Street Smarts

Numbers run businesses. They tel you how you can make the most money in the least time and with the least ef fort—which is, or should be, the goal of every entrepreneur.

It’s a mistake for any business to waste capital on low-margin sales. It can be suicide for a new business, which has limited capital by definition and will never get beyond the start-up phase if its capital runs out.

Growing a business is much harder if you are constantly having to replace customers you’ve lost. Which would you prefer, after all—making fifty sales in a year and having a 100 percent customer retention rate, or making a hundred sales a year and having a 50 percent retention rate?

Markets change. Technologies change. Customer wants and needs change. If you have your finger on the pulse of the market, you’re a step ahead of the competition. If you don’t, you run the risk of getting blindsided.

Customer retention is the key to growth, and you retain customers by building strong relationships with them.

Your company is probably your most valuable personal asset. Don’t undermine its value by letting your margins erode.

The biggest problem with employee theft is that it often leads you to make bad decisions about your business and your life. The emotions are so overwhelming that you tend to overreact. You can’t get back to making good business decisions until you take the emotions out of the process.

The changes clearly strengthened the company in just about every respect. And, unlike the folks at, say, Amazon.com, the Stones built their online business while maintaining average gross margins of 32 percent.

How to build company culture? First of all, mutual trust, transparency in the law, employees need to know what you expect from them and vice versa what they expect.

The next rule is to negotiate the number two priority first, your initial concession on this bargaining point will give you the extra strength to put the number one priority on the table.

Good entrepreneurs all have certain key numbers, they monitor daily, weekly and know right away how their business is going before the business report.

When starting out, calculate your monthly sales and gross profit margin by hand.

Choose an industry with many competitors, this shows that many people have made money, we just need to make a difference with them.

The first important thing for a successful business is to define goals.

Forget about shortcuts. Run a business as if it’s forever.

A business plan is essentially your best guess as to how you’re going to get there. Now, when I say business plan, I don’t mean anything elaborate. I’m talking about a modified, down-and-dirty income statement and cash flow statement.

After critical mass, growing a business becomes a matter of choice. That is clearly a huge change from before—a predictable one, and a good one, but a change that has major consequences. It opens up a whole world of possibilities that you couldn’t even think about during the start-up phase.

The most important quality is resilience. I’m talking about the ability to bounce back from failure, to turn around a bad situation, to profit from your mistakes. That’s because everybody makes mistakes, plenty of them. What’s more, we keep on making them as long as we’re in business.

I’d taken a lovely, secure, profitable business and destroyed it by exposing it to a level of risk it should never have faced. I’d done it, moreover, because of something in my nature. I enjoy risk.

Mainly, however, I adjusted my thinking about risk. Don’t get me wrong. I’m as much of a risk taker as ever, but these days the risks I take are calculated ones.

What’s difficult—and essential—is developing the discipline and the stamina to stay focused on a single opportunity until you’ve turned it into an established business that can stand on its own.

Whatever it is and wherever it comes from, it’s the most important quality an entrepreneur can have. Ultimately, it determines whether we succeed or fail.

Those who persevere win. Be resilient and welcome failure. That’s how you become a better businessperson.

Don’t try to turn that revolutionary new concept into a business. Find a great old concept instead.

I believe strongly that the first business plan you write should be for nobody but yourself, and you don’t need any special software to create it. You just need to answer four questions as honestly as you can: (1) What is the concept? (2) How are you going to market it? (3) How much do you think it will cost to produce and deliver what you’re selling? (4) What do you expect will happen when you actually go out and start making sales?

You need to plan your investment strategy just as you plan your business. You need to research the market. You need to find out as much as you can about potential investors—what they want, what their criteria are, how they evaluate a deal—before you ever ask them for money.

Every business needs a bank, and you should use every opportunity you have to build a relationship with one. Forget about whether or not you need a loan right now. The truth is, you’re better off if you don’t. What’s important is to have the relationship.

When you borrow money, you enter a relationship, and the relationship will be a good one only if you understand what the other party is looking for. Banks look for good businesses—and good businesspeople—to invest in, whereas asset-based lenders look for good receivables to acquire.

It takes time to build a relationship, and it takes time to break one up. One mistake compounds another. The damage is cumulative, and often invisible. You may not know exactly where you stand until it’s too late.

That type of customer literal y takes money out of your pocket. T o begin with, you don’ t have the use of the money that the customer owes you and promised to give you when you signed him up.

Sales don’ t make a company successful. Profits and cash flow do. A lot of companies land in bankruptcy court because their owners focus so much on driving sales that profit and cash become an afterthought.

In business, you can’t be in control if you aren’t on top of your cash flow. That’s a lesson worth learning as early as possible.

Indeed, much of business is negotiating. From the day you start thinking about having your own company to the day you cash out, you’re involved in one negotiation after another.

What most buyers are interested in is something called free cash flow, and free cash flow is a function of profit, not sales.

You don’t ask, you don’t get. It took me a long time to understand exactly what the phrase meant. Eventually, I figured out that it was all about losing your fear of asking.

In an adversarial negotiation, the best deal is one that leaves both sides a little unhappy.

Companies often become successful for reasons that aren’t obvious at first glance, and smart entrepreneurs understand that. They know they have to think differently about the business in order to distinguish themselves from their competitors.

Thinking differently about our business turned out to be the key to our success. Just like Fred, the fish distributor, we thrived because we’d figured out what business we were really in.

I’ve long believed that a good reputation is the most valuable asset you can have in business. What’s odd is the role your competitors play in creating one. Their opinion, I believe, counts more than the view of any other group —because of their credibility within the industry and with potential customers.

In fact, the size of the sale is a lot less important than the amount of gross profit you’re going to earn on it. Too many low-margin sales can drive you out of business.

Small customers are the backbone of a solid, stable, profitable business—especially a service business.

You can’t make customers feel warm and fuzzy if you don’t listen, if you don’t shut out all your preconceptions and prejudices, your agendas and opinions, and hear what they’re really saying.

He might actually do better by letting the truck stand idle those two days, but he wouldn’t know it because he’s looking only at sales, not profit. It’s a common failing, especially among people starting out in business. Unfortunately, it’s sometimes a fatal one.

Business is just a means to an end. The question is, what’s the end? Where do you want to go in your life? Where do you want to be in five years from a family standpoint?

There are no real shortcuts in business, and when you look for them, you usually get in trouble. It took me a long time to realize that. People like me want instant gratification. One of the hardest lessons I had to learn is that you can’t expect good things—like more customers and better sales—to happen overnight.

Growing a business is a matter of choice. Before deciding to grow, make sure you know why you’re doing it. Bigger is not always better. Small companies have some advantages that large companies can’t match.

To be a good boss, I’ve learned, you need to maintain a certain distance from your employees. You have different responsibilities from theirs. As the boss, you always have to be thinking about what’s best for the business as a whole, and you can’t let emotional attachments interfere with your decisions.

If your business is successful, it eventually moves beyond the start-up phase and starts to grow. You can hang on for a while, but sooner or later the company develops a set of needs that entrepreneurs like me aren’t good at dealing with. You can’t ignore those needs.

I’d learned over the years that the best way to break a bad habit is to replace it with a good habit. I’d also learned that CEOs are responsible for putting people in positions where they can make the greatest contribution to the company—and I would still be the CEO.

You should never have more than one culture in a company. If you let managers create their own subcultures, you’re inviting chaos and corporate politics. The inevitable conflicts will create communications problems, morale problems, coordination problems, and ultimately turnover problems.

As the person in charge, it’s your responsibility to make sure that different departments don’t have different cultures. In some circumstances, it may be your most important responsibility.

Expenses have a natural tendency to creep up over time. If you want to control them, you need to get everyone involved in the effort.

I want salespeople who will stay with me forever. Other kinds of employees are different. If they don’t keep moving up in the organization, sooner or later they’re going to be overpaid.

After many bad experiences, I decided to scrap my commission-based sales compensation system and move to paying salespeople a salary plus an annual bonus, with raises based half on their individual performance and half on the performance of the company as a whole.

I want everybody in my company to be on the same team, including my salespeople. That won’t happen unless everybody is paid the same way.

I’ve long believed that, in any company, everybody sells. By that, I mean that everybody plays a role in the sales process. Whether people work in operations, customer service, or even accounting, they have an impact on customers, and that impact—good or bad—will influence the sales force’s ability to close deals and retain accounts.

Each of us has moments when we desperately need someone to talk to, someone to listen to us, someone to offer, if not advice, then a different perspective, unclouded by all the factors that keep us from seeing clearly what we have to do.

The problem you think you have may not be your real problem, and so the solution you come up with may not be the right solution. That happens partly because you get so close to the problem that you lose perspective on it.

If you want business advice, you need to go to someone who has run a business over an extended period of time, and I’m talking about a real operating business, one that sells something other than accredited, professional expertise.

Businesspeople know that you sometimes have to be exposed to potential liabilities or you won’t get anywhere.

Your lawyer’s job is to tell you the potential legal consequences of a decision or a course of action—not to give you business advice.

If you want to hold on to customers, you have to do more. You have to give them reasons for staying with you. One of the best reasons is that they like you, trust you, and want to do business with you.

The point is that you don’t really solve a problem unless you attack the cause as well as the symptoms. As obvious as that may seem, most people tend to lose sight of it in the press of everyday business demands.

By the time I went into business, the habit of intensive preparation had become second nature to me, and it proved to be a major competitive advantage.

You should never make important business decisions when you’re feeling driven by urgency. I don’t care whether the urgency is coming from your own impatience or from other people putting pressure on you to decide. If you feel as though you have to make the decision right away, don’t make it.

What I’m doing is giving my unconscious mind a chance to work on the problem. I’m making sure that my sense of urgency doesn’t drown out my inner voice.

With age and experience, however, you learn two things: first, that the world is full of great opportunities, more than you can ever take advantage of, and, second, that real opportunities don’t disappear.

You always make mistakes. We failed because we’d waited too long to find out about them.

You should never make important business decisions when you’re feeling driven by urgency.

Cash is hard to get and easy to spend. Make it before you spend it.

Sales don’t make a company successful. Profits and cash flow do.

If you don’t really know what’s driving your success, you have to be careful about the strategy you adopt.

Culture drives a company. In the long run, the boss’s most important job is to define and enforce it.

You can’t hold on to the best people with financial incentives alone.

The Internet’s almost magical ability to remove geographic barriers.

First of all, in a bargaining situation, you must keep your preferences from being guessed by others, or you will have to accept a less favorable deal.

The life plan has to come before the business plan.

What it contained... was a recipe for disaster. I believe strongly that the first business plan you write should be for nobody but yourself.

Staying the course isn’t easy, however. It certainly wasn’t for Bobby and Helene. During the first year, they fought constantly.

Resilience is the ability to bounce back from failure, to turn around a bad situation, to profit from your mistakes.