The Facts of Business Life (22 page)

It's important to bear in mind, though, that protecting a business's assets and asset maximization sometimes conflict with each other, such as when an owner wants to invest in something that will maximize assets but doesn't have the cash or credit to pay for it. In a situation like this, you have to balance the potential for increased revenue with the ability of the business to handle increased debt. In fact, it's a rare asset decision that doesn't affect some other asset. And it is always, for better or worse, the owner who has to make those decisions based on what he or she wants for the company. What that means in practice is that a timid owner can substantially undermine a company's ability to grow and prosper, essentially becoming his or her company's worst enemy. The opposite, however, is also true.

Considering how important your products or services are to your business, it is obviously essential that you protect them. Of course, what you are actually protecting is not the products or services themselves but the revenue they generate for your company. And the best way to do that is to make sure that what you are offering is what the marketplace wants. That may sound simple, but it's not that easy to do. It requires you and your key employees to continually revisit Level 1 in search of new opportunities and market trends. That is, you need to watch for anything that might mean an increase in business—one of your products suddenly becomes hot, there is an industry promotion, one of your competitors closes down, and others.

Ultimately, though, what you should be most concerned with protecting is the gross profit provided by your products or services. Sales revenue isn't always a good thing if there isn't sufficient gross profit attached to it. It is, after all, gross profit that pays the expenses of the business, and plays a significant role in making the overall business profitable. Making sure this happens is your responsibility, which means that in weighing opportunities to offer products or services to your customers, you must take the gross profit attached to them into consideration. Understanding this point is important because it also relates to respecting and controlling the costs associated with running your business. That means, for example, if you think it's necessary to offer some loss leaders in order to be competitive, you should do so only if you can balance them with other products or services that provide significant gross profit. At the same time, having too high a gross profit on your products can make you uncompetitive. In the retail business sector, for example, it's best to have fast-moving, low-gross profit products balanced with higher-grossing ones. In other words, as far as opportunity is concerned, all that glitters is not always gold—unless gross profit is attached to it. But when it is, you've got a good chance of being more successful than the majority of your competitors.

The customer–employee–owner dynamic is rarely given much attention or considered in the context of asset protection. We all understand why it's necessary to focus on customers when decisions are made, and the importance of employees doing their jobs in a coordinated way and with a positive attitude. We also understand why these two assets must be protected. Seldom, though, is the importance of what the owner wants given much consideration, and some people—mostly owners!—think it is the most important part of the equation.

Every owner, like every other human being, has wants and desires, but exactly because they are owners, what they want can have a very significant impact on a larger number of people—that is, their employees and their customers—and, ultimately, their businesses.

Of all their wants, however, perhaps the most important in terms of its impact on asset protection is how willing—or unwilling—they are to take risks. I spoke of this earlier in the context of tangible and intangible assets, but this issue has an even greater effect on the customer–employee–owner dynamic. This is because, while few owners are willing to admit they are concerned or worried about losing what they have, the fact is—exactly because they are human beings—they do have such concerns, to a greater or lesser extent, and those concerns have an impact on their customers, their employees, and their paychecks.

This is an asset protection issue because the way an owner views an opportunity has a great deal to do with how he or she feels about taking on new risks. Imagine, for example, this scenario. An owner has a key manager who does an adequate job but is content with his position and income and no longer has the drive he once exhibited. In all likelihood it would be in the company's best interests for the owner to replace this manager with someone who understands that standing still in business really means falling behind. In this case, however, the owner is content with protecting what he has and is accordingly willing to retain the manager rather than take the risk of bringing in someone new. On the surface, it would appear that the owner's decision would have an effect only on the manager and himself. In fact, though, the decision would be felt not only in the manager's department but throughout the business.

It would be felt in the manager's department because, as a rule, good employees want to make more money, are willing to work for it, and understand that the best way to do that is to take advantage of opportunities. As a result, if they see opportunities not being pursued, they will become discontented. This discontent will show up in their attitude, which will in turn affect other employees in their own department, and eventually spread throughout the business like the measles. The long-term effects of this are that the better employees leave, usually going to competitors or becoming competitors themselves, and the remaining employees underperform. In addition, when the better employees leave, they are usually replaced by people who have experience but not too much “get up and go.” Of course, all of this is eventually passed along to the customers, usually showing up as indifference, which disinclines customers to continue buying whatever the company is selling.

The point is that when an owner is reluctant to take risks, whatever decision he or she arrives at inevitably has consequences, and the result, as in this example, is that everyone loses. The owner loses on opportunity, good employees, and eventually both market share and profit. The employees lose on wage and salary increases and the opportunity to succeed, and the customers lose because of indifference and lack of overall competitiveness—and all because the owner forgot about the importance of protecting all of his assets, in this case the customers and the employees, and focused on preserving his net worth at the expense of his other business. As an owner, then, it is important for you to remember that the customer–employee–owner dynamic is one that requires balance. Focusing too heavily on one at the expense of the others is a slow walk backward on the survival–success spectrum.

A company's DNA essentially defines how the business operates. That is, it determines how employees act and react with customers and each other, how competitive it is, how its processes and procedures work, and how all of these things are coordinated so they work smoothly together. As such, it represents the business's character or culture, both in the minds of its staff and customers and in the marketplace. And because it does, it is an asset, albeit an intangible one, and extremely valuable. As with all your company's assets, it needs to be protected, in this case from erosion, incompetence, lack of attention, and all the other ills a company's DNA may be prone to.

The idea of protecting something as important as DNA—along with all of a company's other assets—just makes sense, so it's something every owner should be able to understand. In reality, though, it doesn't get the attention it deserves—except from successful owners, most of whom learned their lesson by not protecting their assets. And yet, DNA plays a vital supporting role in the company by preparing and coordinating the company's activities, so when it moves up to Levels 3, 4, and 5, it's ready to take on the market. And this applies whether you are just starting a business, taking one over, or reengineering an existing one. At this level, then, the most important step an owner can take may very well be to simply realize that DNA has value and needs to be protected.

The reason DNA is so important is that it affects virtually every aspect of the business and vice versa. In fact, DNA is literally at the crossroads of all internal activity—preparation, planning, decision making, and implementation. This is an important point because it makes protecting assets both challenging and critical. Bear in mind, though, that challenging doesn't mean impossible—it just means it's not easy to do. But something being difficult to do is not necessarily a bad thing. The harder something is to do, the less likely your competitors will do it, which means your doing it will provide you with a market advantage they don't have.

It's important to bear in mind that as far as DNA is concerned, your goal should be to create a business that runs flawlessly every day. To be fair, expecting perfection every day may be stretching it a bit—after all, we are human. And, in fact, it's humans who represent the greatest danger to DNA because they're the ones who operate the processes and come in contact with the customers. Your company's DNA must accordingly be protected from the human element, that is, the mistakes people make, whether it's doing sloppy work, being unprofessional, not performing as expected, or any of the other faults people are prone to. Of course, you can't eliminate all such problems, but your goal, as noted, should be to get as close to eliminating them as you can, by focusing in on asset protection.

The Benefits of Protecting Your Company's Assets at Level 2

• Understanding the need to protect your assets enables you to list, evaluate, and determine the extent to which they will enable you to meet your goals.
  
• Understanding the need to protect your assets helps you realize that DNA is in every part of the internal machine, and that almost every change the business makes involves DNA in one way or another.
  
• Understanding the need to protect your assets enables you to realize that any asset can be used to improve the business and to then create a DNA process to do so.
  
• Understanding the need to protect your assets helps you make better decisions about how to use those you have because you are continuously matching them to the opportunity you have chosen to pursue.
  
• Understanding the need to protect your assets enables you to anticipate how to protect them and what support will be needed from other assets to maximize their value.
  

As I have pointed out, your business is more likely to be successful if you maximize each of your assets and make sure they support each other. But this doesn't just happen by accident—it takes thought, planning, and preparation. And if you don't figure out beforehand what assets you have and how to coordinate and use them, they won't work together efficiently. This is one of the situations in which DNA plays an essential part in your business, regardless of whether you're involved in a start-up, a takeover, or in the process of reengineering your company.