The Facts of Business Life (44 page)

There are essentially four elements that owners should consistently pay attention to in order to round out their understanding of ownership or entrepreneurship. We have dealt, at least to some extent, with all of them before, but it's in this fact that we focus in on them. These four elements are product, people, accounting and finance, and, finally, you, the entrepreneur.

Although product is something I've discussed in virtually all the previous chapters, the fact is that you can never underestimate its importance or forget that it should always be a focal point. One of the main reasons for this is that product and the potential of an opportunity are joined at the hip and together drive net profit. For example, if you had a product that was designed specifically to be used on the NASA space shuttles, your market would be very limited and controlled by the number of shuttle flights. However, if you had a product that could be used in both military and commercial airplanes, your market would be significantly broader, as would your opportunity for success.

Product represents the sum total of all a company does to attract and sell to its customers. That is, your business can do all the right things, but doing all the right things is irrelevant if there is little or no demand for your product. It's also essential that you always consider not just the demand for your product today but what the demand will be well into the future. For example, 10 years ago there were relatively few people who could have imagined the effect electronic books would have on the dynamics of book buying and the sustainability of the brick-and-mortar businesses that depend on books to attract customers. In situations like this, not recognizing the possibility of a decreased demand can mean more than a loss of sales revenue and profits—it can mean the loss of everything you have worked for, including the value of your business.

As an owner, employees represent not only one of your biggest concerns and costs, but also one of your biggest opportunities. The problem with people, however, is that they are people, and open to all the faults and attitudes human beings have, faults and attitudes they tend to bring to work with them. As one of my colleagues once told me, there is nothing like going to the storage room looking for an old file and finding two of your employees half naked on the floor. But you've got to love them, because they do make it so interesting—and challenging.

It's been said that it's an owner's responsibility to “motivate, educate, and entertain” his or her employees. And if there is one thing that's true about a company's owner and its employees, this is surely it. It's also been said that “Good owners are created, not born,” and I believe that's true as well. But some owners clearly have a God-given ability to be great motivators and educators and to do both entertainingly. If you have this ability, it's a valuable tool, and if you apply it skillfully, you can help employees who are only average performers become excellent employees by teaching them to maximize their abilities through a combination of confidence, knowledge, enthusiasm, and understanding that their daily performance matters to their coworkers, their customers, and the business.

This ability to motivate, educate, and entertain creates something owners without these skills can't duplicate—transforming their business from a company to a team. Getting your employees to perform different tasks at different levels, and coordinate their efforts to focus on the same objectives and goal, is a beautiful thing. Unfortunately, this kind of teamwork is commonly uncommon in business, just as it is in sports. One of the main reasons success eludes some businesses and sports teams while others enjoy continued success is the ability of a coach or owner to motivate, educate, and entertain. And doing so not only differentiates your business from your competitors, it also gives you a major market advantage.

It is nearly impossible to evaluate an opportunity or effectively run and grow your business without doing financial projections and understanding your financial position. Unfortunately, although virtually all owners know this, many do not have strong accounting and finance skills, and accordingly don't have the knowledge they need to match the demands of their businesses. To make matters worse, many owners rationalize their weakness in this area by telling themselves they can hire someone to look after it, and do little to improve themselves except, hopefully, learn when they make mistakes. But no matter how much an owner rationalizes his or her lack of knowledge in this field, there are two underlying factors that can't be rationalized away. The first is that if you can't measure it, you can't manage it. And the second is that in order to know where you're going, you have to know where you are.

There are other reasons that support the importance of understanding accounting and finance, but for an owner who is serious about being successful, these two factors say it all. Although most owners don't start out with a strong background in the “numbers,” there are lots of ways to improve your knowledge. One way is to take your banker to lunch, ask what the bank looks for when making loans, and get him or her to explain how they analyze your statements. You can also ask your accountant for an hour of his or her time to teach you the basics. Neither of these will make you a “numbers” pro, but they are good starts, as are the numerous online courses and free information available on the Web. It's important to remember that ownership is a career and should be treated as such.

To my mind, too little is discussed about the successful owner. Because our businesses are private, little is known about us, except for what we choose to let our staff and customers see. While a lot is written about what owners have to do, little is said about how we view business, what drives us, what our concerns are, and so on. For example, some of us never lose the fear of failing. Many people believe that once an owner achieves success, that fear evaporates, but the truth is that sometimes it's the fear of failing and losing what we have that drives us to keep going. One thing is certain: what joins us—being owners and entrepreneurs—is also what separates us. What we share is having money and pride on the line, but beyond that most owners have different business styles, talents, goals, concerns, and dreams, all of which show up in how we operate our businesses.

Owning a business is more of an art than a science, because at times the owner has to feel his or her way through a mine field. Look, for example, at the difference between entrepreneurship and sports. Sports have easily recognizable rules, statistics that show how well everyone is doing their job, specific goals, and obvious accountability. Rules offer parameters within which to operate, the goals are clearly visible, and a scoring system offers immediate feedback so everyone knows how well they're doing, both individually and as a team. Entrepreneurs, however, have only the rule of law to work within, and have to create their own rules, goals, and means of measuring performance, whether it's on a daily, weekly, monthly, or even yearly basis. In business, too, every day is game day, with little time for practice—except on the job. In other words, while owners have the “freedom” to choose how they want their businesses to operate, with that freedom comes an enormous challenge, a challenge that, unless you have a good understanding of business, can be very difficult to meet.

Level 1 is always a mental concept, or preparation, level, where ownership and opportunity are analyzed and evaluated before determining what action should be taken. And in that respect, this fact is no different than any of the others. What is different about this fact is that instead of focusing on a particular aspect of business, it covers a wide range of important ownership issues. As a result, when combined with the other six facts, it allows you to make more informed Level 1 decisions by providing you with a broader perspective that enables you to use previously unknown business criteria to gather additional information and, accordingly, improve your chances of making the right decision.

As I have pointed out throughout this book, it is essential that you always let facts guide your decisions. But what makes ownership and opportunity decisions so difficult to make is that even when all the facts are lined up, not everyone will see it the same way. A perfect example of this is a story a friend of mine once told me. Many years ago, the president of a shoe manufacturer sent two men to study the market in the Amazon Basin of South America. One morning he received a cable from one of them saying, “No one here wears shoes. Selling shoes would be disaster.” Later on that afternoon, though, the president received a cable from the other man: “No one here wears shoes. Huge opportunity. Must move fast.” In other words, while the facts are clearly important in making any decision, what's also extremely important is the person making the decision. And the truth is that the more you know about business and its many disciplines, the clearer the facts will speak to you. That's why you don't just have to know the business you're in, you have to know business.

Most people understand this concept in general, but it can get confusing. Let's say, for example, that your cousin Vinnie asks you to invest in his new computer repair business, but he doesn't have any experience repairing computers or, for that matter, in any other business. Family responsibilities aside, you'd probably tell him he was nuts or fake a heart attack and tell him your health won't take the stress. However, if Vinnie had 10 years of experience as a computer technician and was generally regarded as one of the best in his field, you'd listen to him when he told you about the great opportunity for competent computer repair people. He could make a persuasive argument based on his knowledge of the industry and the work he knows.

This, however, is where the confusion comes in. Vinnie may be able to discuss the opportunity based on what he knows, but he can't explain in dollars and cents how much cash will be needed because he hasn't been exposed to that part of the business. He also can't tell you how good the opportunity is from a profit standpoint or how the business will grow. And, finally, he can't conceptualize what needs to be done from an organizational standpoint to make the business operate properly. Going into business without this kind of information is a mistake new owners often make, and it's something that must be considered when ownership and opportunity are being analyzed. The fact is that, although Vinnie may not realize it, fixing computers is only one piece of the pie where ownership and opportunity are concerned, and unless he takes the other pieces into consideration, the chances he will fail are high.

In other words, while Vinnie may be an extraordinary computer technician, unless he familiarizes himself with other aspects of business, he's going to have a problem. He would probably be fine as long as he's the only one doing repairs, but if that's the case, the company will never be able to grow and all he will have done is buy himself a job. Once he starts hiring other people to repair computers, answer the phone, handle Internet inquiries, do the books, and even clean the office, he is no longer a computer technician but a businessperson, which is something he knows little about and may not even want to do. There is no escaping the fact that if you don't know business and its various concepts, you are setting yourself and your business up for failure, not because you were wrong about the opportunity, but because without a general understanding of business, you're not ready to be an owner. That's why it's so important to take this into consideration at Level 1.

The Benefits of Knowing Business at Level 1

• Knowing business enables you to evaluate ownership and opportunity decisions from a broader perspective.
  
• Knowing business helps you understand the importance of making a correct decision as well as the costs of getting it wrong.
  
• Knowing business enables you to discover your weaknesses and find ways to overcome them, before you go into business or expand an existing business.
  
• Knowing business helps you realize you don't have to know it all, but you do have to be willing to admit it and find a way to upgrade your business knowledge.
  
• Knowing business provides you with a better chance of recognizing an opportunity because having a broader perspective could enable you to see an opportunity that you might not have otherwise seen.
  
• Knowing business makes it more likely that you will be able to create an opportunity because you have more tools to work with in your toolbox.
  
• Knowing business helps you understand that ownership and opportunity have to work in conjunction with each other, and that in most cases having one without the other means failure.
  

Since product is what your business offers the customer, it speaks directly to the question of opportunity. Opportunity, in fact, is a measurement of the demand for the product. For that reason the two are essentially joined at the hip, so without one the other has little meaning. Since Level 1 is a preparation level, one at which your business is still only a mental concept, the goal is straightforward. You have to determine the continuous demand for the product and find out if the demand is strong enough to produce adequate profits. And the more you know about business in general, and how successful businesses operate, the better your decision is likely to be.

For example, if you are an owner who has only industry-specific knowledge, the chances of your knowing and understanding product innovation will be remote. While it's true that product innovation can mean different things to different people, in this context it means how you differentiate your business and products from your competitors and their products. And product innovation is one of the key concepts you should review at this level because it speaks to expanding the opportunity beyond the present, that is, it addresses not just what your company will be offering its customers when you first open the doors, but also what it will be offering them in the future.