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The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.

Are Trade Shows Worth the Expense?
By Gregg Schoenberg Tuesday, March 13, 2012

Tips on Forecasting a Trade Show’s Value to Your Company:

If your business is involved in an industry in which trade shows are an important means of connecting with customers, then you have probably taken part in these events in the past and/or are considering doing so in the future.  Whether you are a trade show pro or a novice, one thing you may struggle with is the budgeting process for a specific show.  We’re going to apply a top-down economic analysis to the world of trade shows to help you efficiently allocate your dollars when planning for your next show.

Step 1 – Determining your target audience

You should start off by looking at the total number of people that are expected to attend the show and then figure out what percentage of attendees are likely to be in your target audience. By talking with the trade show’s organizer and obtaining a detailed profile of the attendees, you can form a reasonable estimate of the size of your target audience.

For example, say a show has 10,000 attendees but 40% of those are other exhibitors, then the total audience is really 6,000 people. Now you’ll want to whittle down that 6,000 into those that truly comprise prospects for your business.   Again, a detailed look at the demographics should help; for our sake here, let’s say that 20% of those 6,000, or 1,200 people represent your true target audience.

Step 2 – Choosing the size of your booth and your staff

You’ll want enough space to comfortably accommodate all of your visitors—and enough staff on hand to handle them professionally— but not so much that you waste money on unnecessary capacity.  In order to come up with the ideally sized booth and staff we can continue the analysis we started in Step 1.

While you have a target audience of 1,200, not all of them will make it to your booth.  As a rule of thumb, about 45% of your targeted audience will actually pay you a visit, so you are looking at approximately 540 visitors.

Now we just need to know you many productive hours there are over the course of the show and how much time, on average, you’ll spend with each visitor.  If we’re looking at a fairly typical three-day, eight-hour-a-day show, that gives us twenty-four hours.  Notice though that we are looking for the number of productive hours.  As anyone who has attended a trade show can attest, not all of the hours spent there fall into this category.  If you account for one slow hour at both the beginning and end of the day, and one at lunch, you’re really looking at five productive hours a day, or fifteen hours over the course of a three-day show.

So your 540 visitors will likely be spread out over 15 hours which means you’ll be seeing about 36 visitors an hour.  If you are going to spend an average of ten minutes with each one, then you’ll need a staff of six people.  A general rule is that each staff member should have 50 square feet of unoccupied space, so you’ll require 300 square feet of space in addition to whatever square footage is taken up by your display.

Step 3 – Tally the numbers

We know that we need 300 square feet to accommodate our target audience, and let’s say we require an additional 100 square feet for our display, for a total of 400.  While the cost of your booth will vary depending on the event, we’ll use an industry average of $25 per square foot to allocate $10,000 to pay for the booth.

A rule of thumb for trade shows is that exhibit costs make up about one-third of total costs with the rest coming from travel and entertainment, show services, promotion and design.  So our grand total budget for this hypothetical show comes to $30,000.

Step 4 – Post- show follow up

To see whether or not the money you spent on a trade show was a good investment, you need to reconcile the cost with the benefits that a good trade show should provide.  Make sure that you and your trade-show staff keep a detailed record of all sales leads collected, and actual sales closed, that can be directly traced to your presence at the show—in addition to more intangible metrics such as increased web traffic after the show ends—in order to compare the value of different shows and ensure that you are allocating your trade show dollars wisely.

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101: Business Travel
By Gregg Schoenberg Monday, March 12, 2012

As you are working on your business’s budget for the new year, you may be looking for expenditures that you can afford to cut back on in 2012—particularly if you are still feeling the strains of the sluggish economic environment.  One item that may look tempting to your cost-cutting axe is your travel budget.  After all, with the preponderance of no, or low-cost, web-based solutions for everything from client meetings to employee training, how much value are you really getting for your business-travel dollar?

While this might sound like a purely theoretical question, the research firm of Oxford Economics actually commissioned an exhaustive study based on two separate surveys of corporate executives and business travelers—and on an advanced econometric analysis—to provide us with a real-world answer, and that answer will be probably surprise quite a few of you.  They found that for every dollar invested in business travel companies realize $12.50 in incremental revenue and $3.80 in profits. That is the kind of return on investment (ROI) that should have you thinking twice before making any drastic cuts.

The study also found that cutting back on business travel can have serious and long-lasting negative repercussions.  For example, if a company were to completely eliminate business travel for two years it would experience a 17% decline in profits in the first year of the shutdown, the negative impact would get worse over the next two years, and it would take several years after travel is reinstated for profits to stabilize.

Of course not all business travel is created equal and you still have to work with a finite budget, so you’ll want to analyze which business trips provide the greatest benefit for your company.  In order to achieve this you’ll want to focus on travel that can help in one or more of these four areas:

1.) Keeping clients

2.) Converting prospects into clients

3.) Increasing your network of business contacts

4.) Improving the skills of your employees

Visiting existing clients and making sales trips to see prospects are two obvious types of business travel to cover areas one and two, and not surprisingly they also deliver the highest ROI (estimated at $15-$20 in incremental revenue for each dollar spent).  In addition, executives and business travelers say that 40% of their prospects are converted to clients with a face-to-face meeting compared to 16% without a meeting, offering proof that even in the digital age there is no good substitute for an old-fashioned sit-down with prospective clients.

Think twice about canceling your trade shows and conferences.  In addition to helping with all four of the key areas in a single trip, they too offer a respectable ROI -- estimated at $4-$6 in incremental revenue for each dollar spent. In fact, a majority of business travelers stated that 5 to twenty percent of their new clients were the result of participation in trade shows.

When you compare the overall ROI of business travel to other possible uses of your corporate dollar—as well as the negative consequences of cutting back on travel—you’ll probably find that business travel stacks up pretty favorably, and you may find yourself swinging that axe somewhere else.

 

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Is Your Company Prepared For An Emergency?
By Gregg Schoenberg Wednesday, March 7, 2012

As the owner of a small business you are used to planning for the future when it comes to budgets, growth forecasts and the like.  But have you taken the time to develop a plan in the event that a natural disaster or other emergency strikes?

Threats to your business can come in many forms, from weather-related disasters, to human-caused mayhem, to large-scale technology malfunctions. Events such as these, while relatively rare, can pose a very serious threat to the livelihood of small businesses.  Yet an Ad Council survey found that 62% of respondents do not have an emergency plan in place for their business.  It should not come as a surprise then, that according to the Insurance Information Institute, up to 40% of businesses that are affected by a natural or human-caused disaster never reopen.  Being prepared for these events can make the difference between surviving with your customers and reputation intact, versus incurring permanent damage to your business.

An emergency-preparedness plan should include both a set of policies to ensure that disruptions to your business are minimized if a catastrophe does strike, and a business continuity plan for getting up and running again as quickly as possible in the aftermath.

The specifics of your emergency plan will depend on the size, scope, and location of your business but at the very least it should include the following.

 

  • Communication Plan – Information including phone numbers and email addresses, as well as computer and internet passwords, needs to be available to all key personnel in both electronic and hard-copy format, and be accessible both on-site and remotely.  When a disaster occurs, after insuring that all of your employees are accounted for, it is critical to reach out to customers and suppliers as soon as possible to update and hopefully reassure them as to the status of your business. Your communication plan should identify everyone that you will want to contact in an emergency and assign responsibility for making those contacts to senior people within your organization.

 

  • Data Access – All data and software that is key to running your business should be backed up, both on-site and off, and accessible remotely.  Ideally you will have identified alternate work locations in case your office is inaccessible.  Once you have this part of your plan is in place, you can test its effectiveness by having yourself and/or other key employees work remotely for a day or more and seeing whether or not they can accomplish their duties seamlessly.

 

  • Continuity Plan – Suppose that all of you business capabilities are knocked out and you need to start over from scratch.  Do you know what you would do first?  You can start by identifying the actions that are necessary for you to fulfill all of your legal and financial obligations in order to maintain your cash flow.  Then move on to those activities that are critical to maintaining market share and reputation.  Come up with a realistic assessment of how much time you could tolerate operating without key products, services, and personnel, and then formulate a plan to get them back online within the allotted time frame.  Again, this is something you can test as part of a disaster-preparedness scenario, and you should assign senior personnel the responsibility for getting key areas functioning in the aftermath of a disaster.

If you are looking for more help in crafting your disaster-preparedness plan, the Federal Emergency Management Association (FEMA), the Red Cross, and your state and local government offices can all be excellent sources of information to help you plan for a day that will hopefully never come.

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Lease versus Buy for your Small Business
By Gregg Schoenberg Monday, March 5, 2012

As a result of the recent economic crisis and real estate crash, prices for corporate real estate in many markets now look more attractive than they have in several years. Add in historically low interest rates, and it is easy to see why many small-business owners may have an eye on the corporate real estate market. If you are in the market for commercial space for your small business, you should start by considering the lease-versus-buy question.

The lease-or-buy decision is ultimately an economic one, driven by return on investment (ROI).  Because the purchase of corporate real estate involves tying up a large chunk of money for a long time, you’ll want to realistically assess what kind of return you can expect to gain from that investment and compare that to the return you could get from investing in your core business.  Make sure not to fall into the trap of assuming too high of an appreciation rate for your real estate investment, a lot of people who did this got burned when the real estate boom turned into a bust.

In addition to the ROI equation you’ll want to consider carefully the tax consequences.  While lease payments are typically 100% tax-deductible, principal payments on a business mortgage are not.  However, operating expenses and depreciation are tax-deductible when you own, and certain municipalities can offer tax breaks and incentives to the purchasers of corporate real estate. Make sure to go over all of the numbers with a finance expert and a tax professional.

If the numbers stack up favorably toward buying you’ll still want to consider a few qualitative factors before taking the plunge.  Buying your own office immediately launches you into a new role with a new set of responsibilities: that of corporate real estate manager.  Make sure that you are comfortable handling things like legal compliance, and health and safety issues that may be outside your area of expertise.

And be sure to consider the likelihood that your business may need to expand, contract, or relocate at some point.  These can all become more difficult when you are the owner of an illiquid asset like an office building.

If you decide to become a buyer you should put together a small team of trusted experts to help you with finding and purchasing the right property for your business.  That team should include an accountant, an attorney, a commercial real estate broker and a lender or mortgage broker.

When looking for the “right” property it pays to heed an old maxim: location, location, location. While you’ll want to consider a variety of factors such as physical condition, allowable use, availability of parking, and potential for expansion or subleasing, location is still the most important issue. The type of business you own will of course help determine the ideal location of your office.  Is it most important for you to be located in an area with high pedestrian traffic, one with easy access to highway, rail, and shipping lanes or one that is convenient to access for a pool of highly skilled workers?

Once you have found your ideal property it is time to lean on your team of experts.  Your commercial broker should help you come up with a sensible offer, while your attorney and accountant can make sure that all of your funding and documentation is in order so that you can get the best available interest rate that your lender has to offer.

By conducting your due diligence to determine if buying is right for your company, and then working with your trusted advisors you should wind up with a building that suits your needs and finances both now and for the foreseeable future.

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The HBS Blog Has a New Look and Search Features
By Carleigh Lowe Sunday, March 4, 2012

Today it has been three years since we started The HBS Blog! During that time we have built a rich archive of hundreds of articles for your reading enjoyment. We decided that it was time for a new look, so we have changed the font and layout. A major priority for the redesign was to make it easier for you to find articles of interest. Now you can search the archives by terms, tags, categories, authors and date. Another new feature is that at the bottom of each post you will see related posts. This is an easy way to read more on the topic you are interested in with out doing the digging. You can also find us easier by clicking on the links to our Twitter, Facebook, YouTube and LinkedIn pages. There are lots of other new details to check out so be sure to explore and enjoy!

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