The Facts of Business Life (4 page)

A good example of why this is so important is what happens when an owner fails to establish procedures at the point of delivery. If there are no specific procedures, every employee handles customer delivery based on his or her own standards, which means every customer is handled differently. This presents a problem not only because it's never good for customers to be handled inconsistently, but also because the customer delivery point triggers a series of important internal events, including customer follow-up, inventory control and reorder, financial accounting, and others. And if these aren't triggered in a consistent and correct way, not only will the company not have the inventory its customers want, the company itself won't have the critical data it needs to make sound decisions.

But even if you do tell employees how you want the business to operate, it will never happen unless proper controls are designed and implemented to make sure employees do what's required. Without controls like these, there is a good chance that serious problems will develop, and you may not recognize them until they've become crises. Unfortunately, when owners are faced with crises, they have to act on them immediately, but at this point they have relatively few options available to them. Similarly, if you don't establish and maintain a professional dress code, your employees are more than likely to use their clothing to express their individualism. Of course, doing so is perfectly acceptable outside of business hours, but business isn't about individualism, it's about conformity and a common goal, and it has to be controlled. The fact is that even though you may have your name on the business, if you don't control how the business operates, all you're really doing is observing a business you've invested in. And that's no way to run a company.

Many people are likely to be surprised by this Fact of Business Life, because they think that a company's first priority should be sales, profits, and growth. But while sales, profits, and growth are important, it is equally if not more important to focus on protecting your assets because they power your sales, profits, and growth. Assets include equipment, accounts receivables, cash, and all the other items on your business's balance sheet. But there are other assets on which you can't put a dollar value, like your skills and experience; your employees and their skills and experience; the company's processes, customer base, and reputation; and others. And even though these assets do not appear on any balance sheet, they all have value and should accordingly be treated as if they had a cash value. And this means you must do whatever has to be done to manage and protect them.

For example, in order to build and maintain a company's customer base, you have to focus on developing processes for keeping existing customers as well as training employees to find new ones. If, however, you concentrate on finding new customers at the expense of providing after-sales service to existing ones, it's likely that those existing customers will go elsewhere. Protecting and managing a company's assets is one of the most underappreciated business issues today and, if mismanaged, can be one of the most damaging ones. But if you understand what
all
of a company's assets are, and that they
all
have to be protected, you are much more likely to see your company not only survive but succeed.

Nobody knows what the future will bring, but you can make educated guesses based on the most current, accurate information available as well as your own past experiences. That means gathering and making use of such information as past sales, expenses, and profit results; the size of the market; and competition and customer demographics, just to name a few. Doing so enables you to look into the future and start anticipating what opportunities or threats may present themselves, as well as to make sure that you have whatever is needed to prepare for them. Although people frequently think planning is limited largely to the early stages of a business, it's actually an ongoing activity, or at least it should be.

It's important to remember, too, that planning is both a science and an art. The science is in gathering pertinent information, and the art is in taking that information and turning it into a plan that will move the business from “here to there” over a specific time period. In fact, being able to plan better than one's competitors is such an important skill that it can provide a company with a competitive advantage in the marketplace. If, for example, an owner knows there is a new product coming on the market and proactively plans for it ahead of time, he or she can “own the market” before the company's less aggressive competitors are even thinking about it. This is similar to something the Ford Motor Company did in 2008 and 2009 when careful planning enabled it to see the coming restriction on bank lending. Being proactive, they were able to raise capital before the tightening of lending regulations, which their competitors, General Motors and Chrysler, did not. And because Ford's management “read the tea leaves,” unlike GM and Chrysler, their company didn't run out of cash and need a government bailout. They knew, as you should, that planning is important because it focuses owners on what's important and prepares them for what lies ahead.

Marketing and advertising are business realities. Without marketing and advertising there are few sales, and without sales there is no company. If you can't or don't want to work to market whatever product or service the company is going to provide, you should seriously reconsider the decision to become an owner. It doesn't matter if your company has the best product available or is the best at whatever it does. If not enough people know about it, it won't make any difference. The need to make potential customers aware of your company—to get the company's message out into the marketplace—never goes away, and only companies that are relentless in doing so remain successful.

For example, an owner of a new company has the huge challenge of letting the marketplace know that a new business is open. At times like this, money is usually very tight and large expenditures, such as marketing, tend to make owners extremely nervous. But the fact is that if marketing isn't done, very little good will happen. And if you understand this, and will make the necessary effort, you will have a big advantage over those who are afraid to spend their money or who view marketing as an expense rather than the investment it is.

Another example of the importance of marketing is the situation in which a company has been offered an opportunity to buy some merchandise at a significantly discounted price, but only if they will order twice as many of the items as they normally would. All things being equal, under normal operating conditions the company would likely be unable to take advantage of an opportunity like this. But if they were to develop a marketing and advertising campaign to sell the item and pass on the discount to the customers, they would be able to attract new customers, increase their market share, and in the process create additional profits. In other words, marketing and advertising are weapons that businesses can't afford to not take advantage of because of the potential they have to drive sales and profits.

Every company has competitors, and if it doesn't and it's successful, it soon will. Successful owners know they have to fight not only to win market share but to retain it as well. In fact, the reason they've become successful is that they've developed a warrior mentality, and it's this mentality that enabled them to survive and succeed in the first place. Successful owners also know that past success is no guarantee of future success, and that the only way to remain successful is to maintain their fighting mentality.

If, for example, a new competitor arrives in the market either by buying one of your competitors or starting a new business, the marketplace is likely to change. In a situation like this, you may well have to be more aggressive if you want to protect what you have, that is, retain your market share, much less increase it. But the market will also change if a competitor closes down his or her business. In that kind of situation, a void is created in the market, and it will be only the more aggressive owners who step in to fill that void, take advantage of the opportunity, gain market share and new customers, and at the same time increase sales and profits.

In other words, as an owner, in order to be successful or remain that way, you have to continually focus on the market, react to it, and fight for what you believe should be yours. The marketplace
is
a war zone, and if you don't think of it that way, your competitors will, and they will be the ones who win the war.

Understanding one's industry is obviously a must, but in order to become successful in any business an owner must also understand how business itself works. That means he or she has to not only understand the Facts of Business Life but must also be familiar with the various aspects of business, such as accounting, finance, business law, and personnel issues, to name just a few. In addition, an owner must understand how the facts, and the various aspects of business, impact on each other so that he or she can make intelligent decisions.

A good example of the importance of this might be when an owner, seeing a market opportunity, buys a competitor by using a significant amount of working capital from his or her existing business. As a result, both companies are strapped for cash and limited in their potential for growth or expansion, if not in even more dire circumstances. If this owner, however, had a better understanding of accounting and finance and had completed a working capital analysis, as well as doing cash flow calculations, he or she could have foreseen the cash squeeze problem and avoided it by finding other means of funding the purchase.

If any proof is needed of the importance of having a good understanding of business, all you have to do is look at what often happens when the owner of a business decides to retire and turn it over to one of his or her children. More often than not, when this happens, the son or daughter who takes over has spent a few years working in the business and a few more helping the owner run it. But a lot of family businesses don't do as well when they are passed on, and one of the primary reasons for this is that, even though the new owner has some experience in the business, he or she often doesn't understand the various facets of business and how they are all interrelated. And the result, unfortunately, is that a perfectly viable company, one that its original owner spent years building up, now has a questionable future.

Colleges and universities understand the importance of having an overall understanding of the many concepts of business—it's why they insist business students choose a major but also take other core business courses. The fact is that if you don't have a good general idea of how business works, it puts you and your company at a distinct disadvantage when compared to competitors who have developed this understanding.

In business, as in life in general, nothing remains the same. There are so many variables beyond our control that, when it comes to ourselves as well as to our businesses, the only way we can be sure to not only survive but flourish is to adapt to the changes that are taking place around us. There is, however, one aspect of both business and life in general that we can expect and, to some extent, prepare for—and that's maturing. Of course, people don't mature in exactly the same way that companies do, but both people and organizations go through a life cycle. In life, we start as newborns, then grow into infants, toddlers, children, teenagers, young adults, adults, middle-agers, and, eventually, seniors. Companies, by comparison, go through five stages—or levels—of life:

I will provide more explanation about these five levels in the next chapter. For the moment, though, it's important to recognize that, just like people, businesses need guidance as they go through their life cycle, and it's the owners who are ultimately responsible for providing that guidance. It's equally important to recognize that, just as the guidance a parent provides a child must change as the child grows older, the guidance an owner provides over the lifetime of a company must change as the company moves up from one level to the next.

The seven Facts of Business Life are essentially a means of providing guidance for a company. What that means, though, is that while the facts are always true, their application will change depending on where the business is in its life cycle. We have all seen businesses that come out of the gate hard and fast, have a big impact in the market, and then fizzle out, never reaching their potential. What that means is the owner provided appropriate guidance to enable the company to get off to a good start, but wasn't able to adapt that guidance to the successive levels of business. Making that transition successfully, ensuring that your company will continue to be successful, requires an understanding of how these seven concepts change as the business matures, and your ability to adjust to those changes.