The Facts of Business Life (47 page)

Benefits of Knowing Business at Level 3

• Knowing business enables you to understand how all seven of the Facts of Business Life are interdependent and interconnected and how you can use their combined strength to build your business.
  
• Knowing business helps you recognize problems as they arise and take steps to stop them before they become more serious.
  
• Knowing business makes you better prepared for the road ahead, better able to analyze what happened when something does goes wrong, and better able to permanently fix it.
  
• Knowing business helps you focus on moving your business forward rather than dwelling on what went wrong in the past.
  
• Knowing business helps you understand that when you realize your success goal, more opportunities will appear due to the maturity of the business and your increased knowledge and experience in using all seven Facts of Business Life.
  

As your business goes “live” at Level 3, you will inevitably come face to face with two inescapable—and related—truths about product. The first of these is that at times it feels like you have very little control over your product and its sales. And, unfortunately, sometimes it's true. For example, you can't control how your competitors market their products, or how aggressively they attack the market and promote themselves against you. In addition, since competition usually dictates the selling price of products, your gross profit margins are also essentially controlled by competitive pressures.

The second inescapable truth is that products are rarely successful unless the owner understands and applies all the Facts of Business Life to them. In other words, products cannot stand on their own, and even good products die without internal help. For example, how your business advertises and markets your products and how effectively it's done will have an effect on sales. Similarly, if you have few controls in place for supporting your product, you will probably experience shortages of your faster-selling products and inventory overages on your slower selling ones, both of which cost the business money.

So while it's true that as far as product is concerned your control of the competitive marketplace is limited, what isn't limited is how you can control your product internally. And, in fact, if you do it right, this internal control—that is, applying the Facts of Business Life to your products—can be used as a very effective competitive weapon. For example, if you have a Wal-Mart-type competitor that has lower product costs and can therefore charge lower prices, you can use what you control—expenses, internal processes, product knowledge, and training—to fight back. Unfortunately, if you don't realize that product, its sales, and its gross profit depend on other business principles, you'll find out the hard way—while you're competing in the war zone, and hopefully before it's too late.

There is no more important time in a business to constantly “motivate, educate, and entertain” your employees than when you are starting a business, taking over an existing one, or changing the way your business is operated. The reasons for this should be obvious: it's the difference between teaching employees how to do their jobs and what you expect of them, and just telling them what you want and leaving them to figure the rest out for themselves. At Level 3, then, in regard to people, there are two things it is essential you do as an owner.

The first of these is creating an atmosphere of success. You do this by finding ways to remove, or at least limit, the kinds of things that employees feel get in the way of their doing their jobs well. Let's say, for example, you have a saleswoman who feels her sales are low because of the business's lack of marketing and advertising—in other words, providing herself with an excuse for her lack of productivity. By simply pointing out that other salespeople are doing well and that your business spends as much on marketing and advertising as your comparably sized competitors, you can eliminate the excuse and get to whatever the real problem is. Similarly, you might have a service technician who complains about the type of work he's being given compared to other technicians. If, however, you point out that the other technicians have more training than he does, as well as greater knowledge of the proper use of certain tools, you can make it clear that it's his own lack of initiative that's holding him back and disqualifying him from getting better-paying work. By doing this you can eliminate any—or at least most—excuses employees may have for not performing up to your expectations and focus them on making sure they do.

The second thing you have to do is be courageous. If there are people in your company who are not doing what you expect of them, it's actually fairly easy to ignore them. Being an owner, though, is not about being easy, it's about constantly improving your business. Even so, it does take courage to stand up for yourself, especially when, as is normally the case, there are more of them—that is, your employee—than there are you. Of course, most of us like to avoid confrontations when we can, but if you do so in this kind of situation, you will be neglecting to provide the leadership your company needs. And without leadership, it's unlikely that your business will improve, which in turn means it will probably underperform, if not fail altogether.

There are also times, though, when owners don't act courageously not because they want to avoid confrontations but because they don't understand the importance of leadership and how not applying all the Facts of Business Life can have a negative effect on their entire business. For example, if you allow your employees to perform their jobs the way they want to rather than the way you want them to, you're going to have the “tail wagging the dog,” and you can't allow that to happen. However, if you don't understand all the various areas of business, you may not even realize it's happening, and you can't fix what you don't recognize is a problem. Generally speaking, the more experience—and the more knowledge of business—you have, the more courageous you become, because you have a clearer understanding of the ramifications of neglecting to act when you should.

Since at Level 3 the business is “live,” there is a lot of activity going on, particularly around your company's accounting department in trying to get its processes up and running. A mistake many owners make at this level is neglecting to take advantage of the financial tools I mentioned earlier in this chapter—the cash flow analysis, the income (or profit-and-loss) statement, and the balance sheet—to keep track of their financial condition. In fact, this mistake is one of the leading causes of early business failure. If for no other reason, it just makes sense to use these tools because they can alert you to possible problems before they blow up in your face. They can also help you make decisions because they provide the kind of information you need to make those decisions.

Specifically, the balance sheet helps you understand where your cash is located—that is, inventory, receivables, and fixed assets—as well as the effect your decisions will have on your cash position. In other words, the balance sheet gives you important information about your internal operation. The income (or profit-and-loss) statement shows you where you are in terms of sales dollars, gross profits, expenses, and overall profit or loss at a particular point in time. The benefit of having this information is that it enables you to see whether you've made money and, if so, how much. It also helps you determine what you can do to improve your company's revenues. The bottom line, then, is really the bottom line. That is, eventually everything flows through your business's financial statements, and if you know how to use them, it will significantly increase your chances of success.

When your business is operating at Level 3, there are two situations in which you particularly do not want to find yourself, as least not for long. The first is operating at a pace at which your knowledge and talents can't keep up with your business's growth. Being in a situation like this may not seem all that bad at first, but it opens up the possibility of the wheels eventually falling off the bus, most likely due to poor decisions made as a result of inexperience and lack of knowledge. The second is not knowing how to “jump start” your business, that is, fix a problem when you have one. This problem, too, is a result of an owner's having only a limited knowledge and/or understanding of business. Unless you take action quickly to remedy this lack of experience and knowledge, the fate of your business will be fairly predictable, especially when you consider that the marketplace if full of owners who have more business knowledge than you do.

The point here is that, ultimately, it's your business, and how well it performs falls on your shoulders. No one is going to force you to do anything about improving your overall business skills. But unless you take steps to do so, it's unlikely that you will be able to move your company along the spectrum from survival to success. At Level 3, things can hit you fast, like an important employee quitting, a large customer refusing to pay its bill, or a sexual harassment suit being filed by an employee. And how you react to this kind of pressure sends a message throughout your company. If you react calmly, it boosts the confidence of all those around you. But if you “blow your top,” particularly if you do it on a regular basis, your staff is going to start wondering what they've gotten themselves into. Ultimately, how you react is a result of how much experience and knowledge you have about business because when you have this knowledge, you know you have more options than getting upset, and you are more likely to stay calm, analyze whatever problems may arise, and gain control over them.

If you have any doubt about why it's beneficial to have this knowledge, you might think about it in terms of how your employees might describe you. How they do so not only says a lot about your business to their friends, relatives, coworkers, suppliers, and others, it also has an enormous effect on how they react to you and your ownership style. For example, I've always wanted my staff to see me as a fun-loving guy but one who is deadly serious about his business and the processes that run it. I also want them to see me as honest, fair, a motivator and educator, aggressive in the war zone, and unrelenting in demanding accurate information and delivering on expectations. Whether or not I achieved this is something only my employees can say. What I can tell you, though, is the more you know about business in general, the more your employees will recognize and appreciate it, and the more they will be not only willing but anxious to help you achieve your goals.

It may actually be impossible to maintain success without understanding all seven Facts of Business Life and how they depend on each other. Without leadership, for example, a company won't have direction, and without direction, controls and management mean very little. Without planning, there will be no destination, and without a destination, any road will take you there. Similarly, instead of having a war zone mentality, your employees may develop its opposite, an “I couldn't care less” attitude, toward customers. And customers, in turn, will in all likelihood start staying away in droves. If you do understand business and its important concepts, however, while Level 4 will be a challenge, it will be no more of a challenge than what you have overcome in Level 3. As a matter of fact, the more you understand about business, the quicker you will discover the easiest path to maintaining success, and the sooner you will get there.

The first step in setting up your business to maintain success is to reevaluate both your internal and external environments. By the time you get to Level 4, since your business knowledge and experience will have expanded, your views on business and how it operates will have expanded as well. As a result of this increased knowledge and experience, you will see some of the decisions you made previously may not have been as good as they could have been. These decisions may have been made in leadership, control, asset protection, planning, marketing, the war zone, or any of the remaining areas of business, that is, in any and/or all the Facts of Business Life. For example, some of the processes you first created may actually be hurting the business in that they were not created with the customer and the company's goals sufficiently in mind. Alternately, an opportunity that you judged to be questionable in the past may now look both good and doable when viewed through the prism of your expanded knowledge and ownership experience. In other words, in reviewing your situation you are more than likely to find errors to correct, better ways to do things, and new opportunities to explore.