The Facts of Business Life (6 page)

• What is the size of the overall market?
  
• What percentage of the market will I have to capture and keep in order to make a profit?
  
• Is the market growing or contracting, and how will this affect profits in the future?
  
• What will happen if the business doesn't perform up to my expectations?
  
• Do I have enough cash to last through some unforeseen difficulties?
  
• Do I have the talent and experience to lead my business to success?
  
• Is the expense structure likely to support the expected results?
  

Answering these questions is particularly important because they “slow” you down; that is, they remove emotion from your calculations and force you to focus on the facts and the realities of the situation.

The last of the common elements of a successful business plan is the development of strategies. Strategies are, simply put, the means by which you will accomplish the goal and objectives you've set for the company. That means, for example, if one of your goals is to capture the business of one of the market's top-volume customers, you might develop such strategies as assigning a specific employee to handle their business, fast-tracking their orders, or perhaps setting special pricing or discounting for certain products or for purchasing in specific volumes. Similarly, if one of your goals is to increase gross profit margins, your strategies would have to include increasing your selling price, lowering your product cost, or some combination of the two. You might supplement this with a short-term objective of increasing training for your salespeople, and a long-term goal of eliminating some of your competition by buying or squeezing them out in order to dominate the market.

Planning at Level 1, as at all levels, is essentially a step-by-step process that enables you to determine if and how you will be able to attain whatever goal you have set for your company. At Level 1, though, it is also about preparing yourself for what may occur if you decide to move toward ownership or expansion, and to provide you with more information on which to base that decision.

Employees are not only a major part of any business but also, in most companies, one of the largest expense categories—if not the largest. Owners accordingly want to get their money's worth by hiring the best people they can find. Unfortunately, there is a limited number of such people, and even if you can find them, they may not want to work for you. And even if they did, you probably wouldn't be able to afford all of them. However, since you aren't actually hiring anyone at this level, you have time to identify these people, recruit them, and work their cost into your expense structure.

When you are thinking about employees at Level 1, there are essentially three issues you must take into account. The first is their overall cost, including payroll taxes and benefits. Because employees constitute such a large expense, their cost will have a major effect on profits, which means that estimating the cost correctly is important as it can affect the opportunity decision, either positively or negatively. The second issue is that every business has key positions, and it's essential to identify these key jobs and make sure they get filled first. The fact is that not every job is equally important, so it's best to know which ones are vital, identify some candidates for those jobs, and be realistic in terms of the salary and benefits they will demand. The third issue concerns training. In any new opportunity, training is important, and sometimes employees have to be hired even before the first customer walks in the door. For that reason, the cost of training has to be taken into consideration, especially if processes have to be designed and coordinated with each other. The bottom line, so to speak, is that setting a limit on personnel expense is a tool you must use at this level if you want to be able to make an informed opportunity decision.

After you've done all the research and analyses you need to determine if a particular opportunity is right for you, there is one last area on which you need to focus—who your customers are and how you can reach them. As an owner you have to get this right, because if you don't, even if you do everything else right, your chances for success will be slim at best. Of course, at this level the opportunity is still a mental concept rather than a physical one, and you have yet to fight any real marketplace battles. But marketing and the customer have to be one of your focal points, both before and after you start your business, because without customers there is no business. And if you don't know your customers, you will never be able to reach them to tell them that you exist and are ready to fill their needs.

Once you know who your customers are, assigning and developing a marketing budget should become your focus. Like employee salaries, marketing and advertising can be a major expense, so your estimate of its cost has to be realistic. It also has to include the cost of getting the word out about your business as well as keeping it in front of your potential customers. Marketing is one of those expenses owners tend to minimize, especially at this level, and my suggestion would be to first determine what you consider a realistic budget, and then add a certain percentage to cover unforeseen marketing opportunities.

Marketing experts often describe marketing and advertising as an investment in your business, and for a good reason—it is. But before you begin that marketing effort, it is essential that you know where your customers go for information and/or how to reach them, what their important buying motivations are, how to drive them to your business, and what it will cost. This is one of those aspects of business you have to get right from the beginning because if you don't, nothing else is going to matter. You can be wrong in some other areas and survive until it gets fixed, but if you're wrong in the marketing and customer area, failure can happen so quickly that you won't even have time to make corrections.

Creating a company's DNA is essentially about determining and mapping out how the business will operate on a day-to-day, week-to-week, and month-to-month basis. This is done by establishing procedures and processes that will enable you to realize the results you forecasted at Level 1. These range from determining how cash sales are recorded to how customers are handled and treated, from developing an internal code of conduct to how job descriptions are written, and from how training is conducted to how salaries are paid out. In other words, DNA includes any task that requires some kind of procedure in order to make sure that your business operates in a manner consistent with your definition of quality.

Establishing processes like these is extraordinarily important for several reasons. First, it enables owners to show their employees how they want the business to be operated. This is essential because, as I noted earlier, it is ultimately these processes that operate the business. In addition, processes by definition demand accountability, which in turn results in job expectation and performance standards, and makes it easy to evaluate an employee's performance. Finally, when there are processes in place, it is much easier to spot problems and to fix them before they become serious. Unfortunately, establishing these processes—creating a company's DNA—is perhaps the least understood and most underappreciated macro concept for business owners. It is also, though, one of the most essential.

A good leader has to have a toolbox full of skills, but at Level 2 the predominant skill required is vision, that is, the ability to look into the future. An owner has to be able to visualize how the company will operate in order to exploit the opportunity to its fullest and achieve the success forecasted. What that means is that you have to visualize what tasks must be accomplished, determine those areas in which processes must be established, assign accountability for them, and develop means of determining whether the processes are working the way they should be. This is the first step in creating a company's DNA.

If as an owner you cannot do this, your company will essentially be operating on the philosophy “If you don't know where you're going, any road will take you there.” And those roads lead to failure. However, by defining what needs to be done, designing processes to match that definition, and dictating how the processes will work, you will be exhibiting the kind of leadership that's necessary at this level. It's important to note, though, that determining what processes are needed can be a very complex task. If, for example, your company operates primarily on cash sales, everyone should understand how these sales are recorded and what happens from the time the customer hands the money to an employee to the time the money is deposited into the business's bank account. One of the obvious benefits of establishing such a process is that it protects the business from theft and normal human absent-mindedness. What's less obvious is that it's also important to develop processes that determine how employees treat customers, when inventory should be replenished and when it shouldn't, and when and how the customer should be contacted after the sale, as well as many other items.

Once an owner has determined what tasks must be accomplished and which of these require processes to be established, creating the step-by-step procedures and determining how to measure the results of those procedures is essentially a management function. For instance, in the preceding example, if you want to develop a procedure to follow up with a customer, it could be something as simple as sending an e-mail to thank them for their business. You could also contact them after some particular number of days to make sure they are satisfied and give them a special discount on their next purchase. Similarly, you could set up a procedure in which you inform them of a product or products that complement what they bought, or tell them about what other customers who bought what they did also bought. The point is, regardless of what you choose to do, it is important to set up a process for doing it—or nothing will get done.

But setting up processes also helps you develop the company's DNA in another important way—by helping you develop a clear picture of the kind of talents employees will need to ensure competent operation of the processes. This will in turn better enable you to determine the number of employees needed, the training required, the discipline you must have to make the processes work, appropriate performance expectations, and the means by which employees will be held accountable for results. And all of these things become part of the company's DNA.

As I mentioned earlier, in any successful business, it's the processes that operate the business. But it's the owner's job to define these processes, and the employees' job to operate them. At Level 2, DNA creation accordingly brings together leadership, management, and planning in that it connects the definition of success (leadership) and the step-by-step processes needed (management) to an organized format (planning) in order to make the success goal a reality.

Planning for a business is actually similar in many ways to planning for a trip. When you're planning a trip, you first decide where you want to go, then decide on the route, and then determine how long it should take to get there. Once you've accomplished this, you will know how many nights you will have to stay in a hotel, the number of meals you will have, and what your other expenses will be. When you're planning a business, you also start with where you want to go—in this case, the success you are hoping to attain. Then you decide how you're going to get there, how long it will take, and what you and your employees will have to do to accomplish the expected results, that is, how much sales revenue and gross profit you will need to meet your expenses and make a profit. And just as you need a map when you're planning a trip, you need a plan when you're starting a business so that you know which road to take, where to turn, and what you have to go through in order to get where you want to be.

Employees are, of course, also an important aspect of DNA creation, but they also have to be controlled. That means they must have the appropriate skills and a great attitude, be adaptable to change, and be willing and able to work within the guidelines you establish. If, for example, you want your customers to feel that your organization is a professional one that they can trust, your staff must present themselves accordingly. If your company sold medical equipment and a customer came into your business and was greeted by an unshaven, 60-year-old man dressed in leather and covered with tattoos, the customer would not in all likelihood be favorably impressed. The important thing to remember is, where DNA creation and employees are concerned, the tail can't wag the dog. That is, how your company operates must be your decision, not your employees'. Creating a company's DNA is hard; enforcing it is even harder. But if long-term success is your goal, you really don't have any choice.

Nothing happens without the customer. And customers won't know that your company—or the products or services you provide—exists without marketing. This is one of those business laws that you just can't ignore, and one that, fortunately, most people know. What you may not realize, though, is that your company's DNA has a very considerable influence on how your company markets and delivers its products or services. What that means in practice is that the kind of message delivered through your marketing should reflect the ethics and professionalism of your company.

Virtually everyone expects politicians to make promises and then not deliver on them—it's part of the game. But it doesn't work with customers. If you make a promise to a customer and don't deliver on it, he or she is very unlikely to come back. And because of this, it's essential for your company's DNA be a reflection of your marketing. That is, if the message your marketing sends to your customers makes a promise, you must develop your DNA to make sure both your products and services deliver on that promise. This is an important point that can easily be forgotten in the busy day-to-day operation of a business. You might be able to realize some short-term gains by making promises you can't back up, but it's one thing to attract a customer and quite another to bring a dissatisfied customer back to your business. And having a clearly stated DNA makes it easier to keep your marketing from making exaggerated or misleading claims that can get you in trouble with your customers.