"Sugar, sugar! Oh, honey, honey!" lip-synchs a grinning Buddy Valastro in the teaser for the fourth season of TLC’s popular "Cake Boss." With a booming pastry enterprise, two hit reality shows ("The Next Great Baker" premiered last December), and a New York Times bestselling cookbook, the Cake Boss has plenty to smile about. But the business end of Buddy's bakery wasn't always so sweet.
As with any small company, Carlo's Bakery, an establishment Buddy's father purchased in 1964, has its fair share of logistical headaches. While the pains Valastro's bakery faces stem largely from rapid growth, many of America's small businesses struggle just to keep their heads above water.
Small but Mighty
Despite a hazy economic climate, the U.S. Small Business Administration (SBA) counts more than 6 million small businesses (defined as companies with 500 employees or fewer) in the country, up from 5.6 million in 2000. Brent Leary, cofounder and partner of CRM Essentials, explains this phenomenon: "Many small businesses today were created by necessity. People started businesses because they were laid off or needed to supplement income."
Companies are also easier to create than they were a decade ago. Leary says, "Technology enables people to start businesses at a much lower price point than in the past."
But easy to create doesn't mean simple to maintain. Failure rates among small businesses rose by 40 percent between 2007 and 2010, according to data collected by Dun & Bradstreet.
The top three challenges for small businesses are growing revenue, maintaining profitability, and acquiring customers, Leary says. Mindful leaders with the right tools can keep their ships on course to manage those challenges. Ramon Ray, editor and technology evangelist for Smallbiztechnology.com, explains, "Small businesses need a plan of action to get new customers and keep the ones they have. Technology is absolutely critical."
Here's how six small businesses made smart plans and nimble investments to make their companies profitable, efficient, growing, and successful.
Challenge 1: Revenue Growth
Michael Fauscette, group vice president of software business solutions at IDC, defines small businesses as "large businesses with less resources." While the workforce may be smaller, the stresses and expectations are still the same. As with any business, the bottom line is the top priority.
In the summer of 2010, USA Fact, a California-based employee-screening company, had a revenue stream that had slowed to a trickle. A high nationwide unemployment rate meant there was little need for screenings, and sales were at a standstill. In August 2010, Matthew Davidson, now the company's CEO, was called in on a rescue mission when the president of the board discovered an unsettling statistic. "The sales team was only closing $2,000 in revenue per month with 12 people," Davidson says.
When Davidson and his partner (the current chief operating officer) entered the scene, the situation was at a breaking point. "We had to make the decision to either change direction or look for a buyer," Davidson says. One of the first areas they examined was technology to help power USA Fact's sales force.
Davidson found that the company was running on SugarCRM 6.1 but that the previous leadership "had customized the heck out of the thing with so many features—a drop box for everything." Davidson knew for his team to be profitable, it needed to be accountable. But accountability required a system that the team could—and would—use.
After streamlining the SugarCRM interface and implementing mobile capability, the company began to improve, posting a 20 percent increase in revenue in the final quarter of 2010. As of August 2011, the year-to-date sales had jumped 152 percent from the year-ago total. While the CRM overhaul was the shot in the arm that USA Fact needed, "a daily investment of consistency and integrity" kept the company growing, Davidson says.
Challenge 2: Maintaining Profitability
For many small businesses, staying profitable means striking a balance between cost-cutting and investing. Leslie Ament, vice president of Hypatia Research, says, "If companies want to grow, at some point they need to start automating processes and creating consistencies." However, the questions can get sticky: When? How? By how much? Ament explains, "For companies with up to 25 employees, it's possible to do everything manually, but this may shift focus away from higher productivity issues. It's a choice that an organization has to make in alignment with its budget."
Social Media Link (SML), a young social media management agency, recently faced such a choice. Composed of only four employees, the agency was well under Ament's 25-person threshold. With offices in both Minneapolis and Chicago, SML needed a streamlined approach to information sharing.
A tight budget for tech investment forced the agency to share one license to High Rise CRM among all four employees. At $50 a month per user, SML couldn't afford to upgrade, but the common login created confusion. "We couldn't see who was making which updates to the system," co-president Daniel Pesis explains.
Pesis's company switched in July 2011 to Nimble because of its zero-dollar price tag. "We did our research, but in the end, there was no reason not to try something that was free, and we loved it." SML now uses Nimble's contact management features to interact with vendors and track leads, a function that Pesis says was eye-opening.
"When we first migrated our contacts into the system, we saw leads that we hadn't followed up with for a whole year. That transparency is really invaluable," Pesis notes. The switch to Nimble's free, easy-to-use tools was ideal for SML this year, but Pesis says that if the company ever outgrows the functionality, he's happy to pay up: "If we paid a little bit a month for a lot more service, I don't see why we wouldn't upgrade. But we're always looking to manage costs. I think every startup is."
For companies with more advanced needs, a free solution might not be practical. Analysts note that some low-cost solutions are available .
In a similar scenario, ArcSource, a 12-year-old company with 15 employees, no longer could afford its Salesforce.com subscription. So ArcSource switched to Zoho CRM for one-sixth of the price, which in turn allowed the company to add subscribers, improve customer tracking, and free up budgetary spending for more features, including invoicing, project managing, and direct marketing tools. David Monk, CEO of ArcSource, estimates that his company's invoice creation time diminished by 75 percent, and it has seen a $120,000 return on a $1,000 direct-mail campaign.
Challenge 3: Customer Acquisition
The word "marketing" is often a source of pain and frustration for small businesses. It's no secret that potentially successful companies fail if no one knows about their offerings. But companies that have few resources struggle to get the word out. Marketing campaigns exact a heavy cost in both time and money. By the same token, taking advantage of new technology can be a boon to business.
Axicom, a managed service provider with five employees and two outside contractors, has proven that something as simple as email can make a substantial impact on customer acquisition. The company began to use Constant Contact, an email marketing software provider, in 2005 to help engage with prospective and current clients. "Printed marketing materials were not cost-effective," explains Christa Nonnemaker, co-owner and chief operating officer. "But email was an affordable option."
In six years, the company has been able to grow its business, while keeping afloat through a tough economy that caused some of Axicom's customers to fold. Nonnemaker says, "Our marketing has definitely benefited our bottom line."
Axicom now uses Constant Contact's event-marketing module to create educational events to attract new business while integrating with its social media presence. After the monthly newsletter is distributed, Axicom sees a measurable increase in both Web site visits and telephone calls.
In the past decade, the social media explosion also has led to numerous new ways for companies to interact with customers. While Facebook, Twitter, LinkedIn, and blogs all are effective ways to gain online traction, return on investment can be difficult to measure. IDC's Fauscette says that real value lies in "the ability to take available social information and analyze it so you can build a richer profile of your customer." While "socialitics" solutions are in the early stages, small companies are poised to take advantage with high levels of freedom in terms of adoption and compliance.
The file-sharing service YouSendIt adopted the socialitics solution Radian6 to get a better handle on social media efforts. "Beforehand, we had a strong following on Facebook, but we were blindly posting," explains Katie Ball, corporate communications associate for YouSendIt. With Radian6, the company can listen to customers while tracking the impact of its own posted content across the Web.
CRM Essentials' Leary explains that when it comes to social media, potential customers want a two-way conversation. He says, "If you try to create content that answers challenges, then you're using that tool effectively." YouSendIt uses Radian6 in alignment with Leary's suggestion, and the file-sharing service has been able to acquire and retain customers in a proactive way. Ball says, "We're able to reach out to them and say, 'How can we help you?' We've gotten a really positive response from that."
Challenge 4: Growing Pains
Growing pains are what many small-business owners would call a "good problem." But the ability to keep pace is a real issue.
Valastro and his team at Carlo's Bakery have been lucky enough to experience such pains. Carlo's Bakery was profitable in 2008, but in April 2009, when the first episode of "Cake Boss" aired, the bakery soon became a sensation. The popularity required expansion in both physical space and brand scope. In addition, Valastro, a self-proclaimed "controlling person" when it comes to his bakery, had to spend much of his time traveling for consulting work, appearances, and meetings.
"They were having an extreme challenge keeping up with the amount of businesses and people trying to communicate with them," explains Jeff Bloom, SME channel account manager at telecommunications provider Avaya. The bakery's phones were ringing constantly, and with only six analog lines to support high volume, potential business often was lost because of busy signals.
When Valastro decided to expand to a second office in Jersey City, N.J., he knew he needed to upgrade his phone system. Valastro was sold on Avaya IP Office 7.0 because of its ability to ease communication between himself and his two sites, coupled with the flexibility to expand. After the roughly 10-day implementation, the sites were able to communicate efficiently with a four-digit dial, and a one-number caller ID made for clean external communication. Customers were able to reach the bakery even during peak call times, and employees were no longer chained to their desks waiting for an available line to ring.
From Valastro's perspective, he now has the flexibility to manage his business closely, even from afar. "[I'm] able to listen in to make sure everyone's doing their part," he says. "Because I'm such a mobile guy, being able to take all of the capabilities of what's on my desk and being able to connect to it anywhere in the world is a pretty great thing." What's more, the communications system could be expanded, just like Buddy's business, with all future bakeries linking up to the original Carlo's Bakery.
Avaya's Bloom says, Buddy's a "great example because he's on TV and everybody recognizes him, but he faces the same challenges as any small business." As Carlo's Bakery has proven, as rocky as the path for small business may be, success is attainable. Hard work, backed by intelligent high-technology investments, can produce sweet rewards. Valastro says, "If you put your heart into something, you can make it happen, and I'm living proof of it."
—Additional reporting by Brittany Farb. To contact the editors, please email editor@destinationCRM.com.