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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.

101: Exchange Rates Part II
By Gregg Schoenberg Wednesday, November 16, 2011

In our previous Exchange Rates Part I post, we gave an overview of the way that currency markets operate and explained the importance of foreign exchange rates to many small business owners in today’s global economy.  Now let’s take an in-depth look at some of the specific ways that exchange rates can affect your business and propose some solutions to dealing with this somewhat-complex issue.

We’ll begin by looking at things from the point of view of a business owner who is dependent upon an overseas supplier for some or all of his raw materials or services.  In our example we’ll assume that the business owner is located in the U.S. and has a company that makes wool sweaters. He has determined that he prefers to buy wool from a provider in New Zealand, where the sheep are plentiful and the quality is excellent, and has agreed upon a price per pound of wool in U.S. Dollars that is profitable for his business.  Things are moving along smoothly for a while but a few months later when he goes to place his next order he discovers that his supplier is charging 10% more for the same amount of wool.  What happened?

While there could be a number of reasons for the price increase, for our example we’re going to assume that is was entirely driven by a change in the exchange rate between the U.S. dollar and the New Zealand dollar (affectionately dubbed the “kiwi” by currency traders).  Specifically what has happened is that the U.S. dollar has lost 10% of its value versus the Kiwi.  And while our sweater-maker has always paid for his purchases in U.S. dollars, what he may not have realized is that those dollars aren’t much good to someone living in New Zealand.  Therefore his supplier must convert those U.S. dollars into New Zealand dollars, and because of the fall in the value of the U.S. dollar the supplier now needs 10% more U.S. dollars per pound of wool in order to maintain his same level of profitability.

Now let’s think about what happens when our sweater-maker goes to sell his products to customers around the world via his online store.  He sets all of his prices in U.S. dollars but sells his products to customers who earn their livings in any number of different currencies.  Thus if the price of the U.S. dollar falls relative to the home currencies of some of his customers, his products will essentially become cheaper for them, but if the price of the U.S. dollar rises against some other customers’ home currencies, his products will seem more expensive to them.

So how is a small business owner supposed to manage the effects that currency rates can have on both his purchases and sales?  The most important thing to do is to stay informed of the level and direction of the exchange rates that matter to your business (i.e. those of the countries that you buy from or sell to).

If you find that a weaker U.S. dollar is driving up the price that you have to pay to foreign suppliers you may want to look for alternative suppliers either at home or in countries with a more favorable exchange rate.  And if the U.S. dollar is getting stronger but your foreign suppliers are not adjusting their prices downward, it may be time for you to renegotiate your contracts with the knowledge that your dollars are now worth more than they used to be.  As for the sales side of the equation, it may pay to ramp up your marketing efforts in countries whose currencies have appreciated versus the U.S. dollar, as your products are effectively on sale there without you having to drop the price.  Finally, there is the option to hedge the risk of your exposure to fluctuations in foreign currency via the financial markets, but this is something you would need to discuss with a reputable financial professional with expertise in the field.

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101: Exchange Rates
By Gregg Schoenberg Tuesday, November 15, 2011

As the world becomes increasingly interconnected through the forces of globalization and the march of technology, the role of the small business owner has changed dramatically.  Once upon a time, most small businesses were essentially local businesses, producing goods and services for, and acquiring supplies from, a network of customers and vendors that were located close to home, usually in the same city or state, and always in the same country.

While globalization has provided entrepreneurs with a host of benefits, including an expanded marketplace into which to sell their products and the opportunity to comparison shop for goods from around the world, it has also presented a host of new challenges.  If your business is attempting to sell to a global customer base then you are no doubt familiar with the trials of understanding the idiosyncrasies of different markets and cultures­—in addition to the sometimes-daunting task of attempting to communicate in a foreign language.

With all of these things to worry about in today’s global environment for small-business owners, many of you may not have had the time to fully understand how foreign currency exchange rates, which are a truly global phenomenon touching all international transactions, affect your business.  So let’s take a look at how the foreign exchange markets work, their effects on business owners, and some strategies for coping with fluctuations in the exchange rates that affect your business.

Simply put, the exchange rate between two currencies is the rate at which one currency can be exchanged for the other.  For example, if the U.S. dollar to Japanese yen exchange rate is 80, then 1 U.S. dollar will buy you 80 Japanese yen, and of course it follows that it will take 80 Japanese yen to purchase 1 U.S. dollar.

The level of the exchange rate between any two currencies is determined by a host of factors including the pace of economic activity, the level of market interest rates, the gross domestic product, and the unemployment rate in each of the countries in question.  Exchange rates are set in the global financial marketplace, where banks and other financial institutions trade currencies around the clock based upon their views on the above-mentioned factors as well as their own financing needs and investing strategies.  Because of the twenty-four-hour global nature of currency markets, exchange rates are constantly shifting from day to day and even from minute to minute, sometimes in small increments and sometimes quite dramatically.

For entrepreneurs, changes in exchange rates affect their businesses in two main ways: by changing the cost of supplies that are purchased from a different country, and by changing the attractiveness of their products to overseas customers.

In our next post we will explore these effects in greater detail and propose some solutions to help cope with fluctuations in the exchange rates that matter to your business.

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Community Support for Extreme Home Makeover
By Brett Melson Monday, November 14, 2011

In October of 2005, Harvard Business Services incorporated a small nonprofit organization with the unusual name of “Jusst Sooup Ministries, Inc.”   Dale Dunning, founder of Jusst Sooup Ministries,  has been making soup in her kitchen and distributing it as she could to the needy and hungry in Sussex County, Delaware.

After making about 950 quarts of soup a week on her four burner stove in her own small kitchen, often using her own money, Dale distributed her meals in a tan RV to various locations in the county.  Mrs. Dunning is a Jefferson Award Winner in Delaware, People Magazine featured  her in Jan 2009 and named her  a “Hero in Hard Times.”

On Aug 22 another large vehicle pulled up outside the small church hall where she was going about her work of preparing to feed the needy.  That vehicle was the famous bus from ABC’s “Extreme Makeover: Home Edition.”  Host Ty Pennington and his film crew were there to announce that she had been selected to be the recipient of a 7,000 –square-foot complex comprising a house, guest house, large soup kitchen, outdoor pavilion and eating area and storage shed.  Along with the Makeover crew, local businesses, along with an army of volunteers, worked day and night to complete the complex and garden by the revealing date of Aug 31 (postponed two days because of hurricane Irene barreling through during the week!)  ABC will air the build as a two-hour Thanksgiving show Friday, November 18.

Because of the cost of maintaining the magnificent complex, local business sponsors, Schell Brothers, established an endowment fund to help the Dunning family maintain the cost of the home in future years.  Harvard Business Services is happy to be of help by providing free registered agent service for the life of Jusst Sooup Ministries, Inc.

Make sure to tune in Friday Nov 18th

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Why Listening Is So Important
By Matt Cholerton Wednesday, November 9, 2011

I was talking to a sales executive about his method for narrowing in on what customers want. What new market is worth pursuing? How do you determine new stellar product features? We talked about dissecting the industry, examining competition, researching market demographics and the like, but he quickly pointed out how he really does it. He listens.

He listens to those who want to use the product, to customers and to those who have sold similar products before. We know good sales people are good at listening. Why aren’t we all?

Listening is hard. Most of us don’t do it well. In their book, Excellence in Business Communication, Thill and Bovee write, “Listening is a far more complex process than most people think. .. . most of us listen at or below a 25 percent efficiency rate, remember only about half of what’s said during a 10-minute conversation, and forget half of that within 48 hours.”

We can do better.

You might get new information about your product, customers, process, work environment, relationships, upcoming changes, etc...  An even more important byproduct is, as an employer or manager, listening creates an environment of respect and trust.  Employees who feel listened to and respected are more engaged and more productive.

Be a better listener. To be a better listener, remind yourself throughout the day that listening is an active skill.  It is not something you just sit and do, passively. Concentrate. “Am I listening to this person?”  “What would be like if I was the one saying these things?” “How would I feel and why?” “Do I really understand what they are saying?”.

In conversation, when someone is talking we are thinking of what we will say next. Very quickly, we stop taking in information and start forming a response.  We think of a similar story to relay (to show we are listening) or we are reminded of a similar topic.  “Oh, this is a good time to ask them about the XYZ project,” you might think.  Meanwhile, we miss what is being communicated. This is a natural way we have learned to communicate. It takes practice to be able to undo this when its time to actively listen.

Be present with an open mind. We have a lot of information around us and unconsciously block details and assume links in order for the world to make more sense. This inhibits our listening. Be aware of the tendency to project your own experiences on others. Don’t assume you know the opinion of others. Don’t judge someone by the way they look, or the position they hold. I’m shocked by the number of times I think I know someone and think I know what they will say - when I’m quiet and actively listening I’m often surprised.

Paraphrase what you heard. This helps others feel heard and ensures you have all the important information and understand it accurately. When you can, recognize the feelings of the speaker, such as commenting on the thought that went into talking to you or the anger they feel. Ask open ended questions to get at the core issues and to create a venue for the speaker. Demonstrate your active listening with your body language - don’t glance at your phone! Eventually, you might even start to schedule extra time in your day to listen.

Listening equips you to make a better decision, helps better see intents and motivations and builds respect and trust. How do you actively listen and how has it improved your business?

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Changing Behavior For Sales Performance Part III
By Tom Caso Tuesday, November 8, 2011

Hidden determinants That Effect Sales Productivity

So far we have made a case for the fact that most so called sales training does not work because it is either solely a cognitive exercise to gain knowledge about selling or, worse yet, an emotional pep rally that wears off at the first sign of adversity.  Neither produces real or lasting behavior change that increase sales productivity.

We also have established that our beliefs drive behavior, and those beliefs live in a sub-conscious dimension we call the “I AM”.  In this dimension reside our beliefs about ourselves that have been formed over a lifetime of experience that include our parents, teachers, friends, rivals, coaches, bosses and colleagues.  The sum total of these beliefs make up our self-image and we behave accordingly.  They determine our actions, feelings and behaviors and even our abilities.  For the majority of sales people, unless and until we direct our training efforts toward changing our belief structure and expanding those boundaries that limit us, we will never achieve our full potential as sales professionals.

Here is an example that illustrates the point:

Sales person “A” has all the talent and personal gifts to become a super producer – solid knowledge and skills, outgoing and friendly personality, and lots of experience.  Sales person “B” has modest talent, only fair knowledge and skills, and much less experience but out produces sales person “A” by tenfold.  Why?  What are the hidden determinants that allow sales person “B” to become a champion producer?  We believe a key factor is “Achievement Drive”, which is released or triggered by our beliefs about our own abilities, our view of selling, belief in our product or service, and making a commitment to do the necessary tasks for success.  These beliefs must come into harmony or congruence with our ethics and values or they will sabotage our results.

Let’s look at the Integrity Solutions, Inc. Congruence Model ® from the perspective of its author, Ron Willingham:

Congruence Model

As you look at the model, consider the following points:

 

1. Conflicts or low levels of sales result wherever gaps occur between the dimensions.

 

2. The wider the gap, the more salespeople experience internal stress, and the likelihood of failure.

 

3. Conflicts or stress cause mental and emotional blocks which inhibit sales success.

 

4. As conflicts are reduced, sales, personal confidence and activities Increase.

 

5. Bringing dimensions into congruence is a behavioral issue, not an Intellectual learning process.

 

6. The dimensions only come together when positive actions, attitudes, and values are practiced in your everyday selling activities. As their dimensions come into congruence salespeople want to do result-producing activities. They develop an internal zest, confidence, and a deep feeling that what they’re doing is right and good.  As these key emotional factors come into congruence, people are unconsciously freed-up to sell on higher levels. *

These are the hidden determinants that have such a powerful effect on selling production.  In the next and final installment we will tie all this together in a comprehensive program that works and gets the results you want.

Read Part I and Part II of this blog series.

 

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