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an upscale auto company wants to expand but has to get the financials tuned up first. separating facts from wishful thinking when starting up a small business. and an elevator pitch with an inaugural presidential product. it's time to make money coming up next on "your business."

small businesses are revitalizing the economy and american express open is here to help. that's why we're proud to present "your business" on msnbc. >> hi, there. i'm j.j. ramberg and welcome to "your business," the show dedicated to giving you tips and advice to help your small business grow. over the past seven years of this show, i have been surprised to see how many small business owners i have interviewed, both successful and not, who have no grasp of their finances. they have a general sense of what's going on, but if you dig a little deeper it's clear that they have not spent much time with the numbers. and that is exactly how it was

for a pair of sports car loving shop openwners until they reali they were sitting on a potential gold mine. after more than 30 years doing auto repair in phoenix, arizona, brothers joe and pat ritz weren't looking to change their business model. that is until one customer, chris meyers, asked what seemed like a very odd question. >> i looked around, sure enough there's a million dollar ferrari sitting right there. right next to a 2010 camry. that's kind of interesting, right? so i talked to pat and i said, well, you charge more for the ferrari, right? >> when pat said they charge the same hourly rate for any customer, chris said he was surprised because there's a great difference in skill level needed to work on the two kinds of cars. >> it's not the type of problem, oh, my god, i'm going out of business tomorrow. but yeah, it's a problem. >> chris meyers is a phoenix-based finance guy.

he loves finding overlooked opportunities hidden inside accounting numbers. >> we have people who are tracking the wrong metrics in their business. maybe they're looking at what type of word of mouth feedback we receive. when in reality what they should be looking at is return to purchases for points. >> chris is a self-described numbers geek. he offered his number crunching software program to help the ritz brothers understand which numbers have the greatest impact on the value of the company. >> what they saw was that they were not utilizing their assets properly. and their assets being of course pat's time as a master craftsman. >> we were so used to getting our hands dirty that we were missing the point of what best served our clients and the company. >> their company is called sports and collector car center. until chris spoke up, they had very little interest in tracking their financials. >> we used to be, you know, you wait for the mail man to bring the bank statements to see if

you're still in business. >> today, things are different. joe and pat aren't waiting for the mailman to understand their business. a real estate agent is showing them around a huge new location. >> there's nothing like it anywhere that i'm aware of. >> i'm just thinking like we put the roll racks and then make -- >> what happened? these two have found a whole new vision of the company buried in their own account books. >> we could see day to day where we were at and what we were doing. it really puts excitement into the business. >> by monitoring the day to day financials they discovered if they could get customers to pay on time and cut some of the extra costs it would make a big difference. >> they found out a way to collect their receivables more efficiently. they tightened up spending on a few issues and increased their value of a business by something like 15%. >> i have no financial background, so now i'm reading these things and i'm going wow. this is pretty great. >> the more they looked, the more they found.

and then they struck strategy pay dirt when chris asked about the big number of customers backed up at the front desk. >> wow, you must be busy today, i should come back another time. so i said that to joe. he said, no, no. they're just here to hang out. >> he said, boy, i hope they spend a lot of money here, because they waste a lot of your time. i said i wouldn't have it any other way. >> they'll migrate back here to see what's here and what's going on. they just like cars. >> it struck me like a ton of bricks. like, wow. you're not an auto shop that people like to hang out. you're hangout that's also an auto shop. >> chris realized the garage was more than a repair shop. it had become a community of car collectors who liked to hang out together. >> so i wanted to cultivate a community more so than just a garage. >> together, they hatched a new business plan to create a kind of car collector clubhouse with its own auto maintenance facility. >> you can come and socialize

with people who have cars, it will be car oriented like a clubhouse. like a country club where you come in and you can have a drink. you can have your car worked on. it will be a membership type facility. >> with this daring new plan in mind, they used the bode tree software to run the numbers and assess the risk of giving the business a total makeover. >> what if we priced that a little close tore what the market pricing is? then you can step back and say, wow, that's an entirely new ball game. entirely new business. >> now i'm seeing the direction and a road map that can take us to the goal that used to be just a vision. >> i think they opened their eyes a little bit and said, wow, there's so much out there that we could be doing. that wouldn't require much effort really. but could it tremendously improve the cash flow and ultimately the value of the business? >> like we had talked about, right now your current office is 80% shop, 20% social. and what we're doing here is going 80% social, 20% shop.

>> the flip. >> exactly. exactly. >> it is a new dream. it's at a level that i always wanted to be at. but never had any idea how to get there. >> clearly as we just saw in the story, paying attention to your financials is important on so many levels. let's talk a bit more about this with our guests. we have the president of clarity consulting and author of the book, "taking smart risks, how sharp leaders win when stakes are high." and we have the founder and ceo of a leading personal and lifestyle finance for woman and we have the managing partner and the author of the book "the entrepreneurial instinct." i'm shocked at how many people -- you get to their business an it's successful and they have no idea what's going on. in terms of money.

what's the first step they should take? >> what i loved about this story they took the time to look at the data. they had a customer that gave them insights and that's great. there's data everywhere. there's great insights about what customers are good. and because you're a small business just trying to make money and work hard, every dollar looks like a dollar i need to have. and you don't stop and say, well, which of these dollars aren't smart to pursue? which ones are? it really on takes a couple hours often times. >> but -- how do you start? one of the things they talked about in the piece is looking at the wrong metrics. how do you decide what are the right and the wrong metrics? >> the most important metric to look at which is why they're shifting is time. they have limited time in the auto repair shop and they said, focus on the highest margins, fixing normal cars, regular every day cars has a lot less margin in it than fixing collector cars. i think that was the most important metric to look at.

i think that was a powerful switch for them. i think it will pay off. >> do you suggest, monica, for someone -- one of the issues people are scared at numbers. they look at all the numbers and the data and they shut down. for someone like that, what do you suggest? hire someone to help you just suck it up and look at it yourself? >> it's very much important to look at these numbers at periodic moments in your business. most people don't bother to do it unless it's time to go raise financing. i think what this story really explains is that the prado principal applies to most businesses. you'll make 80% of your profit and revenue from 20% of your skews. i think this software is fantastic, because it guides you through and it provides a framework. even if you're scared of numbers you have got this kind of can't go wrong step one, two, three way to process all of the financial data.

>> so the author of "the lean start-up" came on the other day and he said something interesting. we were talk about metrics, people often look at the wrong metrics. so the example he gave was you're converting 50% of your customers and what you want to do is increase conversion do a big marketing campaign and instead of 100 people coming in you get 200 people coming in. but you only sold 100 things. you still only have 50% conversion. but if you look at those raw numbers you'll think, wow, i did great in my sales. so even if you're looking at all of this data, how do you catch yourself to say, you know, make sure you're still looking at the right things? >> yeah, i think that the trick is to really spend time with your customers, to understand what your customers are, what they're willing to pay for, what they the best way that you can kind of create value for them. and so it may be that we're building customer base and we're spending a lot of money to get the customers but we see the

long tail on the customers as being really important. that's valuable. sometimes we may see the customers won't be around very long. so it's a complex picture. one thing i would say oftentimes you do want to hire a financial expert to stop and say, here's a way to model the business. not just for the next six months but the next year or two years to help you make the longer term decisions. >> it is important to hire someone if you're not quite sure what to look at, but it's critical you understand it. you can't sort of understand it. you need to get into the weeds and really understand what's driving your business. and i think, you know, for one of the things here then is also you have to test your hypotheses. one thing that scares me about the idea is shifting from being 80% auto shop and 20% hangout, they're shifting to 80% to hangout, they haven't been a before a before and how do you know that penal want to speople

$10,000? that's a big risk for them to take without having some data. >> i think the upshot is if you're one of the people who is waiting for the mailman to come to see if you have enough money to stay in business the next month, take some time out and dig into the you were numbers. thanks. looking to earn true customer loyalty? the kind that translates into recommendations and referrals and a better bottom line? here are the five best ways to help the customers find the love. one, end the obstacle course. make sure your clients know how to reach you if they need help. also, send out e-mails periodically to check in. two, avoid customer hot potato. whenever possible, the person who speaks to a customer first should stay with the customer for the duration of the visit. passing the customer off can make the shopper feel like they weren't important enough for your undivided attention.

number three, streamline your website. make it simple. stick with it. four, invest in customer loyalty. offer something without them having to ask or pay extra for it. and number five, offer customers real choices. don't bind them into the fake choice of letting them opt out of something. let them know up front they can get e-mails and offers from you and give them a choice. we say it all of the time on the show, a good idea does not always lead to a good business. so how do you evaluate if your idea has the potential to actually make money? steve blank is a retired entrepreneur and lecturer and the author of a new book "the ta start-up owner's manual." you're starting a business or you have an idea what's the first thing you need to do to decide, okay, this is a viable

idea or not? >> well, the first thing you need to do is realize is all your passion and energy has made you start on day one a faith-based enterprise. even though you think it's a rational business, on day one all you have is your passion. your job is to turn that faith, that is your assumptions, about everything you think you'd believe about customers and markets and pricing into facts. and we kind of now say there are no facts inside your building our office, so get the heck outside. and the whole idea is we believe you need to get outside your office and test some of your key assumptions about your business. >> yeah. i always talk about this. don't get tunnel vision. you and your husband or wife or your senior managers or cofounder, you have one idea. you don't know if that's going to really fly when you get out your door. the first is talk about what problem you know''re solving. >> right.

most start-ups are solving problems or fulfilling needs. while you have a strong belief about of course people have this problem or they have this need, then it should be really easy to go out and talk to some people and see if they believe that. and almost all the time you get surprised and go, oops, i was the only one who believed that people would actually pay to solve that problem. >> so you talk about finding out who cares. how do you figure that out? >> you know, when you start a company you have a series of assumptions. hypothes hypotheses, these are my customer, this is what they look like, this is where they live. you get out of your office and your building and you start calling them. start meeting them and you start doing what i call you watch their pupils dilate as you describe or demo your product or service. if you're right, they'll grab it out of your hands. if you're wrong, they'll say, well, you know, not particularly interested. boy, that's a great time to find that out is before you invest

tons of time and money in your start-up based on faulty assumptions. >> you figure out what problem you're solving, now here's the key. is someone willing to pay you enough so that it makes a viable business and how do you figure out what you can charge for this? >> you know, one of the things we usually believe as founders is, well, of course, people are going to value this at whatever price i just said. you set a price and then you're usually surprised that you don't get enough sales or people think it's too expensive or worse, you leave a lot of money on the table. you can use the internet and direct sales techniques to do testing, test different prices and different categories. test different revenue models. do i do a subscription, is it a direct sale, do i do premium, give a base product away and have people upgrade? if i'm thinking that these are just assumptions, i could run a

series of scientific experiments about what's the right pricing. >> so when you talk about how do you know what someone would pay, you're going out and doing a real test and seeing them open up their pocket pack to see how much they'll pay. >> you bet. >> the start-up manual for anyone who is thinking about turning it into a business. thank you. we appreciate it. when we come back, we answer your small business questions including how to transition your networking skills from off line to on line. and what time is it? it's time for another presidential inauguration and today's elevator picture says he has products worth watching. we've all had those moments. when you lost the thing you can't believe you lost. when what you just bought,

just broke. or when you have a little trouble a long way from home... as an american express cardmember you can expect some help. but what you might not expect, is you can get all this with a prepaid card. spends like cash. feels like membership. gamification is providing the rewards to the consumer for a job well done. the most common is a badge. i can be virtual on someone's facebook profile for the real world that gives them a little reward for a job well done. for example, customers being the 1,000th person into your store, or an employee coming to work on time five days in a row.

using badges as part of an gamification strategy, you're well on your way to creating unprecedented engagement with your consumers and employees and getting your business into the game. in the last few weeks we have been talking about gamification and how companies are using it to increase their user base. well, we have learned a lot ourselves about the process and that's why we have tried incorporating gamification here at "your business." last time we asked you to send us your entry for our most creative logo contest on the facebook page. we got some really interesting submissions. after serious deliberation, drum roll please, the winner is von cochran of jacksonville, florida, who sent us the logo from his company, black fly. he says it represents a lifestyle brand that combines fly fishing, art and adventure and travel all into one. he earns a book and a coveted "your business" coffee mug.

congratulations. president obama will be inaugurated for his second term this week which means that time is running out on the elevator picture to capitalize on the event with his commemorative watches. >> hi, i'm jack golden berg, president of obama watches. nice to meet you. since 2008 we have sold 30 obama watches. it's not that hard, he's the political rock star of the political world. the biggest watch is the barack around the clock. i wore one obama watch to the party, i wasn't planning to wear anymore. the next day five friends called or e-mailed me and said, where can i get the obama watches. this is the new inaugural watch. okay. >> cool. >> okay. i brought you each a watch. this is the yes we can watch. don't worry, we have -- >> i need the time to pay taxes

watch. >> okay. we can't find the other watch. it's here some place. i need $1 million in financing, to work on the new watch. this is called a flip watch. two watches in one. people don't buy watches anymore to talk about -- just to tell the time. they buy watches to tell something about themselves. so this watch, you could be -- in this case it's in the obama inaugural watch. one watch there and here. >> i'm going to stop you right now. what do you need the $1 million for? >> we need it for licensing and cash flow. >> got it. okay. you guys, you have a watch. i wonder if this is going to influence monica's decision, but i'm going to suspect now. nice job. okay. what do you think, monica? >> i think his pitch was great. i think you have a kitschy product that's really fun. but for $1 million i'd be looking for a company that has the opportunity to scale. so i'd really want to know how you're going to grow this business. post, you know, his second term because there may be a big slip down in terms of people's interest in showing their obama

support at this point. >> alex sa? >> you have a lot of question, my question is for $1 million, nip who would invest wants to know how big the market opportunity is. i have a lot of questions if it's just obama, what's going to happen after four years, but particularly you want to see a return. how big can this business be? >> fair enough. >> would you take another meeting? >> absolutely. >> give them back, she said yes. all right, good luck with anything. thank you for everything. if any of you have a product or a service and you want feedback from our elevator pitch panel on your chances of getting interested investors, send us an e-mail. the address is your business @msnbc.com. in the e-mail include a short summary of what your company does, how much you try to raise and what you intend to do with the money. you never know, somebody out there watching the show may be interested in helping you. it's time now to answer some

of your business questions. alexa and monica are with us once again. the first one is about changing the way you market your company. >> i do well with in person, face to face networking to grow the business. how do i translate the skills online so i can reach more clients and grow the business? >> this is interesting because oftentimes, i hear the opposite. sort of i'm great at online, but not when i meet people face to face. she has a personality that can translate online. >> i think if you're good at face to face communication, you'll be fantastic online. online makes it much easier to reach lots of people, but what the face to face networker knows how to do is make them relevant. she can find a way to connect with the person she's meeting online that's how you'd convert the contact. >> i'd say this is what social media is all about. it's about talking a vibrant personality off line and getting

it on line. get up to speed on twitter, facebook, instagram and get out there. that's what social media is made for. >> by the way maybe she tests it out with somebody she has aed gd relationship with and talk to that person. let's move on. this is about whether or not a business needs a personal touch. >> in this day of high-tech content, apps, blogs, webinars and other e-based communications, how important is one-on-one contact with your clients and how does the panel feel about that being a thing of the past? >> so we put these together, obviously, because they're asking the exact opposite thing. what do you think? it's much more cost and time efficient to talk to people over social media than to actually meet them. >> i would say i don't think that we're ever going to lose a business that needs to have, you

know, one to one contact with customers ever. customer service is everything. talking to your customers is for -- it's the number one source of innovation and ideas. customers are telling you what they want, giving you feedback, praise, love. i think what's really critical is to listen. that's where product innovation comes from. companies that have amazing amazing customer support services will really thrive. >> it depends on the type of business you run. if you're an e-book retailer, connecting one-on-one may not be as important. but i saw capital management in his byline. people want to talk to their financial adviser. so think about the type of business you run. >> now on to a question about growing the brand. >> if the business is one person, how do you build up a brand that totally encompasses what you do? >> transcending the one person brand to a recognizable entity,

to something bigger really is about trying to find something organic and something that is about a lifestyle or about a pricing -- a way to look at pricing or a way to look at quality. it's kind of what ralph lauren does very well. he started off making ties and he was known for making ties and they were quality ties but over time he turned it into this just eponymous lifestyle. >> lots of brands get built around the lifestyle, but what's critical is you have to be the expert. so if you're a decorator, you have to be the expert. you have to have a reason why you have authority. if it's personal finance you have to go out and get your cfp and you have to really be an expert. i think that's really important, that authority concept. i think once you have the authority you can encompass a lot of things and people trust

you. and the second thing, building a personal brand is about trust. you have to talk to your user base and customers and let them know that you're really there. it needs to be built in a genuine capacity. i think that people see through a lot of the, you know, disingenuousness and it turns you into not building a brand. you need to be genuine and need to be an expert. >> thank you so much for all of your advice today. if any of you have a question for the experts, just go to our website. it's open forum.com/your business. or if you'd rather send us an e-mail. address is yourbusiness @msnbc.com. it's always important to keep up with the latest trends. so let's check in on twitter to see what hot topics entrepreneurs are talking about. entrepreneurial magazine fast company has an interesting

factoid. a brain scan study suggests entrepreneurs are more likely to use both sides of their brains when making decisions. "your business" panelist and marketing man david scott says the real time web means you have no longer have the authority of relying on preplanned plans. and resolve to say these seven words more often in 2013 -- i don't know. what do you think? if you're anything like me, you're probably not that good at organizing your receipts and then expensing them. chances are your staff may not be that great at it either. check out our app of the week. expen expensefy helps you to track the receipts and log your mileage using the free app. to learn more about the show, click on the we