Archive for March, 2009

Green Computing for Small Businesses

Tuesday, March 31st, 2009
Green Computing

Green Computing

I received several queries following the recent publication of an article in USA Today, which reported the findings of a study on the power usage of office computers. The 2009 PC Energy Report, produced by 1E, an energy management software company, and the Alliance to Save Energy, a non-profit organization, stated that roughly half of the 108 million desktop computers in the U.S. are not properly shut down in the evening, when employees leave their offices. This results in a cost to business of $2.8 billion annually to power unused computers and the emission of 20 million tons of carbon dioxide, comparable to the emissions produced by four million cars on the road. According to this report, the practice of powering down in the evening can reduce $260,000 in energy costs for a company with 10,000 desktop computers, with an environmental benefit of reducing carbon dioxide emissions by 1,871 tons. This study focused exclusively on costs and benefits to large corporations. Several readers asked me about the implications of this recommended practice for small businesses.

One desktop computer consumes between $50 – $200 in annual electricity costs. The newer models, which are more energy efficient, would be at the lower end of the range and the older models at the upper end. Large corporations typically ask that their employees leave their computers on overnight for software deployment and maintenance, tasks which small businesses typically perform during the workday. So the cost savings are not comparable for smaller businesses.

Data Warehousing and the Lifecycle of Information Management

Monday, March 30th, 2009
How Much Is Too Much?

How Much Data Storage Is Too Much?

The lifecycle of information management refers to the determination of which information and data your small business must preserve and protect and over what period of time. It is not productive for any small business to secure and back up information that has become obsolete. (It also raises the risk of human error, as your employees may inadvertently work with files that have aged out of use!) This requires some discipline for properly disposing of out-of-date electronic files. As you develop a strategy for lifecycle information management, here are some of the issues you should consider:

Liability management. The more sensitive customer data you store, the greater your liability for a breach of data. The news media report that computer hackers may have accessed up to 100 million customer records of Heartland Payment Systems, a credit card processor. They are not the only payment processors to report possible data breaches; RBS Worldpay and CheckFree have also been exposed, as has, an employment site. These breaches are costly: $202 per compromised customer file, according to the Ponemon Institute, an organization that researches and consults on privacy and information security matters. What accounts for this cost? Customer attrition is one source of loss, as Ponemon found that health care businesses lost 6.5% of customers and financial businesses lost 5.5% of customers after data breaches. In addition, after a data breach, the affected company must undertake expensive security and legal procedures to deal with the intrusion and offer, at its expense, credit monitoring services to the customers whose data may have been compromised. In some states, there is a legal requirement to offer such a remedy; in all cases, it is a good business practice.

Marketing needs. Customer data may be a valuable asset for new product development, customer retention and customer acquisition. At the recent Information Security Best Practices Conference held at the Wharton School of Business of the University of Pennsylvania, marketing professors Eric Bradlow and Peter Fader discussed the conflicting needs of liability management versus marketing needs. As personally identifiable data are increasingly a liability for companies, Professors Bradlow and Faber recommend a “data minimization” strategy: keep the customer data your business needs for competitive advantage and purge all other data. Too many businesses, they believe, are data pack rats, storing information that serves no marketing purpose.

Legal and compliance requirements. Your business may be subject to certain legal or regulatory requirements for preserving data over a certain period of time. It is best to seek advice from legal counsel when developing your lifecycle information strategy.

Even in a Disaster, Take Time To….

Sunday, March 29th, 2009
Smell the Flower

Smell the Flowers

…you know how the saying ends. The current economic crisis is a disaster, not unlike a natural disaster in terms of the stress response it elicits. Your coping mechanisms may feel overwhelmed as you are doing more with fewer resources. Perhaps certain of your clients are struggling in this economy or your bank has cut your credit line, constraining your working capital. Under such pressure, often the response is to work harder and harder to keep up. But you run the risk of burnout – a common condition for small business owners. So do not forget the importance of play.

Stuart Brown is a 76-year old psychiatrist and the author of the recently published book Play: How It Shapes the Brain, Opens the Imagination and Invigorates the Soul (Penguin). Over the course of his career, he has conducted more than 6,000 play studies and reports that the opposite of play is not work, but depression. He worries that many of us are not finding the time to play as the economy makes tougher demands on our resources. Remember that you will not be able to look after those around you if you are depleted and worn down yourself.

I return to work most invigorated after cooking. My recipes have been featured in leading cookbooks and I have completed training at the French Culinary Institute (“FCI”) in New York and both Le Cordon Bleu and the Ritz Escoffier in Paris. At the FCI, I have completed four certificate programs and am about to start my fifth in pastry. I completed a course of study in Artisanal Breadbaking with Master Chef Hans Welke, the basics of culinary training, known at FCI as La Technique I and more advanced culinary training for recipe and menu development, La Technique II, together over 300 hours of training in the commercial kitchens of the French Culinary Institute under the supervision of their master chef instructors. Some of the world’s greatest chefs teach at the FCI, including Jacques Pepin and Alain Sailhac. I also completed a course of study in wine and food pairings at the FCI with Master Somnelier Andrea Immer Robinson.

I suppose this could be my “Plan B”; if everything else fails, I can always find work as a sous-chef. But I see real synergies in the commitment to quality and discpline in classical culinary training and the quality and systems I need to build for my business. Others share my point of view as I have just been scheduled for a photo shoot at the FCI for a feature article on entrepreneurial passions in a major business magazine. I will post it here when it will be published, but you will see that when I am wearing my chef’s uniform, the stress just goes away. Do what you need to do to take care of yourself and manage your creative spirit at this difficult time. The break will refresh you and renew your spirit.

Beware of Online Stimulus Offers

Saturday, March 28th, 2009
Don't Be a Pawn

Don't Be a Pawn

As administrator of this blog, I spend some time deleting spam comments to this site (although I am grateful that WordPress makes this task much easier for me).  I have noticed a recent trend of spammers offering help in securing federal government stimulus money for small businesses. Apparently my blog site is not the only one they are targeting. A recent report in the Los Angeles Times quoted Better Business Bureau spokeswoman Alison Southwick as saying “we started seeing these ads pop up online, promising people could get $10,000, even before the stimulus package was passed”. According to the LA Times article, a paid Google search ad leading to “Jessica’s Money Blog” advertised, “Obama approved $12k stimulus checks and I already received my grant”. Unfortunately, this is not a new scam. After major disasters (the current one being an economic, rather than a natural, disaster), scammers appear offering help in securing government grants – for a fee. However the severity of the current recession suggests that people may be more desperate to suspend disbelief for a vague promise of assistance and scammers are more aggressive in taking full advantage. recently reported a scam in which an online company sells a CD with advice on procuring grants for a $1.98 fee, collecting a bank account or credit-card number to process the fee. Days or weeks later, the consumers, or small business owners, start seeing recurring charges hit their banks accounts in the amounts of $30 to $70. The Wall Street Journal wrote about a small Texas toy store that lost $600 after a supposed government grant expert the owner found online claimed the business qualified for a $125,000 minority-owned business grant.

You should be skeptical of any solicitation offering you free money. Someone who has access to free money sources is unlikely to have identified and contacted you; such a party likely has another agenda. And you should never give your credit card, debit card or other banking information to such parties. This is an invitation to fraud. Information about government programs is free to all and you can find out whatever you need to know directly from government agencies without paying an intermediary.

Unintended Consequences

Friday, March 27th, 2009
Bureaucratic Interference

Bureaucratic Interference

In Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (Wiley, second edition, 2008), I sought to explain the economics of the insurance cycle. Cash flow underwriting was, until recently, one of its defining features. Cash flow underwriting essentially involves pricing risks below the actuarially expected losses with the expectation that gains on the investment portfolio will bring the insurance operation to profitability. In essence, insurance companies collect premiums from underwriting risks and invest those premiums from which to pay claims and expenses. In the first edition of the book, I advanced the controversial argument that insurance premiums rose dramatically following 9/11, in part, because insurance premiums had been too low. High rates of return in the stock and bond market allowed insurance companies to underwrite business below the actual price of risk. The advantage of doing so was to preserve or gain market share in an environment where insurance was viewed as a commodity and providers competed almost exclusively on the basis of price. The downside to this practice of course, is that we have more volatility in the pricing of insurance risks, particularly commercial insurance and we have to think more carefully about the solvency of insurance companies with these pricing for market share strategies. Unlike the discount retail store, which closes a transaction with the sale of the product, the insurance company has to remain in business for years or decades to come to pay future claims.

Now with the federal government bailout of AIG, we have an interesting situation in respect of the cash flow underwriting dilemma. According to the Wall Street Journal, at a recent meeting with Federal Reserve Chairman Ben Bernanke, insurance executives complained that AIG was using its federal government money to cut prices and buy market share, thereby harming competitors and destabilizing the industry. Of course, as small business owners, we all want low prices, but we also want financially solvent insurance carriers. The federal government bail out of AIG introduced an element of moral hazard that our policymakers failed to anticipate. Of course, AIG may be responding to market pressure to retain business in the face of uncertainty about its future. But should their insurance premiums be inadequate to cover their insured risks, the stage is set for yet another bailout and a very vicious circle for taxpayers and policyholders alike. It is an insightful article and I commend the Wall Street Journal for its reporting.

Texas Experiences the Worst Drought in Its History

Thursday, March 26th, 2009
Post-Katrina, Less Bureaucratic Pencil-Pushing

Post-Katrina, Less Bureaucratic Pencil-Pushing

According to a statement issued by the Office of the Governor of Texas, Governor Rick Perry “requested that the U.S. Department of Agriculture provide disaster relief assistance for Texas farms and ranches that have suffered economic and physical losses as a result of severe drought conditions. If Perry’s statewide request is approved, qualified farm operators in all Texas counties will be eligible for low-interest emergency loans from the USDA. The agency also offers additional programs, such as technical assistance, to eligible farmers.” This is most severe drought on record, affecting Texas Hill Country in the South-Central part of the State from San Antonio and Austin; 60% of the beef cows in Texas are in the counties with conditions defined as “severe to exceptional drought”. This only adds to the pain of businesses that have already suffered losses from the economic recession. Texas is the country’s largest cattle-producing state and has already lost close to $1 billion because of the continuing drought.

According to the U.S. Drought Monitor, extreme drought conditions also exist across other areas of Texas and much of the southwestern United States, threatening water supplies and farmers in rapidly-growing urban areas. In California, Governor Arnold Schwarzenegger declared a statewide drought emergency, urging local communities to impose conservation measures to reduce water consumption by 20 percent.

For small-scale farmers, the government assistance programs can be confusing. The Small Business Administration (“SBA”) does not underwrite agricultural loans. For the purposes of SBA’s 7(a) program, a small farm may be considered a small business, but for the purpose of the Economic Injury Disaster Loan, it is not. After Hurricane Katrina, the U.S. Department of Agriculture had to re-write its rules so that it could respond to the needs of small-scale farmers, particularly in the aftermath of a major disaster. It would certainly make government programs more efficient and transparent if the agencies could develop uniform applications.

It is Flood Safety Awareness Week

Wednesday, March 25th, 2009
Floods Affect Virtually the Entire U.S.

Floods Affect Virtually the Entire U.S.

Did you know that floods cause more fatalities than more hurricanes or earthquakes? The Red Cross offers some helpful tips to prepare for floods. Flood safety concerns all of us as, in any given year, 30% of floods occur in areas outside of flood plains or in areas that have never before flooded. Unfortunately, this topic remains timely as the Red Cross is establishing emergency shelters at the North Dakota-Minnesota line, in the Red River Valley. This area experienced a major flood in 1997, after which a levee was built to protect Fargo, North Dakota. Flood stage is defined as a water height of 18 feet; some forecasters believe that the Red River could rise as high as 52 feet within the week, worse than the conditions in 1997, which floods destroyed vast swaths of Grand Forks, North Dakota and East Grand Forks, Minnesota, on opposite banks of the river. The National Guard have been called up to fortify the area with sandbags, dikes and other provisions.

In another part of the country, Cedar Rapids, Iowa is preparing for the 2009 flood season even as it has not yet recovered from the major flood which struck that community nine months ago. More than 5,000 homes and 700 businesses in Cedar Rapids were damaged or destroyed. Even now, nine months later, some areas have overnight curfews, there are entire neighborhoods that remain empty and others were residents continue to live in FEMA trailers. City Hall continues to operate from a temporary location. It will take at least a decade to build permanent flood walls and levees and with the economic recession and budget shortfalls for both Iowa and Cedar Rapids, funding is not readily available for the work. Meanwhile, the residents experience anxiety when it rains, a not-uncommon emotional response following a major disaster. As disasters such as the floods in the midwestern states recede from the news headlines, it is easy to forget the ongoing recovery needs of affected communities. Let’s use the occasion of March, National Red Cross Month, to reach out to Cedar Rapids and other communities that continue to need support.

March is National Red Cross Month

Tuesday, March 24th, 2009
March is National Red Cross Month

March is National Red Cross Month

In 1943, President Roosevelt, acting as the honorary Chairman of the American Red Cross, recognized that organization’s outstanding humanitarian services when he declared March “National Red Cross Month”. This declaration became the basis of support for annual fund raising and volunteer recruitment drives to support the critical activities of local Red Cross chapters. Supporting your local Red Cross chapter is particularly important this year as donor support has declined with the economic recession. I learned some interesting facts about my local Red Cross organization, which is the Greater New York Chapter of the Red Cross. First, the largest corporate sponsors of our local Red Cross chapter included Lehman Brothers, Bear Stearns, AIG and Merrill Lynch! Second, the New York chapter of the Red Cross responds to eight to ten disasters a day, ranging from people rendered homeless from the collapse of construction cranes to local fires. This is significant because many of us in New York are focused on 9-11-scale events when, in fact, it is the everyday disaster that we are, by definition, most likely to experience. With many small businesses struggling in the current economy, contributing funds may be difficult at this time. However, there are other ways you can support the Red Cross, from volunteer work to training. I urge you to contact your local Red Cross chapter to find out what you can do.

If You Are Gasping for Air, This May Not Help

Monday, March 23rd, 2009
Gasping for Air

Gasping for Air

The Small Business Administration continues to work on guidelines for its forthcoming emergency credit facility, tentatively named “America’s Recovery Capital (ARC) Loan Program”.  The legislation enabling this program requires the SBA to create a new “business stabilization” program to back loans of up to $35,000 to small businesses “experiencing immediate financial hardship”. The proceeds of these loans are to make up to six months of interest and principal payments on a “qualifying small business loans”. This program was conceived as a stopgap measure to assist small businesses struggling to service existing debt. Congress allocated $255 million in the stimulus to fund the ARC program, paying for the program’s loan guarantees and interest subsidies, thereby levering up the amount available to lend. As the SBA is still developing the ARC loan guidelines, it does not yet know when the funds will be available.  While this may appear to be welcome news to small businesses that have thus far not benefited from the government bailouts, hold your applause. There are several issues to consider:

  • Defining “viable businesses” to mitigate moral hazard risk. For the first time in its history, the SBA will offer issuing banks a 100% guarantee on ARC loans that they extend to small business owners. If the business owner defaults, the SBA will repay the bank for the full value of the loan. The SBA will also fully subsidize the interest on the loans, making them effectively free of cost to the small business borrower. No payments on the loans will be due for a year and businesses will have up to five years to repay the loans. However, the full guarantee of the taxpayer to the SBA program raises the moral hazard risk: the risk that banks will lend to borrowers that are not creditworthy because the government will pay the loan losses. This is particularly troubling, as the SBA has already reported soaring default rates on its traditional loan programs. To mitigate this risk, the SBA stipulates that ARC loans are to be extended only to “viable” small businesses, which it defines as those that have “demonstrated an earnings history and a proven record for success that may just need a little extra help to get through a short-term downturn”. (Shouldn’t all loans be limited to “viable” businesses? And how did the SBA determine that the current economic downturn will exist only for the “short-term”?)

We dealt with this issue in the aftermath of 9-11 as disaster aid programs were defined as corporate welfare for the Fortune 500 and loans (with personal guarantees) for the small businesses. However, in order to qualify for the subsidized loans, you had to prove that yours was a “viable” small business. My business, which was newly incorporated and had a short history prior to 9-11-01, did not qualify, nor did other start-ups. (Although eight years later, we are still in business, which is not true for certain of the financial services corporations in the Fortune 500 that received 9/11 handouts.) In other words, in order to qualify for the loan, you had to prove that you didn’t need it.

  • Limited qualifications for the use of the loan proceeds. You won’t be able to use the new ARC loans to cover payments on existing SBA-guaranteed debt. The stimulus bill, the American Recovery and Reinvestment Act, contains a provision written into the bill by Congress that explicitly prevents the use of ARC loans to pay down existing SBA debt incurred before the bill’s passage. CNN quoted a staffer with the House Small Business Committee who explained that the provision was mandated by the Congressional Budget Office to comply with pay-as-you-go restrictions against increasing the federal deficit through new direct-spending legislation. He added “it is one of the most complicated things I’ve heard in a long time”. Businesses with existing SBA-loans can still apply for the new ARC loans, but they cannot use the latter to pay down the former.
  • Rewarding debtors. The House Committee staffer added, “private loans made for any legitimate business purpose — including credit card debts, bank loans and real-estate loans — would be eligible for the program”.  So if you managed your small business prudently and avoided taking on debt of any kind, this program is of no help to you.  If you did take on debt, you should probably be negotiating new terms and forbearance with your creditors, even if you think you won’t need it. Take the breathing room while you can.

And of course, like all government programs, this one is complicated. I would prefer to invest my time in growing my revenues than attempting to decipher the requirements of another government program.

Environmental Hazard in Pennsylvania

Sunday, March 22nd, 2009
Not Always This Pristine

Not Always This Pristine

In Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (John Wiley & Sons Inc., second edition, 2008), I set forth a framework for six disaster categories, including environmental hazards. It is important to understand that environmental hazards need not be Love Canal or Environmental Protection Agency Superfund level events. Even the most banal environmental hazards can disrupt the operations of your small business.  Consider that on Saturday, evacuations were forced in Pennsylvania when a tractor-trailer transporting 33,000 pounds of corrosive hydrofluoric acid overturned. The acid is used for industrial purposes, such as etching glass and making high-octane gasoline, refrigerants, aluminum and light bulbs. Most of the acid in the vehicle was in the form of pressurized gas; inhaling the gas causes respiratory irritation, eye damage and pulmonary swelling. As a precaution, authorities ordered an evacuation of about 5,000 people within a mile radius of the accident in Plainfield Township. A pet-friendly shelter was set up at a local high school and the Red Cross was asked for assistance.  The residents may not be allowed to return to their homes or offices for 24 hours.

I learned of a less dangerous incident that caused even more dislocation in rural Louisiana. I was delivering a “train the trainer” program to the technical counselors of Louisiana’s Small Business Development Centers when one of the staff shared an example of a recent disaster. A truck carrying products from a poultry processing plant overturned, spilling chicken fat across the bridge. The bridge was the sole transportation artery for that community and was closed for several days as civil authorities removed the contaminants. Local small businesses that were not set up for telecommuting on a temporary basis were disrupted for three to four days.

Prepare as best you can for these disruptions. Make sure your employees know that evacuation is not always the response to an environmental hazard. When contaminants are airborne, shelter in place may be the safer option. If you have employees who can telecommute, it is worth investing in a program for working from remote locations. What was unusual about the recent incident in Pennsylvania was that it made the national news. These events are so commonplace that they are not always reported.