Don’t Fail Your Business – Avoid the Most Obvious Traps

This is a guest blog by Eve Baxton.

Owning a professional business is a huge responsibility. It involves all the potential risks and traps that are imaginable. According to a survey in 2009 by PrinceWaterHouseCoopers more than half of the enterprises suffered from the economical crimes. In most of the cases, small sized enterprises are the best prey to fall for potential traps around.

These dangers include employees or managers misrepresenting or manipulating the financial information, customers misusing the enterprise’s borrowing in criminal activities and contractors producing false bills. Along with that, other elements exist that perpetrate fraud against the enterprise by electronic means. This includes hacking, manipulating the telephone service and robbing customer’s confidential data, such as credit card numbers or usernames and passwords.

The ultimate quest that should be taken care of as soon as possible, to protect your business is identifying the sources of potential fails. That is not an easy task to take on, for a less experienced businessman. By just considering some basic and yet important things, the enterprise can be easily protected from potential frauds, however.

According to the statistics, the most common reasons for falling into these traps are the lack of experience, commitment, and, most significantly, management. Let’s take a look at the potential traps that most of the enterprises, no matter big or small, fall for.

The Innocent Employee Trap
According to the facts, most of the time insiders; employees, managers, or company’s officials, are the main reason for an enterprise to fall and fail. These employees “innocently” steal the assets of the company, and commit accounting frauds. Detecting such actions is vital; it requires a lot of methodologies and commitment to be employed, however.

The Clever Customer Trap
Another hazardous trap that most of the enterprises fall for is the clever customer trap. It has been found that many customers are using fake identities, stolen credit cards, or are filling out fake liability and injury claims to perpetrate the company. All these actions by “the sweet customers” only results in the enterprise’s money being taken away.
The Fake Return Scheme Trap
The most common victims of this type of frauds are retailers. It is the best scam for the clever customer to perpetrate against any enterprise. Most of the times, the customer brings back used merchandise that has not been bought from the same place and tries to return it and get new merchandise under the shelter of the fake return schemes.
The Greedy Contractor Trap
Most companies rely on outside service providers for its survival. Therefore, many of the enterprises fall for the greedy contractor trap. It is not uncommon for the contractor to bill more than the task he has done is worth, and more often even asks for the billing of a task that has not yet been completed. Strong policy, terms, and conditions should be presented to the contractors, before entrusting them with any task, to avoid these attempts, and leaving no room for the contractor to commit such frauds.

Protecting Your Professional Businesses

After viewing the potential traps, let’s take a look on the precautionary measures that an enterprise can take to avoid unnecessary fails; these important methodologies can fraudproof your business against its very own employees.

The Method of Anonymous Employee Reporting

Utilizing this method is one of the best methods for detecting the potential dishonesties that can occur within your business; compared to scheduled employee reporting, the violators’ opportunities to destroys any vital fraud traces are severely limited.

The Method Of Surprise Auditing

Along with the regular, scheduled internal audits, surprise auditing should also be performed in the enterprise, as it significantly increases the chances of detecting potential irregularities, thus making your company more protected.

The Method of External Auditing

Along with the above mentioned methods, this is also a significant tool to determine a potential fraud; it should be held at regular intervals.

Business Insurance – The Ultimate Protection

Along with all the above methodologies, the most important step in stabilizing an enterprise is business insurance. It plays an important role in the art of preventing the failures related to undetected frauds. Professional business insurance protects the business from many unexpected frauds, and it enables a recovery from what may seem as a catastrophic loss. Even when insuring your business, you should consider several key factors, however; for your business insurance to be viable for you, it needs to offer an equal protection for any business, regardless of its size, and to provide protection from all sources of frauds and failures. First thing that comes to mind is protection from theft. Theft is the most common and uncontrolled source of assets loss that occurs in most enterprises internally and externally, making insurance without theft protection almost useless. Protection from litigation is another important aspect; while unfounded law suits from wealthier competition are likely to turn out in your favor, the costs before you prove your innocence can cause your business to fail, so proper insurance has that covered. Protection from unwanted liabilities provides you with protection, when the assets, coming from your company, are used for any illegal activities, which is not a rare occasion with internal frauds and thefts.

It’s your responsibility to implement a fraud proof protection method, that suits best to your enterprise’s needs, properly. All it requires is some commitment and dedication towards the business; no matter how malicious the fraudster’s aims are, you can stop your company’s fail before it’s to late!

Berlusconi: successful businessman who screwed his country

After 17 years, the buffoon of Italy is finally gone. But who was he in reality?

Berlusconi was born to a middle-class family of a bank employee in Milan. In primary school, young Berlusconi wrote homework assignments for his classmates in exchange for morning snacks. In high school, he played the double bass and sang with a band. He attended Milan State University, from which he graduated in 1961 with an honors degree in marketing. While at university, he signed on to cruise ships as a musical entertainer. Since his university days, he was accustomed to party and fun, treats that he would showcase regularly throughout his business and political career.

A twenty something, party-lover, self-motivator, Berlusconi started up in the construction industry. He would buy and sell land in and around Milan. His break came when he acquired a vast stretch of empty farmland near the Milan airport. His fortunes turned when the landing pattern was changed and that patch of land, obtained for pennies, became an overnight fortune.

He didn’t stop at construction. Being a musician, a performer and an extrovert by nature, his attention was naturally drawn to TV. Local TV stations, limited in number, were forbidden by law to become national, avoiding competition with state-owned RAI networks. Defiant Berlusconi & Co set up local TV stations and dispatched motorcycle riders to main cities disseminating news pre-recorded on tapes.

In the end of 80s, Berlusconi and his family/friends were heading a conglomerate of companies in media, publishing and broadcasting obtained through mergers and acquisitions. Coincidentally – this contributed to Berlusconi’s soaring fortunes – Italy was on a sharp economic rise during the same period; in 1987 it became the 5th economic power in the world, with its GDP rising by more than 18%. Berlusconi crowned himself the king of Italy by becoming the owner of a star soccer team of AC Milan.

As of 2011, Berlusconi is worth an estimated $6.2bn (according to Forbes, 3rd wealthiest in Italy, 118th wealthiest in the world in 2011).

Notwithstanding his business acumen and success, Berlusconi’s fortunes in politics were not quite on par with his business achievements. On his political count there were three election victories (1994, 2001, 2008), two defeats (1996, 2006), more than 23 judicial investigations (mostly related to corruption), more than 51 votes of confidence in his government (since 2008).

Inside Italy, Berlusconi inspired awe, disgust and respect at different times. Internationally, his idiosyncratic character earned him friends and accolades in quarters where no European was previously seen. His close friendships with Russia’s Putin Lybia’s – now defunct – Qaddhafi and, at the same time, America’s Hillary Clinton were considered controversial.

Berlusconi seem to have always intermingled personal and professional relationships.

One example is information revealed by WikiLeaks about Berlusconi’s politically disguised business activities: deal arrangements on a Gazprom-Eni joint venture bringing gas from Russia to Europe; Berlusconi’s unconditional support of Putin during the Georgia-Russia conflict in 2008; decisions on Italy’s foreign policy to be based on Berlusconi’s inner circle and business associates rather than the country’s foreign interests.

Another example is his relationship Socialist PM Bettino Craxi (Berlusconi’s political mentor) who became godfather to one of Berlusconi’s children. Mr. Craxi’s brother-in-law was a mayor of Milan, which was also power center of Berlusconi’s business empire. In 1994, the recently deposed Tunisian leader Ben Ali – whose rise to the presidency was directly supported by Italy – provided refuge to Mr. Craxi.

But Berlusconi has been vocal in pointing out his political achievements to all and any who would listen. Thanks to his fiscal policies – as he boasted in international conferences in front Germany and France – Italy avoided the housing bubble, its banks did not go bust and its unemployment rate hovered around 8.5% (>20% in Spain). The budget deficit in 2011 is estimated to be circa 4% of GDP (6% in France).

However, these numbers are deceptive. The Economist’s special report revealed that only Zimbabwe and Haiti had lower GDP growth than Italy in the period of 2000-2010. GDP per head in Italy fell, and the public debt is still 120% of GDP. Berlusconi’s Italy is 83rd in the World Bank’s “Doing Business” index, below Belarus and Mongolia, and 48th in the WEF’s competitiveness rankings, behind Indonesia and Saudi Arabia.

Thus Berlusconi leaves behind an embittered, inert and economically-degraded Italy.

His businesses are running as usual and his macho attitude and chase of women continues to date with late-night parties, which have affected his health dramatically and irreversibly.

Berlusconi’s is thus a rather sad story of how a successful businessman wouldn’t – he most probably could have if only he tried – do the same for his country as for his businesses. I guess this makes him the most unpatriotic and un-Italian of all Italians.

As for Italy, things look grim. If the newly appointed PM Monti does not get his game together fast, Italy might yet turn to be another Greece.

Attitudes of failing companies and Sisyphus

I came across a nice article on Digital Tonto about how companies fail. I previously posted about why smart people and companies do dumb things, eventually ushering in failure. The article however shares some interesting insights and examples of how companies, even very successful ones, eventually commence their decline by following one of the below “attitudes”/approaches (comments are mine).

Overconfidence: mostly driven by past success and self-confidence.
Overvaluing Strategy and Undervaluing Process: companies that are obsessed by grand visions and strategies tend to underestimate the incremental changes and the process itself which are the drivers of success.
Looking for Dragons to Slay: this quality is typical of few very successful companies such as Google who, once at the summit of their success, look into going after other markets, products and companies.
Disruptive Competition: which might or might not bring value to end users.
The Lambda Response: instead of solving the problem at hand, it becomes more exacerbated by internal confusions, inefficiences and panick.

Some of those attitudes leading to failure are among the famous Ten Commandments for business failure of Mr. Coke.

The article offers a solution to embrace, a corporate equivalent of Sisyphus:

When company leaders are like Camus’ Sisyphus, they are most likely to be successful. Companies who are focused at the task at hand, rather than building empires and seeking out the “Next Big Thing” are doing their shareholders the greatest service. For a company to be profitable over the long term it has to perform and that can only happen if the organization is united in its purpose.

Constant focus on creating value for existing and potential customers, unity of purpose, corporate humbleness and perseverance are the generic vaccines for companies successful but not yet narcisstic or obsessed by self-grandeur.

Entrepreneurship is a journey – fail or endure

If we’d known we were going to make it, the challenge would not have been the same – we might have not gone. If we’d known what lay ahead, we certainly would not have gone.

The paragraph above typifies most entrepreneurial undertakings. It always starts with a bright idea, sense of uniqueness, and feeling of going to accomplish something important and doubtlessly rewarding.

However, the excerpt has little to do with business. It is an account of journey, the longest at the time (1980-1982) from the Bronx Park (in Northern Winnipeg, Canada) to Belém (in Brasil, where Amazon meets the Atlantic) on canoe, spinning some 12,000 miles (20,000 km). Below is the final entry in the original diary (links are mine).

We have taken some 20 million paddle strokes to get here and have traveled every variety of waterway. We have slept on beaches, in jungles, in fields – sometimes in canoe, on the open water. We have shared simple food and lodgings with the Cuna Indians, the Guajiras, and the Miskitos; we have dined aboard million-dollar yachts. We have eaten shark, turtle, paca, tapir, wild pig, manioca, palm hearts, cactus. In Cartagena, we ate heaps of roasted ants.

We have encountered hundreds of species of creatures: snakes, crocodiles, piranhas, morays, sharks, whales, bees and scorpions. Strangely enough, the only animal that has given us any trouble was man; we have been arrested, shot at, robbed, jailed, and set upon by pirates. At one point we were led off at gunpoint to be executed.

We have been taken for spies and sabotoeurs, have capsized 15 times at sea and spent terrifying nights in pitch blackness riding the ocean breakers without navigation. We have had brushes with the drug trade, suffered food poisoning, blood poisoning, and dehydration. Forty-five times our canoe has been broken on rocks or reefs. Our skin has been baked to scab by the sun. We have been close to starvation.

This is reminiscent of journeys of so many of those leaving their mark in history of business, politics, arts – all human endeavor. Only the details differ, yet how many of those aspiring entrepreneurs have an idea of what awaits them alongside their journeys? How many would carry on having a foresight of future? How many would continue and endure? Not many. Yet at the end, winners always invariably stand alone:

In spite of all we’ve endured, our arrival here in Belém was anything but triumphal. No banners, no champagne, no tears or kisses. Nobody at all… Perhaps we deserve such a fate. We have come too far.

The book documenting this journey is called Paddle to the Amazon by Don Starkell.

How NOT to lay off employees

Let’s make a little scenario, where you undergo the following experience.

You work for a mid-size Internet company. One day, you receive an email from the CEO to all employees announcing there are upcoming layoffs and restructuring. The email’s subject reads, “Important Updates – Please READ.” Why not mentioning directly about layoffs in the subject – the main subject of the email? In brief, the email (see the image below – I outlined the most “interesting” passages) states that few people will be laid off and the decision to lay certain people off is not based on their performance. It then uses terms such as “aligning business lines” and “reducing costs” as justifications for a layoff and stops short of being outright ridiculous.

It is about 2pm. In about 30 minutes, you are cartered to the HR manager’s office, where you find quite a few of your colleagues crammed into a tiny space, all of you standing and facing the HR manager – she is seated. You are told that you are to leave the company. No further elaboration – it is all in the email, you are told. It all goes for few minutes only and you are then dismissed. You inquire about how you will handover your tasks and to whom – you assume before the end of the month. You are however told that indeed that day is to be your last day – you have 3 hours to handover all of your tasks.

You then return to your office. It is about 2:35pm. You open your Outlook and try to check your email. Your Outlook responds with “authorization failure.” You later discover that, during the time (5 mins) you were in the HR office, your email account has been blocked.

Below is the list of points of how the scenario unraveled, a case study of how NOT to lay off employees.

sending an email about upcoming layoffs, containing vague terms and no solid reasoning;
not giving an advance warning to affected employees (making the day of email announcement also the last day for affected employees);
ignoring employee-employer relationship specifics as written in contracts signed between employees and the employer (and the labor law – subject to sue the company);
inconsistently selecting employees to lay off (in some cases, not even consulting an employee’s immediate supervisor/manager);
making the employee layoff in an impersonal way (by bringing them all together to a room and the HR manager informing them that they are to go);
blocking access to email account/internet (again without any prior warning) for affected employees shortly after they were told to leave;
not offering to affected employees reasons/explanations leading to their layoff;
not letting affected employees to organize a handover of their work ;
claiming “there is nothing personal – it is only business” but contradicting it by saying that decision to lay off is not based on performance, which provides a direct or indirect measure of contribution to the business/output of the employee.

P.S. This happened in a company I worked for.

I was dully told that indeed today was to be our last day – in mere 2.5 hours (working day finishes at 5pm and we were at HR office at 2:30pm).

Why Smart People, Executives and Companies Do Dumb Things

I am a big fan of Guy Kawasaki (and his blog), having recently purchased and consumed his last book “Reality Check.” One of the chapters of the book, and the corresponding post on his blog, he refers to a book called “Why Smart People Do Dumb Things” pointing out four reasons why smart, intelligent, powerful, and rich people end up in disastrous situations.

Hubris. Pride to the point that you no longer feel shame, no longer believe that you are subject to public opinion, and no longer need to fear “the gods.” Examples: Gary Hart’s involvement with Donna Rice that ended his run for the presidency and the Dennis Kozlowski’s (Tyco) $2 million toga party.

Arrogance. From the Latin word arrogare: “to claim for oneself.” Arrogant people believe they have claim to anything and everything they want–they are “entitled” to it. King David, for example, felt entitled to the wife (Bathsheba) of one of his soldiers. Modern day King Davids feel entitled to corporate jets and an entourage to tell them that their keynote speech rocked.

Narcissism. Self absorption to the point that you are blind to reality. The world only exists to provide you gratification. Examples: Richard Nixon and Watergate; the Clintons and Whitewater—really just about every politician and CEO who falls from grace.

Unconscious need to fail. If you think failing is hard, try winning. The questions that go through people’s minds when they they are on the doorstep of success are: Do I really deserve to win? Do I want the pressure of constantly having to win in the future? Can I really handle success? Perhaps this explains why professional athletes still take performance enchancement drugs even after watching their colleagues get busted.

The authors of the book prescribe a six-dimensional set of remedies:

Accept yourself
Accept others
Keep your sense of humor
Accept simple pleasures
Enjoy the present
Welcome work

The same book goes on mentioning why smart companies do dumb things. Here the list is more sophisticated.

Consensus
Conviction
CEOs
Experts
Good news
Lofty ends

Guy adds another three additional factors that make smart companies do dumb things.

Budgets
Greed
Arrogance

From my limited experience, I would also add (to make few implications more explicit):

Lose of focus/vision
Lose of touch with reality
Willingness, inability and perseverence to overstretch

Finally, an excellent book (that took six years to complete) by Syney Finkelsteen, “Why Smart Executives Fail,” draws on an unprecedented research of the corporate history and showcases some of most flagrant examples of brilliant and smart executives who caused their companies to fail. He lists seven habits of spectacularly unsuccessful executives

They see themselves and their companies as dominating their environments.
They identify so completely with the company that there is no boundary between their personal interests and their corporation’s interest.
They think they have all the answers.
They ruthlessly eliminate anyone who is not 100 percent behind them.
They are consummate company spokespersons obsessed with the company image.
They underestimate major obstacles.
They stubbornly rely on what worked for them in the past.

Bad Ideas To Make Money

It is not easy for most entrepreneurs and businessmen to talk about their own failures. When they do, they tend to be indulgent or lenient about their past experiences and are inclined to shift some of the “blame” on environment, tendencies, people or just plain luck (lack of it). Only few speak candidly and admit their errors openly with intention of contributing to the accumulated business wisdom and in hope of providing useful information for those aspiring and resourceful entrepreneurs who are at the beginning of their paths. The first step to overcome a failure starts by admitting that we are not perfect.

Jeremy Schoemaker, the founder of ShoeMoney Media Group, is one of the entrepreneurs who had many ideas, which could potentially lead to business successes but instead turned out to be business failures.

Anyway I came up (in about 10 minutes) my top 10 worst ideas to make money that totally were a waste of time and effort (and money in some cases).

Below are some of his top 10 worst money making ideas he came up with.

10 – FireFox Forum (firefoxforum.com) – I purchased this site on digitalpoint ($800) after getting some inside information that FireFox was going to team up with Google on a per download affiliate program. Well all that happened and I think I made about 50$ the first year. FLOP

7 – Omaha-Used-Cars.com – Now here we go! This is easy. Just make a used car site and charge dealers a .25cent per car listing fee right ? ehhh none interested… FLOP

6 – SMS Text Dating textdating.com/texting.com – I was soooooooo sure this one was going to be it! The concept is simple basically you subscribe to this dating website. Make a profile then you could send a message to the person from the website to there mobile phone without having to know there phone number. I had this totally done and nobody every signed up… FLOP

5 – St. Marry’s Bar & Grill – Ok this has nothing to do with the internet. After the Hooters closed down in Lincoln I tried to re-open it then when that did not work out I thought about making a restaurant called St. Marrys where it was like a church and the waitresses dressed like catholic school girls and like the nuns would be the managers and spank the waitresses if they were bad?!? Yes I know bad idea and I never really pursued it…. I like in one of the most conservative catholic communities in the country so no way it would fly… and yes i know im going straight to hell.

3 – Ads Or Not
Simple concept. There is 5 ads on a webpage only one of them is NOT REALLY A AD! Each time you successfully spot the fake ad you get some money built up into your account. – I had issues finding advertisers who were down for this =P FLOP

1 – ShoeMoney Petroleum Company –
(I cant believe im actually telling these in public)

Ok Follow me here –
I want to purchase a Gas Station and Give away Free Gas
The catch is like the gas would come out really slow and also you would be limited as to how much you could get per week. (Like max 50 gallons a week).
How do I make money ? EASY – I would setup paintball guns around the gas station with webcams that would let people from the internet take shots at the people filling up there cars with gas. You could charge per shot or a xxxx amounts of shots per month for a set fee. PROBLEM – I talked to a city council member about this and he told me there was a “no flying ordinance” or something rule within city limits however I could maybe do it in the country…

As you see the breadth and width of ideas is not lacking in originality and ambition. Some of the ideas above would surely seem killer to me and many other entrepreneurs. However, not all, even brilliant and innovative, ideas become equally successful and growing businesses. In face of the ongoing financial crisis and shrinking funds, quite a few investors and VCs go as far as clearly outline what an idea needs to have to obtain a backing. For those who cannot reach VC/investor pockets or are simply willing to build their business without initial VC/investor funding, there is also a way. Whichever way you choose, make sure to check out the startup rules of Loic Le Meur, the founder of Seesmic, and those of Sequoia Capital, a leading VC firm, and do not be afraid to fail. Embrace your failure, learn from it, and remember the words of one of the most profound thinkers of 19th century, Friedrich Nietzsche, who mused, “What does not kill you makes you stronger.”

Good luck.