backgrounds. Example: Marc Benioff of Salesforce.

  4. Experimenting: which prompts innovators to relentlessly try out new experiences, take things apart, and test new ideas. Example: Bobby Kotick from Activision Blizzard.

  5. Associational Thinking: drawing connections between questions, problems, or ideas from unrelated fields is triggered by questioning, observing, networking, and experimenting and is the catalyst for creativity. Example: Natura Cosmeticos, the “Avon of Brazil,” which uses such cross-disciplinary teams to dream up new personal care products.

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How Small Retailers Stand Out for Holiday Shopping

Holiday retail projections are upbeat, but what's a small business to do with competition from deep-discounting big-box stores and consumers who are focused on seizing deals? 

The National Retail Federation expects retail sales to increase 2.8 percent this year. Both ShopperTrak and IBIS World forecast holiday sales to increase over last year by roughly 3 percent, and a Purdue University survey predicts holiday shopping to rise 4 percent this year.

While consumer spending is expected to grow this year, the predictions for the 2011 holiday season fall shy of last year's growth. And the stakes are always higher for small businesses, which don't have as much flexibility as mass retailers to discount. On top of that, holiday sales typically comprise about 20 to 30 percent of a small business's annual sales, says NRF spokesperson Kathy Grannis.

While the entrepreneurs populating Main Streets certainly hope for a sales boost in the November and December months (including the power-shopping days of Black Friday and Cyber Monday), they're cautious. Sixty-two percent of those surveyed by Manta say sales figures so far this year are down or flat compared to last year; more than half are similarly or less optimistic about holiday sales than last year.

Indeed small-businesses owners interviewed by are setting out to distinguish themselves on factors other than price like customer service and experiences, high-quality products, and creative outreach.

"How am I going to compete with the Macy's or Bloomingdales on prices? It's not possible. So we compete on quality and value," says Oren Bloostein, owner of New York City-based specialty coffee chain Oren's Daily Roast. I'm actually seeing that customers want more for their money when it comes to gifts, so I'm hopeful. "Bloostein, who sells specialty coffee-based gift items during the holidays, says that the unpredictable-but-mostly-sluggish economy this year has put his business in a precarious position going into the holiday season."I've had to raise prices this year because of a volatile coffee market. The terrible, rainy weather made for a really bad October, and a college closing near one of my shops meant an entire customer base was lost," he says. "I have to be really careful about inventory this year. I don't want to be left with a bunch of overstock come January."

Although consumer holiday spending last year exceeded expectations, this season's estimates barely are an increase when inflation is considered. Darryl Peck, owner of Georgia-based Apple retail chain PeachMac, says he's also expecting a modest boost from the holiday rush—but nothing like last year."Holiday sales don't even make up 20 percent of our annual sales," he says. "We are also really dependent on product cycles. Like last year, it was the iPad, so that sold like hot cakes. Macs always sell well, but this season might be different." With electronics sales making up a large part of the holiday retail, Peck says he competes with the Apple "mothership" stores by making personalized connecting with his customers. “We don't do discounts. So we have special offers that we advertise in newspapers, direct mail, e-mail, and online," he says, adding that Black Friday is a really big day for foot traffic in his stores.

Other small shops simply can't keep up with bigger stores. Bloostein says that his small storefronts "can't compete with the Black Friday deals of the bigger stores." And Marco Murillo, owner of a Portland-based eco-friendly electronic accessories maker The Good Flock, also says his holiday sales simply can't be based on massive discounts the way big-box retailers can."Our customers are expecting high quality, and that simply costs more, but it's part of our brand," he says."Last year was our first holiday and we did okay, but learned a lot."

Selling gift-ready items like laptop covers and phone cases, Murillo says he's found one way this year to get a slice of big chains' business: good public relations."We got into the magazine and blog gift guides early this year, and it really paid off," he says, adding he's seen a jump in orders already. In the last year, Murillo's new business has cultivated a following of eco-conscious consumers that are loyal to the brand—and he plans to use that to his advantage.

Small businesses are also capitalizing on, well, what they've always been good at: outstanding personalized customer service."I think it's an advantage that [small businesses] have over the other guys: direct relationships with customers. Believe it or not, people appreciate that these days," Murillo says.


How to Make Employee Training a Winning Investment

When Javier Muchado joined Gentle Giant Moving Company in 2004, he thought he would be there for a few months and then move on. But Larry O'Toole and John "J.P." Pacocha, the Somerville, Mass.-based company's owners, had other ideas. They observed Muchado on a few jobs and recognized that he was physically strong and smart, a winning combo for a business that requires equal measures of muscle, troubleshooting ability and people skills.

Muchado, who sailed through the company's two-day training period, which focuses on basic moving skills, easily could have gotten stuck in a basic role. With his quiet demeanor and shy nature, he was often the "silent helper" on jobs and was reluctant to take a bigger role in the company. "I wanted to do small jobs, not big jobs. I was always afraid of driving [the bigger] trucks," he says.

However, with the encouragement of the company’s management and some one-on-one training, Muchado began to overcome his fears, and when a co-worker was injured, he nervously stepped in to oversee the job. Since then, Muchado has taken on increasingly larger roles and received several promotions, moving from a strong, silent helper to a sought-after driver, crew chief and trainer.

Gentle Giant's training program wasn't always sophisticated; formalizing and developing it has been key to the company's success, O'Toole says. In the early years of the company (founded in 1980), O'Toole trained everyone himself. However, by 1998, Gentle Giant was hiring as many as 50 seasonal employees. At that point, Pacocha says, the company needed a more structured approach. A full-time director of training was hired and a formal, two-day, hands-on introductory session was created to teach new "Giants" how to meet the company's quality standards.

That devotion is unusual for small businesses, which often look at training as an optional expense, says Rick Conlow, co-author of SuperSTAR Leadership Model and co-founder of WCW Partners, a Minneapolis-based sales, leadership, customer service and training firm.

The American Society for Training & Development (ASTD) has found that companies with fewer than 500 employees devote fewer training hours per employee than do larger companies, and they spend more per employee. That's because it's hard for small companies to avail themselves of some of the large-scale training options, such as bringing outside trainers on-site, says Pat Galagan, executive editor of the nonprofit membership association. However, smaller businesses should make training a priority, she says: "Because of all the turmoil from the recession, new demographics in the work force and the influence of technology, it has created a climate where ability and innovation are extremely important for companies to grow and thrive. That means acquiring skills in those areas."

Training comes in many forms. Beth Goldstein, an adjunct professor at Boston University and founder of Holliston, Mass.-based Marketing Edge Consulting Group, consults with small businesses that are trying to grow and runs training programs throughout the U.S. She says choosing the right program depends on the resources of the business and the type of training required: If your aim is to solve a very general problem or something that can be mastered in a classroom setting with interaction, it may be a good choice to go to a respected off-site training program; however, depending on the number of people being trained, it may be more cost-effective to bring a trainer on-site. Many training programs offer that option for larger groups.

Ready to get the most out of your employees? Start by teaching them right.

  • Pinpoint sectors that will most benefit from a training program. Spot specific areas of your business in which training will help to produce revenue, increase productivity or reduce inefficiency, says Rick Conlow, co-author of SuperSTAR Leadership Model.

  • Define your metrics. Before putting a program in place, outline your version of success, says Boston University adjunct professor and consultant Beth Goldstein. Be specific about what you want to achieve, whether it's a 5 percent increase in sales or a 10 percent improvement in your customer satisfaction score.

  • Look for a hands-on approach and follow-up elements. The most effective programs include role-playing or other interactive components in which trainees are "experiencing" while they learn. That's the best way to make the information stick, Conlow says. Make sure your employees, once trained, have access to follow-up information and tutelage.

  • Share the wealth. When employees return from external training, have them engage in some form of show and tell to get more mileage out of your training dollars, Goldstein suggests. This could take the form of a presentation, video or other format.

  • Go beyond 101. Advanced training in leadership and management skills can groom promising individuals for senior posts within your business, which will save you the time and expense of recruiting people from the outside who may not fit into the company culture.

At IT consulting firm Digineer in Plymouth, Minn., founder and CEO Michael Lacey instituted a peer-to-peer training program, Digi-U, to allow employees who are particularly knowledgeable or enthusiastic about a topic to share it with their colleagues. Digi-U also provides a platform for employees who have received external training to take their newfound knowledge and pass it on to others in the firm, extending the value of each external training investment. One recent Digi-U program on project management was so successful that two follow-up sessions were held. What's more, Digineer reimburses employees for certain external training programs and offers two weeks paid time off to attend.

San Francisco-based, an online consumer marketplace for local services, has routinely added 10 new employees in the Philippines each month for the past year, for a current total of 120. Company founders Sander Daniels, Jonathon Swanson and Marco Zappacosta developed an in-house training program in late 2010. "We saw that with each new hire, we had to repeat the same basics about our company. So, we spent two weeks putting together about 12 training documents and a dozen training videos that review every aspect of our business," Daniels says. While the training program varies by job, once Thumbtack's new hires review the documents and YouTube-hosted videos, which Daniels says cover employment policies and business operations, they move on to a breaking-in period of two to four weeks, during which they work on the easiest tasks associated with their jobs and receive regular feedback from supervisors. After that, managers engage in ongoing training, providing weekly feedback and access to "knowledge databases" with answers to frequently asked questions and information about best practices. Some staffers in the Philippines have weekly Skype calls with the San Francisco team to review their progress.

Videos, webinars and the like can be appropriate for disseminating introductory-level information, author Conlow says. But, he adds, the most effective training programs have the kind of backup that Daniels describes, which reinforces the concepts and allows for personalized support if an employee isn't immediately "getting it." Of course, it's not always as simple as, "Train them and you will earn." ASTD's Galagan advises against "sheep dipping,” offering management or project-development training to absolutely everyone. Conlow agrees that training should be specifically focused. "You have to be a student of the game and know your business," he says. "What are the areas where you're weak? What areas would improve productivity or sales? Where are you losing money and how can you improve that? Those are the questions you need to ask yourself." When developing an in-house program, it may be a good idea to work with a training professional to identify the best format for your employees to learn, he adds.

Effective training can offer significant bottom-line benefits. Daniels estimates that Thumbtack's program is worth approximately $10,000 per month in time saved. At Digineer, Lacey has found that investing in training has increased sales: One entry-level employee who took advantage of the company's paid-time-off and reimbursement programs to earn additional certifications increased his billing rate from $125 per hour to $175 per hour, resulting in about $100,000 of additional annual revenue for the firm.

Gentle Giant's team has found several areas of savings. The company estimates that an efficiency program that trained crew chiefs and managers to spot and reduce "white slips,” time on a job that was not billable to the customer, such as truck preparation or transit--has saved more than $100,000. Another important area of return has been in employee retention. Pacocha says turnover hovers around 6 percent per year, which the team credits to its robust training programs that support planned growth opportunities. "We've saved about a half-million dollars by not having to replace people and being able to promote our own people into new roles instead of recruiting," he says.

For employees like Muchado, the benefits go far beyond the business. He says the training he received at Gentle Giant has changed many aspects of his life. "I've always been afraid to interact with people, but because of the training I have more confidence. It's helped me improve myself," he says. "I don't think I could ever leave here. I love the culture and the opportunities I have."

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The ABC’s of Business Credit

As an entrepreneur, did you know you have a unique opportunity to build, maintain and acquire credit both individually and as a business owner? That's good news if you're trying to build and grow a company because you won't have to rely solely on your personal credit to do that.

So let's first take a look at how personal credit differs from business credit. Then we'll discuss some steps you can take to build your business credit.

Personal vs. Business Credit

At the point an individual with a social security number accepts their first job or applies for their first credit card, a credit profile is started with the personal credit reporting agencies. This profile, otherwise known as a credit report, is added to with every credit inquiry, credit application submitted, change of address and job change. The information is typically reported to the credit bureaus by those who are issuing credit. Eventually, the credit report becomes a statement of an individual's ability to pay back a debt. In some cases, the same is true for businesses. When a business issues another business credit, it's referred to as trade credit. Trade, or business, credit is the single largest source of lending in the world.

Information about trade credit transactions is gathered by the business credit bureaus to create your business credit report using your business name, address and federal tax identification number (FIN), also known as an employer identification number (EIN), which you get from the IRS. The business credit bureaus use this compiled data to generate a report about your company's business credit transactions. In many cases, those issuing credit to you will rely on your business credit report to determine if they want to grant you credit and how much credit they'll give.

The major business credit bureaus that compile and provide copies of the reports are:

  • Dun & Bradstreet

  • Experian Business

  • Equifax Business

  • Business Credit USA

Unfortunately, because the information provided to the business credit bureaus is sent in voluntarily, no business is required to send it in; the credit bureaus may never receive all or even any information about your business credit transactions. In fact, you could go for years racking up business credit without any of it being reported to the credit bureaus.

Establishing Business Credit

Let's start by talking about your business credit score. Business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating. Personal credit scores, on the other hand, range from 300 to 850 with a score of 680 or higher considered excellent.

It's important to note that there are many factors that affect a credit score; it's based on more than just whether you pay your bills on time. Your score can be affected by the amount of available credit you have on bank lines of credit and credit cards, the length of time you've had a credit profile, the number of inquiries made on your credit profile and more.

The mistake many business owners make is using their personal information to apply for business credit, leases and loans. By doing so, they risk having a lower personal credit score. Why is that? The average consumer credit report gets just one inquiry per year and has 11 credit obligations, typically broken down as 7 credit cards and 4 installment loans. Business owners are not your average consumer, however, because they carry both personal and business credit. This typically doubles the number of inquiries made to their personal credit profile and the number of credit obligations they carry at any given time, all of which negatively impact their personal credit score. And because business inquiries and personal inquiries aren't separated on their personal credit report, the scores, again, is negatively affected. At the same time, by using their personal credit history to get business credit, they're not able to build their business score, which could help them attain critical business credit in the future.

The key to establishing a business credit profile and score is to find companies that will establish credit for your business without using your personal credit information and then report the payment experiences to the business credit bureaus. By reporting the information to the proper agencies, they'll help you establish your business credit profile.

The following are the basic steps you need to take to establish your business credit profile and score:

  1. Form a corporation or LLC to operate your business under and obtain an FIN or EIN from the IRS. You can apply for an EIN number at the IRS website.

  2. Register your company with the business credit bureaus.

  3. Comply with the business credit market requirements. It's extremely important for businesses to meet all the requirements of the credit market in order to ensure a higher likelihood of credit approval. In fact, not being in compliance with the credit market can raise red flags with both credit bureaus and grantors. The red flags include such simple things as not having a business license or a phone line. Most businesses will not grant credit to another business that hasn't taken the steps to set the company up with the proper licenses and local, state, and federal requirements. You can research the list of business credit market requirements at

  4. Prepare financial statements and a professional business plan. These documents are often required by many credit grantors.

  5. Find companies willing to grant credit to your business without a personal credit check or guarantee.

  6. Manage your debt so you don't fall into trouble making your payments, which will negatively affect your credit score.

  7. Make monthly payments to credit grantors to keep your business credit profile active.

At some point, almost every business needs some type of credit. To avoid having to use your personal credit history or guarantees and to obtain the best possible terms, start the steps necessary to build a business credit profile now before you really need it.

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