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Leveraged Capital Newsletter            JAN 2002
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The Leveraged Capital Newsletter, sponsored by Graham Financial Corporation (http://www.GrahamFinancial.com), is a free monthly newsletter that presents growth 
and strategy issues effecting entrepreneurs and owners of small to medium sized companies.

You are receiving this newsletter because you have requested that we send you our monthly editions.   We do not believe in "spaming" anyone.  Your time is valuable and if you have received this newsletter in error, please let us know.  If you do not want to continue to receive Leveraged Capital please see our unsubscribe instructions at the bottom of this edition.

To subscribe mail to:     subscribe@grahamfinancial.com with the word "subscribe" in the subject field.
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As usual, I look forward to January each year with much anticipation for what the year will have in store professionally and personally.  I have this anticipation even in the light of Enron melt-downs (human nature rears it’s ugly head again), Ford Plant shut-downs (memo to board - here’s an idea, let’s offer 0% financing), Arthur Anderson put-downs (dad always said, if you can’t trust your accountant, who can you trust), and Argentinean what-else-can-go-downs (Anque questa passer a).  Interest rates have fallen yet again with dueling currencies across our borders.  Our dollar loses, our manufacturers gain.  All this in the past 15 days! My, what a start to the year.

That being said, we are seeing some tremendous opportunities for growth this year across many sectors.  We hope to reflect this optimism in this month’s edition and in the coming months articles.  I wish much success to all of you this coming year. 

DPG.

In this months  issue:

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Quote Of the Month:
"When you are not practicing, remember, someone somewhere is practicing, and when you meet him he will win."
Ed Macauley, NBA Player and Coach; youngest player drafted into Hall of Fame at 32; 
MVP first all star game 1951

Investment Hindsight:
"It was my fault because I didn't ask the "why" questions I normally did." - on Joseph Jett's fraudulent  $350 million phantom trades at Kidder Peabody in 1993 (Jett received a $9 million  cash bonus and was named KP's man of the year prior to the revelation of the fraud).
  Jack Welch – Straight From The Gut.

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Welcome to the Leveraged Capital Newsletter. 

Our goal is to provide you with timely and informative articles about growth and strategy issues effecting entrepreneurs and small to medium sized companies.   Each month Leveraged Capital will deal with issues affecting your business.  You will be able to read topics ranging from finance, human resources, buying companies, selling your company, and technology.   In coming months you will read profiles about other entrepreneurs and current decision makers.  We will keep timely content levels high, advertising content low, and welcome your feedback.

Are you interested in contributing articles?  Or, do you have an interesting and unique story to tell about your company?  We would like to interview you.
Please contact us by Email at:   editor@GrahamFinancial.com

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Development Authorities in Georgia – Your Partners in Site Selection.  
By Peggy Jolley, Senior Vice President Savannah Economic Development Authority.

Canada and the State of Georgia have a long history of international commerce.  Canadian capital investment in Georgia now exceeds $2 billion US.  In addition, Canada ranks as the #1 importer of goods from Georgia with over $3 billion US of products shipped from Georgia to Canada last year.  These numbers infer that more capital investment is likely and partnerships in the state could facilitate the grueling process of site and/or facility selection you might undertake.

Local economic development authorities (EDAs) are an excellent source from which to seek out the assistance you will need.

EDAs were given powers to issue revenue bonds, also known as revenue certificates, by the state legislature in 1963.  This low interest method of financing projects attracts companies investing in manufacturing projects, which qualify for the tax-exempt bonds.  While slightly higher rates are incurred by using taxable bonds for non-manufacturing projects, they still offer very competitive rates and allow companies to take advantage of additional incentives from the local jurisdictions. 

Most all of the 159 counties in Georgia have at least one authority staffed either separately or by the local government entity under which it was created.  Those created constitutionally or by legislation prior to 1963 tend to have a broader range of powers and can offer an investor additional benefits, i.e. incentives, for locating within their jurisdiction.  For instance the Savannah Economic Development Authority can legally hold title to and abate property taxes on industrial investments for a period of time, thereby lowering the start-up costs incurred by the company.   This power over-rides the Georgia non-gratuity statute disallowing gifts and gratuities granted to private entities.  Lease agreements are drawn to hold the title for incentive (and tax-exempt status) purposes with the EDA.  The company maintains all other benefits of ownership including depreciation.

Projects which fall under the EDA jurisdiction include:  sewer and solid waste facilities, utility plants (gas, electric and water), sports, convention and hotel facilities, industrial parks and office buildings, as well as nursing home facilities.

All EDAs have a defined territory, which usually is the county in which it was established.  However, recent encouragement from the state for regional cooperation generated the development of multi-county authorities.  For the first time in Georgia, we are seeing multi-jurisdictional developments undertaken such as industrial parks and installation of telecom/fiber systems.

Now that you have a basic understanding of what an authority is, you might ask, who manages it?

Each EDA is required to have a Board of Directors.  The membership of these boards varies greatly.  Some authorities self-appoint directors, some are political appointees, a few are privately funded and typically are directed by personal interests.  A couple have only one appointed member!  Those made up of political appointees sometimes bear the ramifications of politics; i.e. preferential site recommendations and public exposure. 

Directors usually serve rotating terms of office.  During their tenure they review proposals made by prospects looking to locate in the best possible area in order to maintain profitable, growing businesses.  While most authorities do not have the financial wherewithal to issue the bond using their credit, they do have to approve facilitation of the bond through the authority. 

In rare cases, such as with the Savannah Economic Development Authority (SEDA), the authority is autonomous.    This allows our management and Board of Directors to make decisions quickly, confidentially, and professionally.  We act as the client advocate in the community.  In essence, we operate similar to a private business, reporting to directors interested in one thing – creating jobs and investment in the county.

In most cases, paid staff take on the day-to-day operations of the authority.  These people are critical to someone searching for a location!  Professional, confidential assistance, with not only the site/facility identification, financing, labor surveys and legal expertise, but also good connections with state and local officials are worth their weight in gold.  Much time can be saved by using their database of information.  They are the best, most accurate source for local demographics, utility information, taxes, incentives, etc.  Their recommendation to proceed with the project will most times be heeded by the Board of Directors.  Professional designations, such as Certified Economic Developer (CED or CEcD), denote that continuing education is a priority and they possess the quality leadership on which you can rely.

This assistance does not stop with an announcement to locate in the community.  Future expansions, political connections, permitting, etc, are typical ways the staff will help a company succeed.  Our worst fear is that the company won’t make it and we see a reverse of the job/investment creation occur. 

The best authorities strive to maintain on-going communications with our local companies in order to anticipate and respond to their needs.  It is a win-win situation for all of us to keep our companies prospering. 

So, what is the typical scenario for your site/facility search? 

1. Get on the web and search for locales fitting the parameters of your needs, i.e. transportation of goods, services and people, proximity to suppliers, adequate labor supplies and quality of life for your employees/managers.
2. Narrow down to about ten the communities from which you want more information.
3. Make contact with the appropriate person at the EDA and ask for detailed information.  Be prepared to give them as much information as possible so the data you receive is useful.  Timely responses should be expected (at SEDA we try to respond no later than 48 hours from receipt of the request).
4. Narrow down to five communities and plan a visit.  This can be arranged directly with the EDAs if in different states or for multiple communities in GA,  you can contact the GA Department of Industry, Trade and Tourism.
5. Visit and decide your first and second choices for location and negotiate a package.  This should include a signed Memorandum of Understanding (MOU) outlining the commitments made by you to the community in order for the community to access state and federal grants.  It will also document  those commitments made to the company by the local and state agencies negotiating the deal.  
6. Work with the selected community/EDA to make your move as smooth as possible.  This includes utility contacts, permitting, suggestions of contractors and service providers, and relocation services.
7. Use the EDA to coordinate a press announcement.
8. Continue to maintain contact with the EDA and respond to their survey requests, which let them know of your current concerns and plans.  This also helps them know what programs might be applicable to your needs or what assistance the community could give you in order for you to operate more efficiently.

This process was used in 2000 by the Dollar Tree Corporation.   Their first visit to Savannah was in August.  After careful evaluation of four cities meeting their initial criteria, they selected a site in SEDA’s Crossroads Business Park and made the formal announcement in late December of 2000.  Our facilitation allowed them to break ground in mid-January, 2001, and they were in operation in a new 600,000 square foot facility with trained employees in October of that same year!  Without our partnership, the process would have taken much longer and been more costly to the company. 

I, or any of my colleagues, would be happy to answer questions you might have about working with EDAs.  We offer expedient, efficient and low cost assistance in an otherwise hectic process.

Peggy Jolley is Senior Vice President of the Savannah Economic Development Authority (SEDA) and she has thirteen years of professional economic development experience in the State Of Georgia.  Peggy was named to one of the top ten development groups in America in 1998, and has successful collaborated on projects creating 9500 jobs and over 1.3 billion dollars in investments during her time at SEDA and the GDITT.  Representative projects are JCB, Rhone Merieux, Pitney Bowes, Home Depot, Dollar Tree and Caterpillar.

For More Information Contact:  
Peggy Jolley, Sr. Vice President Savannah Economic Development Authority
Voice:  912-447-8450 Fax:  912-447-8455 
Email:  pegjolley@seda.org   Web:  www.SEDA.com

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Ten Secrets for Successful E-Service.
by Greg Gianforte, CEO RightNow^® Technologies

Executive Summary
The Web is a great place to do customer service. It's where people go to find answers fast. It provides a way for customers to navigate their way through lots of content to find the particular piece of information they need. It's open seven days a weeks, 24 hours a day. In fact, according to industry observers, Web-based customer service (also known as "eService") is one of the biggest business opportunities on the Web.

Unfortunately, most companies fail to effectively exploit the Web's full potential as a customer service vehicle. Some fail because they don't recognize just how powerful of a business tool eService can be. Some fail because they're slow to respond to customer needs. Others fail because they never develop a practical process for capturing the information their customers want and quickly getting it onto their site—or they fail to keep such information properly updated. Others leave out some of the key functions that make eService really "click"—such as store locators or remote Web session control.

There is a cost for such failure. Companies that don't develop effective eService wind up spending far more on customer support than their competitors—as much as 20 times more per incident. That's because, without effective eService, companies must rely on their over-burdened, high-cost call centers to answer even the most routine and repetitive customer inquiries. Companies with poor eService also lose customers, since Web users get frustrated quickly and head elsewhere.

eService is a great way to habituate customers to using your Web site, thereby creating other opportunities to lower transaction costs, execute cross- and up-selling strategies, and otherwise leverage the Internet as a business tool. And, because it's so scalable, eService offers an extremely cost-effective solution for dealing with the inevitable peaks and valleys in your service incident volume. That's why eService has become such a hot topic for business and technology managers alike.

This white paper distills the experience and best practices of successful eService implementers from a wide range of industries. It also provides a simple test for determining your company's eService Quotient, or "EQ." With this insider information, you'll be able to plan and implement your own eService strategy - and join the ranks of successful eService pioneers who have significantly lowered their per-incident customer support costs while consistently delighting their customers and strengthening their Internet presence.

Why eService?
As it becomes increasingly popular and well traveled, the Web is rapidly changing. Just a few short years ago, it was enough for a business to put up a site that had a modest amount of information on its products or services, with a phone number to contact if the visitor wanted to order something or ask questions. This static "brochureware" content treated the Web as an online Yellow Pages, where the main idea was to make sure you were properly listed.

Things have really changed. Now, the Web is an intensively interactive medium and an online extension of the business itself. Companies use the Web to buy, sell, recruit staff, solicit bids and make referrals. It's also a great place to support customers and forge closer relationships with them.

That means it's also a great place to lose customers, too.

How do you lose customers on the Web? The same way you lose them in the "real" world: you don't respond to their needs. Unfortunately, many executives who would have a heart attack if their sales and service staffs were unresponsive or ignorant about the company's products don't show the same concern about having an unresponsive or ignorant Web site. Their Web sites can't answer customers' questions. They take too long to reply to customer emails—or they fail to reply at all.

Keep in mind that a fundamental aspect of the Web's appeal is the immediate gratification it offers. When someone comes to your Web site, they want to quickly find the information they need to make a buying decision or solve a problem. So Web visitors are very sensitive to delays. It may be only a matter of seconds before a visitor gives up his or her search, and tries looking elsewhere.

This puts tremendous pressure on the two groups who develop Web content: marketing and customer service. They must somehow anticipate the possible needs of all types of visitors, from clueless newcomers to long-time customers. This is clearly a tough job, and in today's resource-constrained business environment, it's not a job that anyone wants to spend a lot of time doing.

Fortunately, you don't have to. eService innovators have proven that you can answer a tremendous percentage of customers' questions online without spending money and time you don't have.

But before we look at how they accomplished this, let's look at who they are and what they've been able to do.

eService Innovators: Cases-In-Point
As more companies deploy eService, their successes demonstrate the bottom line business benefits gained by effectively supporting customers online. Here is just a sampling of companies that use automated, Web-based customer support to lower operational costs and significantly improve customer satisfaction.

Allied Telesyn: Self-Service for High-Tech Questions
When global communications equipment provider Allied Telesyn entered the home PC networking market, it found itself having to support a large number of novice users. Call center operators had to answer repetitive questions as simple as, "What's an IP address?" Because of the technical sophistication of Allied's operators, support calls cost the company around $50. Allied needed to reduce these calls while still supporting its new products.

Its eService solution worked. Allied experienced a 15% drop in the first month of its eService implementation and 20% the second month. Use of the company's online support page climbed by almost 25%, with customers commenting regularly on how much they like being able to go to the site anytime to find what they want. The company has saved $25,000 per month through the reduction of phone calls alone.

Ansett Australia: The Re-Birth of an Airline
Despite its importance as a regional carrier for Australia and New Zealand, Ansett Australia had struggled financially and was temporarily grounded. To make a comeback under receivership, the airline had to control costs across the board. In addition to its other cost-cutting measures, the company brought its total number of call center operators down from 1600 to 200—a reduction of almost 90%.

But how would the company deal with the huge load of customer inquiries it would face when it reopened its doors—questions about previously purchased tickets, frequent-flier miles and the like?

Fortunately, Ansett had already begun an eService implementation. Its online knowledge base was quickly seeded in support of the re-launch. And when the re-launch began, the site received as many as 10,000 visits per day, compared with the 1,000 or so it had before the grounding. The good news was that customers found the answers they needed, taking a tremendous burden off of the company's call center operators, who were fully able to field the balance of customer phone inquiries.

Just as importantly, the helpfulness of the eService content kept customers glued to the site, leading a large percentage of them to make their ticket purchases there. This helped Ansett reduce its cost of sales. Within 19 days of its rebirth, the company sold 100,000 tickets and was well on its way to financial health. "eService was absolutely instrumental in Ansett's return to the air," says e-commerce manager Hans Van Pelt. "We were very fortunate to have an eService solution in place at this critical moment in our history."

Ten Secrets for Successful eService
As these companies and others prove, effective eService is actually a very achievable goal—even for companies with relatively limited resources. It simply requires the right principles, practices and tools. By surveying today's most effective eService practitioners, RightNow Technologies discovered ten basic attributes that make Web-based customer support work:

1. Make sure your Web site can "listen" to customers.
Every successful salesperson knows the most important part of their job is listening—both for explicit and implicit messages from the customer. Web sites should do the same. Explicit messages are clear requests for specific information. Implicit messages are patterns of queries or usage that imply a difficulty in finding some type of content. Effective eService requires mechanisms and/or practices that ensure an attentive ear to both types of messages from customers.

2. Give customers what they want—quickly.
Once you've "heard" what kind of information customers want, you have to give it to them—quickly. The Web is all about immediacy. So whether it's getting new information posted onto your site or responding to incoming emails, your eService solution must enhance your ability to respond quickly. Don't confuse this with the rapid posting of information that marketers want to put on your site. Quality eService requires the rapid posting of customer-driven content.

3. Make eService resources easy-to-find and easy-to-use.
Great content isn't much use if customers can't find it easily. That's why eService content has to be well-organized into hierarchical "containers" that reflect the way users actually think about and search for content—not how a Web site manager guesses they might. It's also important to always give customers the ability to turn to email, live chat or a live operator.

4. Provide multiple contact channels.
Remember not all customers are alike and they prefer different means of communication. Provide a variety of methods such as self-service, email and live chat. One size doesn't fit all and you need to remember when defining your customer service strategy you need to include multiple channels of communication.

5. The "80/20" rule.
Successful eService doesn't require the ability to answer every conceivable customer question online. More than 80% of all customer questions are usually answered by just 20% of a support knowledge base. In fact, studies show that eService implementers have been able to answer 86% of all customer queries online with a relatively small, focused set of knowledge items. It's more important to get started with eService than it is to develop the "perfect" service/support knowledge base. Smart companies get the most important information up first, and then add to it over time.

6. Let your customers rate you.
You can't improve what you don't measure. That's why it's important to let users rate the effectiveness of the knowledge items they find on your Web site, as well as any email replies received in response to their requests for help. Using this feedback, you quickly weed out eService content that's not helpful—thereby improving your site's effectiveness as a service/support resource for customers.

7. Leverage your knowledge base.
It's worth creating a knowledge base just for Web-based eService. But you can achieve even greater return on investment (ROI) by leveraging that knowledge base across all your customer interaction channels (i.e. Web, email, chat and phone). For example, the same knowledge base customers use to get their questions answered online can also be used by new call center operators as an information resource—helping them become more productive more quickly.

8. Map it out.
For retailers, manufacturers selling through distributors, and many other types of companies, some of the most common questions that customers have when they visit your Web site will have to do with local store or office locations. The best way to provide this information is with an easy-to-read map and driving directions—not just street addresses. Maps not only provide customers with the information they need, they also help ensure they actually arrive there without a hassle!

9. Consider outsourcing.
At a time when companies have a limited ability to buy, implement and manage new technologies, many successful eService implementers are turning to a hosted model. This approach eliminates the capital cost of software and hardware as well as the staffing requirements associated with implementing and maintaining an eService system. Hosted systems let companies rapidly reap the benefits of eService without disrupting their existing IT operations.

10. Automate, automate, automate.
Without automation, the work required for successful eService - developing customer-driven content, posting it in a well-organized manner, responding to customer emails—can become overwhelming. As site traffic increases, the situation only gets worse. Many sites are spoiled by their success, as the volume of customer interaction via the Internet exceeds the human resources available to supporting that interaction. It's critical to deploy an eService solution that automates tasks such as content development and posting. Effective eService solutions eliminate time-consuming knowledge management functions - functions that, if neglected over time, result in out-of-date eService content and dissatisfied customers.

These ten simple principles can make the difference between successful, high-ROI eService and a failure to take full advantage of the Internet as a medium for superior customer service. In a market climate where every competitive advantage counts, few companies can afford to miss out on the outstanding bottom line benefits that effective eService offers.

Bottom Line Benefits of eService
Companies that implement effective eService systems find they benefit in numerous ways—many of them totally unexpected. The bottom line rewards they've experienced include:

Reduced cost of customer service

When customers help themselves at a Web site instead of having to call a conventional help desk, savings can range from $10-$45 per incident. By continuously adding customer-driven eService content to the site, the percentage of customers who can help themselves online also increases, dramatically reducing overall customer support costs.

Faster customer service and increased satisfaction

People hate to sit on "hold." When they can help themselves on a Web site, they can get faster answers to their most pressing questions 24 hours a day, seven days a week. They also develop the perception that the company site they're visiting has a good handle on its customers' needs—thereby strengthening their overall confidence in that company.

Increased use of lower cost online transaction channels

For most companies, sales over the Web provide lower transaction costs than those made over the phone or in a retail location. Good eService encourages customers to use the Web site more often, which means they become more likely to use it for transaction and support. eService thus lowers your company's cost of sales.

The ability to scale to meet peak seasonal volumes

A big problem many companies with seasonal patterns of buying often face is ramping up to support peak seasonal volumes. Usually, this means adding call center operators temporarily. But how many do you add? If you add too many, you'll waste money on excess capacity. If you add too few, you won't be able to respond in a timely manner to your customers. An effective eService system—especially a hosted one—can easily scale as needed to meet any volume of traffic, without requiring guesswork or potential over-spending on additional infrastructure.

Freeing up staff

One of the main constraints on most companies' eCommerce efforts is the limited number of staff members who understand the business and the Internet. By automating the generation and management of online support resources, eService relieves these precious employees of having to perform many repetitive, yet critical tasks time-sensitive tasks, thereby freeing them to support other strategic projects.

The bottom line? Responsive, automated, eService delivers concrete business advantages, day in and day out. eService is also rapidly becoming a competitive necessity, as more and more companies make their Web sites a primary channel for low-cost, customer-pleasing service and support.

What's Your Company's EQ?
Because eService effectiveness has become an important factor in every company's overall business strategy, now is a good time to assess the quality of your own company's eService quotient, or "EQ." This simple test will help you determine just how healthy your company's eService strategy really is, and allow you to pinpoint where it could use improvement.

If you were able to answer "Yes" to ten or more of the questions above, congratulations. You're well on your way to becoming another eService success story. If not, then it's probably time to re-evaluate how you're using the Web to support and service your customers—before your competition gets too far ahead of you!

RightNow Web eService Center: eService Made Easy
Fortunately, there is an effective, easy-to-implement solution for companies who want to make their Web sites more responsive—and who want to do it fast. RightNow Web eService Center is the industry's most complete, resource-efficient solution for assisting customers via Web self-service, chat, email, and phone. It is the first Internet customer service solution to deliver a single knowledge base across all of those communication channels—enabling companies to fully leverage a single, comprehensive support information repository.

Powered by a patented, intelligent knowledge engine, RightNow Web eService Center provides dynamic, automated eService content creation—along with other important features such as automatic knowledge base structuring, keyword searching, recognition of emotional content in customer queries, and a personal assistance utility for customers to communicate directly with support personnel via the Web.

RightNow Web eService Center transforms Web sites into highly effective information resources for customers, prospects and other business partners. Just as importantly, because of RightNow's powerful self-learning capabilities, companies realize these benefits without requiring extensive up-front investments of time and effort.

With RightNow Web eService Center, you can:

v      significantly reduce customer service costs while improving customer service

v      quickly eradicate backlogs of customer inquiries and emails to streamline workflow and increase efficiency and effectiveness

v      capture and publish the vital knowledge that currently exists only in the minds of your most experienced staff members—knowledge they'll otherwise take with them when they leave

v      empower your customers to find their own answers quickly via your Web site

v      track customer service activity and monitor customer needs

v      Unlike most eCRM solutions, RightNow Web eService Center is designed for quick and painless implementation. It's highly automated and easily administered from any Web browser, making it a cost-competitive solution that delivers nearly instant results.

The average RightNow customer:

v      is up and running from purchase order to production in just a couple of weeks

v      reduces telephone support load by at least 25% within 30 days of implementation

v      successfully answers 86% of customers' questions on the Web without requiring escalation to a human call center operator or salesperson

v      eliminates 66% of manual email support tasks by posting answers to customers' most commonly asked questions in an easy-to-navigate support area

v      achieves measurably higher customer satisfaction within weeks of deployment

As the number of Internet users increases—and as customer expectations for online service are raised by the growing number of eService implementers—companies in all markets will have to seriously re-evaluate their eService strategies. Companies that want to fully leverage the business potential of the Internet must move ahead quickly and intelligently with eService or risk losing customers to competitors who have already done so.

Greg Gianforte is CEO of RightNow® Technologies, a company he founded in 1995.  Greg and his family  located the company in Montana to achieve a balance between work and family. Greg believes the Internet eliminates geographic boundaries, and that a high tech company can flourish in a non-traditional location like Montana.  RightNow has offices in Bozeman, Dallas, London, Sydney, and Tokyo, with its products available in 15 languages worldwide.

RightNow Technologies is a leading global provider of proven eService solutions include Web-based self-service, email response management, live chat and collaboration, and service analytics.  RightNow customers include Air Canada, Ben & Jerry's, Black & Decker, British Airways, Fijitsu, Motorola, Nortel, Sanyo, Social Security Administration, Sprint, and more than 1,100 other organizations in a wide range of vertical markets.

Visit RightNow at www.rightnow.com or call (406) 522-4200 or 1-877-363-5678 Toll Free and request a free demo of our industry-leading RightNow Web eService Center solution and links to our active customers' Web sites. Or call us at 877-363-5678. 

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The Problem Facing Management of Small Firms.
Excerpt from a Report Submitted to the Small Business Policy Branch, Industry Canada 
by  Keith Newton,  March 30th, 2001

For the complete report see http://strategis.ic.gc.ca/SSG/rd00255e.html

It is well-known that the small firm population is characterized by high rates of turnover: high birth-rates and high death rates are typical. Recent Statistics Canada data show that over two-thirds of micro-sized firms (less than 5 employees) and almost half of small sized firms (5-99) fail within five years of start-up. Nearly 80% of all new SMEs are gone within 10 years. Some would argue complacently that one should not be alarmed by such figures since they are not untypical of the experience of other countries and, in any case, survival of the fittest is the natural order of things. Needless to say, however, policy makers have long recognized that if more small firms could be fitter their probabilities of survival would be enhanced. That is why, as will be shown later, public, private, and NGO efforts of various kinds are being used to address management skills difficulties in small firms. It is also why much recent policy research concentrates on the ingredients of success, as well as the reasons for failure (notably, Baldwin et al. 1994; Johnson, Baldwin and Hinchley, 1997; and Baldwin et al. 1997).

Evidence of Deficiencies

Evidence of deficiencies in Canadian management skills is presented in some detail in Newton (1995). To that list may be added some more recent findings.

Table 3: How important are the following needs of an SME from a business skill development perspective?

Source: CMA Canada

Of the recent empirical work one of the most telling pieces of evidence is Baldwin et al. (1997) which examines in detail the causes of business bankruptcy in Canada, using a sample consisting predominantly of small firms. Among the authors' principal conclusions are the following observations:

Strong management skills had already been identified as critical for growth in Baldwin et al's (1995) Strategies for Success and again in Baldwin et al's (1997a) as the crucial means to survive and emerge into thirteen years. The latest findings (Baldwin et al. 1997) in Failing Concerns further substantiate this story: in 71% of the failed firms, deficiencies in both general and financial management are described as the major causes of failure – the single most important internal causes of bankruptcy, ahead of marketing (50%), production/operations (30%), innovation (28%) and HR (27%). This general conclusion is supported with reference to three specific areas of management skill deficiencies.

As shown in figure 3 bankruptcies occur mainly because of lack of both breadth and depth of knowledge on the part of management, and the authors contend that this was particularly so in the areas of financing, marketing and operations. White technical knowledge was somewhat less of a failing, lack of control (due to management inexperience) was cited as a factor by 45% of respondents and management deficiencies in adaptability, flexibility, communication, and initiative were identified as sources of failure by about one quarter of failed firms.

The results presented so far begin to hint at the importance of "soft skills" and this is further strengthened with reference to figure 4, which depicts management deficiencies relating to attitudes and characteristics. While quality was seen as crucial for growth and survival in the earlier studies by Baldwin et al. (1994) and Johnson et al. (1997) it is a cause of failure in only 17% of bankruptcies. Nor was management's unwillingness to delegate responsibility deemed to be a factor, though it is apparently more of a factor for firms in the smaller size category (1-9 employees).

While lack of knowledge was shown to be a major problem, this was often not recognized and responded to: failed firms neglected to avail themselves of the services of outside professionals to fill the knowledge gaps. Staff supervision and lack of control appear to be problems that increase with firm size.

Article Source:  Industry Canada (this reproduction is not represented as an official version of the materials reproduced, nor as having been made in affiliation with or with the endorsement of Industry Canada)  Readers should review the entire report at http://strategis.ic.gc.ca/SSG/rd00255e.html

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Quick Stuff:    Deals In The First Week Of January

A quick look at the number of M&A deals completed in the first week of January since 1994. 

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