Street Smarts

DESCRIPTION

“One is tempted to say ‘the only book you’ll need on starting a business.’ Brilliant! Genius! Choose your superlative-it’ll fit.”-Tom Peters People starting out in business tend to seek step-by-step formulas or rules, but in reality there are no magic bullets. Rather, says veteran company-builder Norm Brodsky, there’s a mentality that helps street- smart entrepreneurs solve problems and pursue opportunities as they arise. Brodsky shares his hard-earned wisdom every month in Inc. magazine, in the hugely popular “Street Smarts” column he cowrites with Bo Burlingham. Now they’ve adapted their best advice into a comprehensive guide for anyone running a small business.

Highlights

• 1. Numbers run a business. If you don’t know how to read them, you’re flying blind. (Location 59)
• You can’t afford to wait until your accountant tells you these things after the fact. Nor do you have to become an accountant yourself. You do have to know enough accounting, however, to figure out which numbers are most important in your particular business, and then you should develop the habit of watching them like a hawk. (Location 64)
• 2. Cash is hard to get and easy to spend. Make it before you spend it. (Location 67)
• the point at which the company can sustain itself on its own internally generated cash flow. (Location 71)
• Make the money first. If you’re smart, you’ll put some of it aside for a rainy day. Whatever is left over you can spend as you please. (Location 74)
• 3. Don’t focus on the top line. Gross margin is the most important number on the income statement. (Location 77)
• everybody obsesses about sales. We want to see them increase constantly—the faster, the better. But focusing exclusively on sales is dangerous, especially when you’re working with limited capital. (Location 78)
• tracking your gross margin—that is, the percentage of your money left over after accounting for the direct cost of whatever it is that you’re selling. (Gross profit is sales minus cost of goods sold. Gross margin is the percentage of sales that represents.) (Location 79)
• determines whether or not you’ll survive long enough to reach viability. (Location 82)
• 4. A sale isn’t a sale until you collect. (Location 85)
• how much sooner or later the payment arrives can make a big difference, (Location 88)
• Remember: When you deliver a product or a service before getting paid, you’re making a loan to the customer, and you should treat it accordingly. That means determining whether customers are creditworthy and finding out in advance how long they take to pay their bills. It also means getting into the habit of regularly checking the state of your receivables, and making sure your average collection time is what it should be. (Location 91)
• 5. When your short-term liabilities exceed your short-term assets, you’re barikrupt. (Location 94)
• a company is bankrupt—at least technically—when its current liabilities (that is, the ones that have to be paid within the next twelve months) are greater than its current assets (the ones that will turn into cash within the next twelve months). (Location 98)
• current ratio, (Location 101)
• 6. Forget about shortcuts. Run a business as if it’s forever. Building (Location 105)
• You constantly search for easier ways to make your company grow faster, and sometimes you find them. Unfortunately, they almost always come back to haunt you. I (Location 109)
• 7. Identify your true competitors, and treat them with respect. (Location 115)
• Everyone who does what you do is not your competitor. Instead you compete against only those suppliers who offer the same services, are more or less equally reliable, and charge prices similar to yours. (Location 117)
• 8. You have no friends in business, only associates. (Location 126)
• 9. Culture drives a company. In the long run, the boss’s most important job is to define and enforce it. (Location 135)
• setting the culture was ultimately the CEO’s responsibility. (Location 141)
• 10. The life plan has to come before the business plan. (Location 145)
• You need to do the life plan first and then keep revisiting it, to make sure it’s up to date and your business plan is helping you achieve it. That habit, I can assure you, will prove to be the most important of them all. (Location 152)
• “Don’t worry twice,” (Location 186)
• “There’s a million dollars under your shoe; you just have to find it.” (Location 190)
• A lot of people starting out in business would prefer to have a step-by-step formula or a specific set of rules they could use to achieve their goals. The problem is, there aren’t any. Rather, there’s a way of thinking that allows someone to deal with many different situations and take advantage of many different opportunities as they arise. To be sure, having that mentality doesn’t guarantee that you’ll succeed at everything you do, but it does improve your chances significantly. You win more than you lose, and the longer you stay in the game, the more often you come out on top. (Location 206)
• CHAPTER ONE How to Succeed in Business (Location 235)
• Doing the Business Plan (Location 294)
• understand cash flow, (Location 297)
• They believe that to be successful, all you have to do is generate sales. In fact, what you need is the right kind of sales. The wrong kind can drive you straight into bankruptcy. (Location 298)
• capital is limited. (Location 300)
• Now, when I say business plan, I don’t mean anything elaborate. I’m talking about a modified, down-and-dirty income statement and cash flow statement. I just want a reasonable expectation of sales by month for a year. (Location 304)
• People on their first business venture are always overoptimistic—at the same time they’re scared to death. (Location 306)
• sales estimate (Location 316)
• Then came the most critical step: determining gross profit. (Location 318)
• cost of goods sold (COGS), or, in service businesses, the cost of sales. (Location 319)
• You subtract COGS from sales, and you have your gross profit or—expressed as a percentage of sales—your gross margin. (Location 319)
• gross profit is the single most important number in any new business. (Location 320)
• determines everything else about your business—the amount of capital you need, the volume of sales, the overhead you can afford, the time it will take to determine viability, even viability itself. (Location 321)
• Say you’re selling an item for $1 that costs you 90¢ to produce or to buy. Your gross profit is 10¢ per item, or 10 percent of sales. Suppose you need $5,000 per month to cover your overhead. To get it, you have to do $50,000 per month in sales. Now, let’s say it takes you three months to collect your receivables. You’d have to put up more than $100,000 in cash to get the $5,000 per month you need to break even. That’s usually not a viable business. (Location 322)
• The higher your gross margin, the fewer sales you need to cover expenses, and the longer your capital will last. And, for most start-ups, time is survival. (Location 329)
• list of expense categories and determined their fixed overhead. (Location 333)
• With sales, COGS, and overhead expenses, they could work out the month-by-month income statement on their own. (Location 333)
• monthly cash flow forecasts, from which they could put together a cash flow statement for the year. (Location 334)
• When you write out your own projections by hand, do your own calculations, and work through the numbers for a whole year, two things happen. First, you begin to get a feel for the business. Second, you start to understand reality. You see that sales don’t necessarily lead to profits, and that making a sale or earning a profit is not the same as generating cash. You get a sense of the connections. (Location 336)
• amount of start-up capital you need. (Location 340)
• amount of start-up capital you need is theoretically equal to the largest cash deficit on the statement. If you put that amount into the business, you should be able to avoid running out of cash—in theory. In practice, I always increase the number by at least 50 percent. (Location 343)
• There are two reasons for building in a reserve. First, things always cost more than you anticipate, and profits are always less. (Location 347)
• It’s one thing to put up additional capital down the line if you know from the start you might have to. You feel very different about it if you think you’ve already made the maximum investment required. (Location 349)
• Because sales do not equal cash, and cash is what you need to survive. (Location 375)
• Number one, protect your capital. Spend it only on things you are certain will generate positive cash flow in the short term. Number two, maintain the highest monthly gross-profit margin you are capable of achieving. Do not go after any low-margin sales. (Location 378)
• Spend your time developing relationships with your highest-margin customers. Let the low-margin customers come to you, and then negotiate the price up. (Location 394)
• You just drop your price below your competitors’, and you can make all the sales you want. You’ll think you’re doing fine. You won’t run out of cash as long as your sales keep rising and you can collect before you pay. Trouble is, you also have more payables than you can handle. You’re bankrupt, and you don’t know it. (Location 407)
• There are probably ten different types of critical mass. But however many variations there are, they all translate into the same thing for every business : self-renewing break-even cash flow. I don’t mean break even on a profit-and-loss basis. I’m talking about getting to where the cash generated more or less automatically each month is enough to sustain the business and allow it to grow without going outside for new investment. (Location 455)
• It still has its umbilical cord. After critical mass, the business is a freestanding, self-sustaining entity capable of making its own way in the world. It’s your next goal after you achieve viability. The challenge is to figure out where the goal line is. (Location 459)
• If you can establish the correlation between cash flow, sales, and some other factor, you can determine critical mass very easily. You simply work backward. (Location 470)
• average monthly sales. (Location 472)
• Then we just calculated the size of the customer base required to produce those sales. That was their critical mass. (Location 472)
• After critical mass, growing a business becomes a matter of choice. That is clearly a huge change from before—a predictable one, and a good one, but a change that has major consequences. (Location 475)
• Because the numbers help you balance your emotions. They keep success from going to your head. They remind you that, while your cash may be self-generated, it is not unlimited, and it can still run out. (Location 493)
• CHAPTER TWO The Right Stuff (Location 523)
• ability to bounce back from failure, to turn around a bad situation, to profit from your mistakes. (Location 527)
• Groundhog Day (Location 558)
• The most valuable business lessons we can learn come from facing up to our weaknesses. (Location 578)
• I calculate the danger that a decision of mine may cost other people their jobs. (Location 617)
• cardinal rule I use in evaluating every important decision I make: always protect the pot. (Location 620)
• Focus, Focus, Focus (Location 625)
• Aside from resilience and the ability to learn from mistakes, what an entrepreneur needs most is a capacity for discipline and focus. (Location 626)
• That’s one of the great myths of entrepreneurship, and it gets many would-be entrepreneurs into trouble. They waste time and money chasing after business opportunities, hoping to identify one that will guarantee success. But the world is filled with great business opportunities, and none of them guarantees success. Spotting them is the easy part. What’s difficult—and essential—is developing the discipline and the stamina to stay focused on a single opportunity until you’ve turned it into an established business that can stand on its own. (Location 633)
• business, you need to begin by selecting one opportunity out of all those available—a single idea that, for whatever reason, strikes you as more appealing than the others. (Location 643)
• There is only one opportunity you should be thinking about during the start-up of any business. I’m talking about the opportunity to build a customer base that will make the business viable—that is, able to sustain itself on its own internally generated cash flow. First, you have to figure out what kind of customers will give you such a base and how you can draw them in. Thereafter, you need to focus relentlessly on building the base. (Location 657)
• first-time entrepreneurs I know have trouble maintaining focus. They forget that in a start-up, there are two limited resources, time and money, and you can’t afford to waste either one. (Location 662)
• everything changes when you open your doors and start making sales. There’s a new kind of pressure and an increased sense of urgency about dealing with problems. Before you have customers, after all, a delay is not a disaster. (Location 817)
• To be successful you have to get over your panic. Not only must you develop confidence in your ability to handle problems, but your whole way of thinking about them has to change. You have to accept a never-ending flood of complications as a normal part of the business process, and you have to learn to enjoy that process. How? By getting caught up in the fun and excitement of finding solutions. (Location 824)
• The Bottom Line Point One: Those who persevere win. Be resilient and welcome failure. That’s how you become a better businessperson.   Point Two: You learn by refusing to make excuses and looking deep inside yourself for the reasons things have gone wrong.   Point Three:Focus and discipline are more important than identifying opportunities, but they have to be balanced with flexibility.   Point Four: The solutions are seldom right in front of you. You need to learn how to spot them out of the corner of your eye. (Location 846)
• CHAPTER THREE Why Start-ups Fail (Location 853)
• You often hear, for example, that to be successful you need a unique product or service, something nobody else has. Or that you should choose a business with as little competition as possible, that you’re better off having a market to yourself. My advice is exactly the opposite. (Location 856)
• I never want to be first in a market, and I always like to have a lot of competitors. Yes, I want to be different from them, but the more people who are making money in an industry, the better I feel about going into it. (Location 858)
• Number one, I want a concept that’s been around for one hundred years or more. OK, maybe less than one hundred years. The important thing is that it’s an established concept, one that everybody understands. It’s not something new and revolutionary. Why? Because there is nothing more expensive than educating a market. (Location 861)
• That gave me my third criterion for a successful new business: a niche. (Location 883)
• So those are my three criteria for starting a successful business: a one-hundred-year-old concept, an antiquated industry, and a niche. (Location 893)
• Buy or Start? (Location 900)
• Here’s another piece of advice to ignore: you’re better off buying a business than starting one from scratch. (Location 901)
• There are a number of reasons. For one thing, it’s harder to learn a business if you haven’t been with it from the start. You miss out on all the trial-and-error education that happens in the early stages. You don’t understand key relationships in the business. You don’t know what to do in emergencies. You make mistakes that are much costlier than they would have been back when the company was smaller and struggling to get off the ground. (Location 904)
• He didn’t know, for example, who the top ten customers were, or what percentage of sales each of them accounted for. He didn’t know how their purchases changed from year to year. Were the same customers coming back, or did the company have to keep finding new customers to replace the ones who left? Did one or two customers account for a disproportionately large percentage of sales, and if so, why? (Location 936)
• The Wrong Kind of Business Plan (Location 976)
• But money isn’t the first thing you need, and you’re making a big mistake if you focus on raising it before you’re ready to spend it intelligently. (Location 978)
• I’m talking about elaborate, four-color, one-hundred-page business plans, printed on high-grade paper, with photographs, tables, graphs, pie charts, flow charts, and every kind of number you could ask for. I mean, these plans are gorgeous. There’s just one problem: the numbers don’t make sense. (Location 980)
• he’d plugged in a ridiculously short collection period for his receivables, about twenty days, while figuring he could get away with stretching his vendor payments to sixty days. (Location 990)
• underestimated the amount of equipment he needed and assumed he’d be able to lease whatever he wanted on his own signature—without putting up any additional security. (Location 991)
• I believe strongly that the first business plan you write should be for nobody but yourself, and you don’t need any special software to create it. (Location 1003)
• You just need to answer four questions as honestly as you can: (1) What is the concept? (2) How are you going to market it? (3) How much do you think it will cost to produce and deliver what you’re selling? (4) What do you expect will happen when you actually go out and start making sales? (Location 1004)
• The idea is to spell out as clearly as possible how you think the business is going to work—what you’re going to sell, how much you’re going to charge, who your customers will be, how you’re going to reach them, how long it will take to close a sale, and so on. You need to be completely candid with yourself. You mustn’t let your own economic circumstances cloud your thinking. Put aside for the moment any concerns you may have about earning a living or raising start-up capital. You can deal with those issues when the time comes. In the beginning, what’s important is to get your major assumptions down on paper. (Location 1006)
• Why? Because you need to test those assumptions before you go out to raise money, not afterward. You need to identify as many mistakes as possible while you still have a chance to correct them. (Location 1010)
• The Most Important Resource (Location 1025)
• The Bottom Line Point One: It’s good to have a lot of competitors because educating a market is a very expensive proposition.   Point Two: If you’re a first-time entrepreneur, it’s generally better to start a business than to buy one.   Point Three: The first business plan should be simple, and you should write it for yourself, not for potential investors.   Point Four: Your time is more valuable than money, and you should be careful not to waste it. (Location 1100)
• CHAPTER FOUR Where the Money Is (Location 1106)
• With most investors, you have just one shot. If you blow it, you’re out of luck. People don’t say, “Come back when you get it right.” If you go in and you don’t know what you’re doing, it’s unlikely that you’ll ever get another chance. To make the most of your opportunities, you need to plan your investment strategy just as you plan your business. You need to research the market. You need to find out as much as you can about potential investors—what they want, what their criteria are, how they evaluate a deal—before you ever ask them for money. (Location 1153)
• That’s why I usually tell people to build a certain amount of failure into the process. I’m talking about including four or five long shots on your list of potential investors—and then making a point of approaching them first, knowing that you’re probably going to be turned down. You’re bound to learn something from each rejection. You should plan to learn as much as you can. (Location 1160)
• go back to people who’ve rejected you. Make it clear that you aren’t looking for money this time, that you respect their decision and aren’t asking them to reconsider. Say that you just want to learn from the experience, and you’d be grateful if they’d explain why they said no. (Location 1164)
• The Banking Choice (Location 1175)
• another financial relationship—the one you’ll have with a bank. (Location 1177)
• line of credit to finance his company’s expansion. (Location 1179)
• every business needs a bank, and you should use every opportunity you have to build a relationship with one. Forget about whether or not you need a loan right now. The truth is, you’re better off if you don’t. What’s important is to have the relationship. Why? Because the day will come when you do have to borrow money, and when it does, you don’t want your only option to be an asset-based lender. (Location 1185)
• The key difference can be summed up in one word: control. (Location 1196)
• When you borrow from an asset-based lender, you give up control of your receivables. (Location 1197)
• Banks look for good businesses—and good businesspeople—to invest in, whereas asset-based lenders look for good receivables to acquire. That’s why it’s harder to borrow money from a bank: you have to prove yourself creditworthy. (Location 1212)
• And therein lies the real reason to borrow from a bank, assuming you have the option. The loan gives you an opportunity to demonstrate that you understand your responsibilities as a borrower and are capable of meeting them as a businessperson. It gives you a chance to build the relationship by showing that you can hold up your end of the bargain. That is, it allows you to establish trust. (Location 1215)
• How to Lose a Loan (Location 1229)
• I’ve had my loans called twice in my career, and I wouldn’t wish the experience on anyone. That said, one of the experiences was much better than the other and helped me understand what you can do to protect yourself. (Location 1234)
• Mistake #1: Submitting financial statements late. (Location 1254)
• Mistake #2: Running on uncollected funds.To (Location 1259)
• some companies will deposit checks they receive and immediately start spending the uncollected funds, (Location 1259)
• Mistake #3: Being unresponsive. (Location 1262)
• Mistake #4:Neglecting the relationship. (Location 1266)
• My partners and I always made a point of sitting down with our bankers at least once every three months. (Location 1270)
• Mistake #5: Failing to keep the bank adequately informed. (Location 1271)
• That’s one reason they ask for annual forecasts. If your projections are way off year after year, your banker will conclude that you don’t know where your business is heading—or, worse, that you’re being dangerously optimistic. (Location 1273)
• Mistake #6:Ignoring the rules. (Location 1276)
• covenants contained in the loan agreement. A lot of people don’t understand the covenants, or forget about them, or simply ignore them. (Location 1276)
• Mistake #7: Arguing when you’re wrong. (Location 1298)
• banks have the right to get their money back when borrowers violate their loan covenants. (Location 1300)
• Your Inner Bank (Location 1312)
• Unless you’ve already pledged your receivables to someone else, you have your own inner bank, and you need to start thinking like a banker. (Location 1314)
• Receivables are, in effect, loans you’ve made to your customers, and it’s always a good idea to keep an eye on the quality of your loan portfolio. (Location 1316)
• You need to ask, Is it taking you more time to collect than it should? Is your average collection time increasing and, if so, why? Do customers need to be called more often? Are some of them struggling because they have problems of their own? In that case, you might need to work out new terms with them. Or are people taking advantage of you, in which case you might want to apply additional pressure—or maybe even terminate the account? (Location 1317)
• The Bottom Line Point One: Before you ask people for money, make sure you know how much they like to invest and what they’re looking for.   Point Two: Start early to build a relationship with a commercial banker and use an asset-based lender only if you can’t get the money you need from a commercial bank.   Point Three: Bankers are businesspeople, too. Treat them the way you would like your customers to treat you.   Point Four: Your receivables are loans to your customers. Make sure your portfolio is in good shape. (Location 1388)
• CHAPTER FIVE Magic Numbers (Location 1396)
• Here’s the best piece of advice I can give to anyone starting a business: from day one, keep track of your monthly sales and gross margins by hand. Don’t use a computer. Write down the numbers, broken out by product category or service type and by customer, and do the math yourself, using nothing more sophisticated than a calculator. (Location 1398)
• Numbers run businesses. They tell you how you can make the most money in the least time and with the least effort—which is, or should be, the goal of every entrepreneur. (Location 1404)
• You can switch to computer tracking once you’ve mastered it, but if you let a computer do the work in the beginning, you lose something. You don’t develop the same intimate connection with the numbers that you get when you track them manually. In fact, your business may never even reach viability if you don’t start tracking your numbers early on. (Location 1408)
• Next I sent her a form on which I asked her to start tracking her sales and gross margins by product category. At the end of each month, she was to write down the sales, cost of goods, gross profit, and gross margin (that is, gross profit as a percentage of sales) on every type of product she carried, both for that month and for the year to date. Then she was to calculate the totals for the company as a whole. The whole exercise took less than thirty minutes a month and allowed her to see at a glance how much cash she was generating internally and where it was coming from. Meanwhile, she continued to track her monthly sales and gross margins by customer on a separate sheet of paper. (Location 1430)
• You need to start gathering that information from the beginning. In particular, you need to track your gross margins. High gross margins translate into high gross profit, and gross profit is the main source of the cash you’ll need to support yourself and build the business. (Location 1447)
• Levers of Control (Location 1463)
• But I didn’t want to wait that long, and I knew I wouldn’t have to if I could find a number that rose at the same rate as overall sales. After years of searching, I zeroed in on the new-box count and was eventually able to devise a formula that allowed me to estimate sales within 1 percent or 2 percent of the actual figure. Why the new-box count? I have no idea. It’s a little like being able to determine the sales of a department store by counting the number of shoes it sells. Yet, for some reason, the formula works. (Location 1481)
• believe every business has key numbers like that one. (Location 1485)
• best businesspeople I know all have certain key numbers they track on a daily or weekly basis. It’s an essential part of running a successful enterprise. Key numbers give you the financial information you need to take timely action. Business moves too fast to wait for the monthly, quarterly, or annual statements from your accountant. By the time you get them—weeks or months after the end of the period—you’re already dealing with the consequences of whatever problems may have arisen when you weren’t looking. You’ve probably missed out on a number of opportunities as well. You need real-time information, and the only way to get it is by coming up with a set of simple measurements you can use to figure out what’s happening in your business at any given moment. (Location 1489)
• you just track sales, you can get into serious trouble. Sales don’t make a company successful. Profits and cash flow do. A lot of companies land in bankruptcy court because their owners focus so much on driving sales that profit and cash become an afterthought. (Location 1495)
• it’s seldom self-evident. I often have to follow the numbers for years before I can identify a single measurement I can use to tell me quickly what my sales are. (Location 1498)
• Paying for Growth (Location 1524)
• businesses live or die on cash flow. (Location 1526)
• more sales almost always mean less cash flow—and less cash flow means trouble. (Location 1526)
• What I learned is that you have to look ahead. You have to figure out how you’re going to get the cash required to increase your sales at whatever rate you have in mind. If you don’t, you run the risk of selling yourself into a corner. (Location 1548)
• ask the right questions about the new business coming in: 1. How much is it, and over what time frame? 2. What’s the gross margin? 3. How much overhead will you have to add? 4. How long will you have to wait to get paid? (Location 1554)
• Here’s what you do: Start by figuring out your cost of goods sold (COGS) on the new business—the amount of money you’ll have to lay out to produce or acquire whatever you’re selling. Since your gross margin is 30 percent of sales, your COGS is 70 percent, or $70,000. Add to that the extra overhead you’re going to need—$10,000—and you get $80,000 in new spending to fill $100,000 in new orders. Divide the total by the number of days in the period covered—in this case, 365—and you find out that the new business is costing you $219.18 per day. If you then multiply that number by the number of days it takes you to collect your receivables, you get an idea of your additional cash needs. For safety’s sake I always increase the collection period by 20 percent, so in this example I’d multiply by 72 days instead of 60. The result: 72 days x $219.18 per day=$15,781. (Location 1563)
• The Ultimate Prize (Location 1594)
• You can’t value any company simply by looking at its sales. Yes, it’s true that every industry has a rough rule of thumb for doing valuations, and usually it’s expressed as a multiple of sales, but that’s simply a matter of habit and convenience. What most buyers are interested in is something called free cash flow, and free cash flow is a function of profit, not sales. (Location 1612)
• But no business that does have overhead can survive without gross profit. It’s the gross profit that covers the overhead expenses and provides the net profit you need to build the company and get a return on your investment. (Location 1621)
• understanding what potential buyers are looking for. (Location 1630)
• EBITDA. (Location 1633)
• five and ten times EBITDA no matter what industry you’re in. (Location 1656)
• The Bottom Line Point One: Whenever you launch a new business, keep track of your monthly sales and gross margins by hand until you have a good feel for them.   Point Two: Find the key number that tells you how your business is doing in real time, before you get the sales report.   Point Three: More sales usually mean less cash flow. Figure out your future cash needs while you still have time to address them.   Point Four: Understand EBITDA, and use a multiple of that—not sales—as the measure of your business’s value. (Location 1670)
• CHAPTER SIX The Art of the Deal (Location 1678)
• From the day you start thinking about having your own company to the day you cash out, you’re involved in one negotiation after another. You may call it something else—“raising money,” “selling,” “leasing space,” “hiring,” “buying insurance,” “getting a phone system,” whatever—but you’re negotiating every step of the way, and you’ll pay a price if you don’t recognize the process for what it is. (Location 1681)
• That’s another one of my rules: negotiate first about a secondary matter, understanding that—at the end of the process—you’ll probably let the other party get most of what it wants on the issue in question. Your concession on the first negotiating point will give you additional bargaining power when you bring your number one issue to the table. (Location 1709)
• Negotiating is give-and-take. To get what you want, you first have to find out what the other party wants. There’s only one way to do that—by listening. (Location 1716)
• I make sure I listen by following two more of my negotiating rules. The first is: don’t go in with any preconceived notions. By that, I mean don’t make any assumptions about what the other party is thinking. Right or wrong, your assumptions will cloud your mind and keep you from hearing what’s being said. (Location 1717)
• The second rule is: always assume that everyone else in the room is smarter than you. If you get the idea you can outsmart other people, you stop paying attention to them. (Location 1720)
• The Detective Habit (Location 1761)
• habit of questioning what you see on the surface, examining the underlying elements, digging to find out what’s really going on. That habit allowed me to make the best purchase of my life. (Location 1763)
• Don’t Worry, Be a Little Unhappy (Location 1818)
• Good things happen when you accept the idea of walking away from a dispute a little unhappy. You stop letting your emotions dictate your business decisions. You don’t get caught up in anger, or revenge. You look for solutions instead of problems. You start to think about outcomes you can live with, rather than trying to get everything you want. In the process, you save yourself a lot of money. I’m not talking only about the legal fees, either. Even more costly is the time you spend thinking about a lawsuit, meeting about it, worrying about it—not to mention getting deposed and sitting in court. (Location 1874)
• The Bottom Line Point One: Listening is the most important part of any negotiation. Make sure you hear what is really being said.   Point Two: Go in with no preconceptions, and always assume that the other side is smarter than you.   Point Three: Develop the habit of questioning what you see on the surface and digging to find out what’s really going on.   Point Four: In an adversarial negotiation, the best deal is one that leaves both sides a little unhappy. (Location 1888)
• CHAPTER SEVEN It Begins with a Sale (Location 1894)
• “You don’t ask, you don’t get.” (Location 1898)
• You need nerve only when you’re afraid of being rejected. I have no fears and no expectations in those situations. My attitude is, I’ll give it a shot and see what happens. If I get what I want, great. If not, well, I can laugh, and smile, and walk away. The secret is an attitude, a philosophy that’s summed up in that expression, “You don’t ask, you don’t get.” (Location 1917)
• all about losing your fear of asking. (Location 1920)
• The surprise is that you get turned down a lot less frequently than you’d ever imagine. (Location 1922)
• “That didn’t work. I’ll have to try something else.” A no was nothing more than an opportunity that didn’t happen. I didn’t take it personally, and I didn’t get upset. (Location 1926)
• You don’t restrict yourself. Yes, you’re polite. You listen carefully. You try not to offend people by being overly aggressive. On the other hand, you don’t back off. You’re willing to keep going until the other party balks—which is the only way to be sure you’ve gone far enough. What’s more, you’re not shy about enlisting other people to help you build your business. You have no qualms about going to friends, associates, suppliers, whoever, and asking for referrals and leads. Of course, you then have a responsibility to do the same for them, so you have to be a little careful. You don’t want to recommend people to a customer unless you have confidence that they’ll do a good job. But I have great confidence in a lot of my colleagues, and they’ve always delivered for me. My three biggest customers have come from a person I exchanged leads with. (Location 1929)
• What Business Are You ReallyIn? (Location 1937)
• Once you’ve determined what business you’re really in, you can use that knowledge to build a solid customer base in even the most competitive markets. (Location 1953)
• we thrived because we’d figured out what business we were really in. (Location 1994)
• A Niche in Time (Location 2011)
• You generally discover the niche after you’ve launched the company, not before. (Location 2013)
• I’m talking about rolling up your sleeves, heading into the market, and beginning to sell. Once you do that, funny things start to happen. You run into unexpected obstacles. You stumble across surprising opportunities. You may discover that your original plan was so far off, you have to come up with an entirely new approach. (Location 2015)
• That’s another example of the importance of being flexible when you’re starting out. It’s equally important to remain flexible after you’ve built your company. No niche lasts forever. If it’s a profitable one, it’s going to attract competitors sooner or later. Other companies will start copying what you do. The more profitable the niche is, the faster it happens. When it does, you lose the advantage that defines your niche, namely, the ability to offer something other suppliers don’t have. At that point, you need to find another niche—unless your business is well-enough established by then to operate without one. How? By building a great reputation. (Location 2063)
• If I’m asked about a competitor I consider unethical, I say only, “I don’t think they can provide the type of service you want” People get the message. If your competitor doesn’t mend its ways, it will be the loser in the long run. (Location 2078)
• Your Good Name (Location 2080)
• assess your character as a businessperson. Do you compete fairly? Do you run a nice, clean operation? Do you treat your employees well? Do you go around bad-mouthing other companies in the industry, or do you speak about them with respect? (Location 2082)
• I’ve long believed that a good reputation is the most valuable asset you can have in business. What’s odd is the role your competitors play in creating one. Their opinion, I believe, counts more than the view of any other group—because of their credibility within the industry and with potential customers. (Location 2086)
• If you have the respect of your competitors, you probably deserve it. If they think you’re a lowlife, you could be headed for trouble. (Location 2089)
• need to play by the rules. Which rules? I have three: (Location 2091)
• 1. Never bad-mouth a competitor.When (Location 2092)
• 2. Don’t be a sore loser.It’s (Location 2098)
• make sure we treat our customers as well when they leave as we do when they come in. I want them to remember us as a class act all the way, and I want our competitors to hear about it. (Location 2102)
• 3. Always be accommodating. (Location 2104)
• Even if someone is taking a big account away from us, we’re as nice as can be. We acquiesce to the other company’s schedule and handle the process however the competitor wants us to. We’re equally accommodating when we’re moving a new customer out of a competitor’s facility. We tell our drivers to be patient if they’re kept waiting, as they often are. They can take all day if they have to. We don’t want to provoke any fights or arguments, and we don’t want to rub salt in a competitor’s wound. (Location 2106)
• The Bottom Line Point One: The secret of successful selling lies in losing your fear of asking. You don’t ask, you don’t get.   Point Two: You probably won’t discover your company’s niche until after you’ve launched the business.   Point Three: No niche lasts forever. You may have to discover new ones as you go along.   Point Four: Your reputation is your most valuable business asset, and your competitors play a critical role in shaping it. (Location 2135)
• CHAPTER EIGHT Good Sales, Bad Sales, and the Ones That Get Away (Location 2142)
• the size of the sale is a lot less important than the amount of gross profit you’re going to earn on it. Too many low-margin sales can drive you out of business. (Location 2147)
• Small customers are the backbone of a solid, stable, profitable business—especially a service business. (Location 2155)
• you should never look down on your small customers or take them for granted. The more you have, the happier you’ll be. Why? I can give you three reasons. (Location 2157)
• First, you get better gross margins with small customers because they pay more for your services. They have no choice. They simply don’t have the negotiating power of large customers. (Location 2159)
• Second, small customers bring stability to a business. If you treat small customers right, they’ll stay with you forever. (Location 2165)
• Third, a broad base of small customers makes your business less vulnerable to the loss of any single customer. (Location 2172)
• That’s why—when you apply for a loan—a bank will ask you to list all of your customers that account for more than 10 percent of your sales, as well as the percentage of sales that each one represents. If you do more than 30 percent of sales with any single customer, you’re in trouble. (Location 2173)
• you have a contract with the customer, you sweat bullets when it comes up for renewal. The truth is, you’re not in control of your own business. The large customer can pretty much dictate prices and terms, and you can’t afford to put up too much resistance. It’s a lot like having a boss, (Location 2176)
• What’s the goal? I don’t think any company can be considered secure until its biggest customer represents no more than 10 percent of its sales—and I wouldn’t stop there. As much as I love my large customers, I still feel vulnerable to them, and so I continue to add as many new customers as I can get, especially small ones. That’s not easy. For the same reason that small customers give your business stability, they are hard—and expensive—to find. (Location 2182)
• When the Price Isn’t Right (Location 2196)
• That’s exactly what you have to do if you’re going to compete successfully in an environment of extreme customer loyalty. You have to prove that you deserve a customer’s loyalty more than your competitors do. Believe me, it’s a long, difficult, and expensive process, and you don’t always walk away with the sale. (Location 2239)
• entrepreneur’s knowledge is a significant competitive advantage. (Location 2246)
• Listen and Earn (Location 2261)
• listening to customers. It happens so rarely these days that you can actually gain a competitive advantage just by doing it. (Location 2262)
• story, I don’t mean to imply that listening to customers is easy. On the contrary, it’s the most difficult part of the selling process. (Location 2274)
• when you’re selling, your entire focus should be on figuring out what your customers want and then, if possible, giving it to them. (Location 2279)
• don’t worry about closing sales. I worry about making customers feel as though they’ve been heard, understood, and responded to. (Location 2296)
• them to leave with a warm and fuzzy feeling. If they do, the sales will follow. (Location 2297)
• You don’t have to create a sales pitch. Your customers tell you what to say. (Location 2309)
• The Capacity Trap (Location 2310)
• There is one form of price cutting, however, that even experienced businesspeople fall victim to. I’ve seen it wreck entire industries and bring down established companies, not to mention countless start-ups. (Location 2314)
• I’m referring to the practice of selling unused capacity at a discount in order to make sure it doesn’t go to waste. (Location 2327)
• They ignore the problems they’ll create if they charge significantly less for their service than it’s worth. (Location 2330)
• he wouldn’t know it because he’s looking only at sales, not profit. (Location 2341)
• I’d argue that it’s almost always a bad idea to cut prices simply to avoid having unused capacity—for four reasons. (Location 2344)
• First, there’s the cost of capital. (Location 2346)
• Second, there’s the opportunity cost. (Location 2350)
• When you fill capacity with low-margin sales, you leave no room for high-margin sales. (Location 2351)
• This is the third reason not to go after low-margin sales, and it’s based on a general rule of business—namely, that prices always seek their lowest level. When you charge two prices for exactly the same service, you are competing against yourself, and it’s only a matter of time before the competitor with the lower price wins. (Location 2353)
• fourth, and most important, argument against discounting to fill capacity. The practice alienates precisely those customers you must have to be successful, maybe even to survive. They’ll be furious when they find out you’re charging other people less for exactly the same service. They’ll think you’ve been ripping them off all along. From then on, forget it. I don’t care what price you offer them. Those customers are gone. (Location 2358)
• what sense does it make for Jerry to go to all the trouble and expense of having a records storage business when he could do better being a landlord? (Location 2380)
• In fact, it should always raise questions if you find that you could earn more money by using your capital another way. Unless you have a clear plan for improving your returns in a specific time frame, you’re probably doing something wrong. (Location 2381)
• selling capacity at a discount does make sense occasionally, as long as two conditions are met. First, you and the customer must agree up front on the duration of the discount and what will happen when it expires. Second, you must be able to explain the deal to other customers who raise questions about it. They need to feel that you’ve been fair. (Location 2384)
• Better yet, maintain your price but offer something extra, a value-added service. What it is will vary from customer to customer, depending on their needs. Even if it costs you something to provide the service, at least you’re putting your money to good use. You’re getting a full-price customer. You’re not undercutting your normal prices. And you’ve done nothing to alienate your existing customers. (Location 2397)
• The Bottom Line Point One: You’re better off with a base of many small customers than with a few large ones.   Point Two: Showing is more effective than telling when it comes to signing up new customers. Let them experience what you have to offer.   Point Three: Listening is a lost art. You can gain a competitive advantage just by listening carefully to what your prospects and customers are saying.   Point Four: It is almost always a bad idea to reduce your prices just to fill unused capacity. You will just undermine the more profitable part of your business. (Location 2407)
• CHAPTER NINE Customers for Keeps (Location 2415)
• Winning is not just about closing the sale. You win when you close the sale and at the same time lay the foundation for a good relationship that allows you to keep the customer for a long, long time. (Location 2418)
• The name of the game is customer retention. (Location 2420)
• if you lose one account for every two you land, you’ll spend twice as much time, energy, and money to get them as you would if you made half as many sales but were able to hold on to all the customers you signed up. (Location 2423)
• mechanisms that would tie customers into our service— (Location 2431)
• inquiring beforehand about the customer’s bill-paying policy. (Location 2450)
• beyond learning what you need to know to keep from inadvertently souring a future relationship, it’s also important to use the period before the sale to start building the trust that will let you hold on to the customer for the long term. That means going out of your way to show your intention to do whatever is necessary to ensure that the customer will be happy after the sale. (Location 2453)
• Handling your own sales is not how you build a brand. You need to develop a certain mystique as the person whose name is on the product. You can’t do that if you’re spending your time qualifying leads, making sales calls, getting doors slammed in your face. To build a brand, increase your sales, and grow the company, you need to turn responsibilities over to other people. That can be hard, I admit, particularly when you believe you can do the job better than anyone else. I was the first dispatcher in my delivery business, and I always thought I was the best at it. But if I were still dispatching, I’d have a very small company today. —Norm (Location 2478)
• Building Loyalty (Location 2484)
• Customer relationships—like other relationships—atrophy unless they are constantly nurtured. There are many ways to do that. One of them is to teach your customers your business. They want to cut costs, and you’re in a unique position to show them where they can find savings. After all, you know your business better than they do. (Location 2485)
• But we do get compensated for showing customers how to save money. They pay us by staying with us even when they might get a slightly cheaper price somewhere else. Over the long run, that loyalty is worth much more to the business than the extra boxes. (Location 2495)
• Another way to build the relationship is to make a point of treating established customers like new prospects. That’s a bigger challenge than you might suppose. There’s a natural tendency to treat customers differently after they’ve been around for a while. You’ll do anything for them when you’re trying to win their business, but once you’ve landed the account, your attitude starts to change. By the time you go back to renegotiate the contract, you’ve developed a whole new set of expectations. You’re not focused on making the sale anymore. Now you’re thinking about getting a better deal. It’s an easy way to lose business. You leave yourself wide open to competitors who are looking at the customer the way you did when you were starting out. (Location 2497)
• The Customer Touch (Location 2511)
• Unfortunately, the more successful your company is and the bigger it gets, the harder it is to play that role. You have fewer and fewer opportunities to interact with customers. (Location 2513)
• It’s a process that can undermine even the most promising young company—unless somebody makes a conscious effort to ensure that doesn’t happen. (Location 2516)
• When employees leave to go into competition, I wish them well and send them a plant. It’s a cactus. (Location 2562)
• The Bottom Line Point One: Customer retention is the key to growth, and you retain customers by building strong relationships with them.   Point Two: One way to build relationships with customers is to help them become smarter buyers by teaching them your business.   Point Three: Make a point of treating old customers like new prospects. Otherwise, it’s easy to start taking them for granted.   Point Four: You will lose contact with your customers as your company grows unless you build customer face-time into your schedule. (Location 2565)
• CHAPTER TEN How to Lose Customers (Location 2572)
• track of the number of episodes of bad customer service I hear about, or experience, over a six-month period and use that as a rough gauge of the general level of customer service in my part of the world. (Location 2575)
• Raising Prices (Location 2600)
• price always plays a role in the customer relationship, and there’s no easier way to lose customers than to hit them with a sudden, and big, price increase. No one wants to do that, but—if you don’t raise your prices gradually over time—you could wake up one day and discover you have no choice. (Location 2601)
• Granted, you may not feel the pain for a while. If your sales are going up, you’ll probably be able to take home the same amount of money from one year to the next. As a result, you may not see the risks you’re taking. In the short term, you’ll think you’re doing fine. (Location 2628)
• First, your profit margins are shrinking—because your costs are going up. Certain costs always rise. (Location 2630)
• payroll increases every year. (Location 2633)
• regular hikes in insurance rates (Location 2633)
• health insurance. (Location 2634)
• costs of utilities and supplies also have a tendency to rise over time. (Location 2634)
• your average costs per dollar of sales are going to rise from year to year. They may rise only 2 percent annually, but compound the increases over five or ten years, and eventually you won’t be earning a profit anymore—unless, of course, you raise prices. (Location 2636)
• For one thing, you’re gradually undermining the perceived value of your services or products. Like it or not, there’s a natural tendency to link quality and price. (Location 2639)
• At the same time, you’ll be undermining the real value of your business as a whole. That’s a point most small-business owners miss. They look at the company only as a source of income. They forget that it’s also a major asset, probably their most valuable one, and—like any asset—it needs to be maintained. That means, among other things, making sure the company has strong profit margins—as good as or better than the rest of the industry. If you let your margins erode, you’re going to have trouble when you try to sell the business. Indeed, you may not be able to sell it at all. (Location 2642)
• Rules for Rules (Location 2656)
• If all else fails, you can always lose customers by providing really poor customer service. (Location 2656)
• Behind every rule there’s almost always a good reason, or at least a good intention. At the time you establish them, the rules appear to make all the sense in the world. And yet, if you’re not careful, you run a high risk of creating rules that will hurt your business. What happens is that you take away your employees’ ability to use common sense in responding to the reasonable requests of customers. (Location 2695)
• We tend to make bad rules not when we’re attacking problems but when we’re avoiding them. We fall into the trap of looking for shortcuts and easy answers. So one bad customer drives off without paying his bill, and we put restrictions on all our good customers. Or one employee uses poor judgment in issuing credit, and we tie the hands of all those whose judgment is perfectly sound. (Location 2716)
• The Bottom Line Point One: Customers don’t like feeling that they’re supporting your lavish lifestyle. Don’t give them reasons to think they are.   Point Two: Make a habit of having small price increases on a regular basis so that you aren’t forced to have a big increase later on.   Point Three: Your company is probably your most valuable personal asset. Don’t undermine its value by letting your margins erode.   Point Four: Beware of the rules you make. They may inadvertently force your employees to provide poor service to customers. (Location 2722)
• CHAPTER ELEVEN The Decision to Grow (Location 2730)
• They make the mistake of focusing on their business plan before they’ve figured out their life plan, and the life plan must come first. (Location 2734)
• “Listen, let’s forget about business. Business is just a means to an end. The question is, what’s the end? Where do you want to go in your life? Where do you want to be in five years from a family standpoint? What do you want to earn? How much time do you want to take off?” (Location 2750)
• The Mystery of Success (Location 2811)
• If you don’t really know what’s driving your success, you have to be careful about the strategy you adopt. There’s a risk, after all, that you may accidentally undermine whatever made your company successful in the first place. (Location 2818)
• Your core business must always come first. No opportunity is worth going after if it jeopardizes your core business even one iota. It’s not just about money. You also have limited time. Ask yourself two questions about each new opportunity: Will it keep me from putting in the time required to build or maintain my core business? And, if the opportunity turns into a financial disaster, will my core business be crippled? If the answer to either question is yes, you probably should rethink whether or not this is a good opportunity. (Location 2900)
• Size Matters (Location 2905)
• a highly focused, tightly knit, family-oriented small business with owners who are on the scene and actively involved. We play that advantage for all it’s worth. (Location 2913)
• The message is one of accessibility and personal service, and we constantly look for ways to reinforce it. Every new customer receives a thank-you note from me and my wife, Elaine, who owns the company with me and plays a key role on our management team. (Location 2918)
• The Bottom Line Point One: Business is a means to an end. Do a life plan before you make your business plans.   Point Two: When trying to move to the next level of sales, don’t assume you know all the factors that led to your initial success.   Point Three: Growing a business is a matter of choice. Before deciding to grow, make sure you know why you’re doing it.   Point Four: Bigger is not always better. Small companies have some advantages that large companies can’t match. (Location 2931)
• CHAPTER TWELVE Becoming the Boss (Location 2938)
• It was as though we were all equal in the business—we just had different roles. That wasn’t true, of course. It never is. Someone always has to be the boss, even in a startup. If you don’t accept that reality, you’re headed for trouble. (Location 2943)
• two types of mistakes (Location 2945)
• first involves their relationship with employees. The second has to do with their assumptions about their own job. (Location 2946)
• maintain a certain distance from your employees. (Location 2947)
• Not that you shouldn’t care deeply about your employees and their families, but I believe it’s a mistake to develop personal relationships with them outside the business. (Location 2949)
• Employees should not be your social friends, and your social friends should not be your employees. (Location 2950)
• “You don’t have to sit in an office to be in charge of a business. Management is just another job. You wouldn’t think twice about hiring an accountant to handle the books. Why should you assume that you have to be the manager? You’re the best salesperson you’ve got. There’s nothing wrong with focusing on sales. You can still give the company direction. You can still set the standards. But first you need to extricate yourself from management and turn it over to people who are good at it. Then you can go back to doing the work you enjoy.” (Location 2990)
• When Employees Steal (Location 2998)
• The biggest problem with employee theft is that it often leads you to make bad decisions about your business and your life. The emotions are so overwhelming that you tend to overreact. You can’t get back to making good business decisions until you take the emotions out of the process. The first step is to understand that theft is a business issue and needs to be addressed as such. In most cases, it happens because there’s a problem with the procedures in your business. (Location 3042)
• You need to find out what it was and fix it. (Location 3047)
• Accordingly, one of your major responsibilities as the owner is to check your procedures from time to time, making sure those you have are being followed and looking for new ones you may need. And when you come across something that doesn’t make sense, it’s important to ask questions. (Location 3052)
• Necessary Losses (Location 3087)
• boss is a journey, not a destination. You go through stages of understanding your role, but you never stop having to learn something new, because the job is constantly evolving. Some stages are harder than others. (Location 3088)
• new management system— (Location 3116)
• best way to break a bad habit is to replace it with a good habit. (Location 3136)
• The Bottom Line Point One: As close as you may be to your employees, neither you nor they should forget that it’s a business relationship and needs to be treated as such.   Point Two: If you, like most entrepreneurs, prefer selling to managing, remember that you can hire other people to do management. You don’t have to do it yourself.   Point Three: The way to deal with employee theft is to improve your systems, not to stop trusting people.   Point Four: When the time comes for you to step aside and turn day-to-day operations over to your managers, get someone you trust to help you with the transition, and find other ways that you can contribute to the business. (Location 3166)
• CHAPTER THIRTEEN The One Thing You Can’t Delegate (Location 3175)
• I came to realize that no matter how sharp your instincts are, no matter how many people you have interview each candidate, no matter how diligently you follow up with reference calls, you simply never know how an individual will do on the job until he or she is actually working for you. (Location 3183)
• That’s the rule, not the exception. More often than not, I’ve learned, first-rate employees turn up unexpectedly. (Location 3187)
• The most powerful recruitment tool you have is your company’s culture, over which you have a substantial amount of control. Every day you have opportunities to shape that culture, and it’s important not to let them slip by. (Location 3190)
• you can’t hold on to the best people with financial incentives alone. (Location 3211)
• Nobody is loyal to a compensation package. People are extremely loyal, however, to a company that they’re proud of—that competes fairly; that does right by its customers and suppliers; that gives back to its community; and that cares, really cares, about being a great place to work. (Location 3212)
• three essential ingredients. (Location 3216)
• first is mutual trust, which requires clarity about the rules. People need to know what is expected of them and what they can expect in return. My principal rule is simple: I want my employees to give me an honest day’s work. Period. As long as they do so, it’s up to me to make sure they have jobs. That, I believe, is an employer’s primary responsibility. If people do everything you ask of them, they should be able to have confidence that you’re going to keep them employed. Without that assurance you can’t have mutual trust, and without mutual trust you can’t have a healthy culture. (Location 3216)
• second ingredient is appreciation for the contributions that employees make. (Location 3221)
• You have to recognize that all the good things you get from the business come as a result of the efforts of others, and you need to show your gratitude. (Location 3221)
• cash bonus (Location 3223)
• movie tickets (Location 3224)
• season tickets (Location 3225)
• remind our employees constantly that they are valued members of a community—which is the third ingredient of a strong culture. (Location 3229)
• bigger than themselves, (Location 3230)
• The Evolution of a Culture (Location 3261)
• a little community springs up, and it has its own unspoken customs, traditions, modes of dress and speech, and rules of behavior. By the time you become aware of it, the culture is often well established. You can only hope that you’ll like it, because it will probably be a reflection of your personality. (Location 3265)
• You should never have more than one culture in a company. If you let managers create their own subcultures, you’re inviting chaos and corporate politics. (Location 3308)
• Pennies from Heaven (Location 3330)
• habit of frugality (Location 3341)
• Along the way, often without anyone noticing it, luxuries become necessities, and the organization becomes a little sloppy. Salespeople start thinking they have to use cabs to get around town, rather than take the subway. (Location 3344)
• If you really want to attack creeping expenses, you need to get everyone involved, which won’t happen unless people care enough about the company to lend a hand. And that won’t happen unless they know the company cares about them. (Location 3358)
• People have to understand that saving money is a priority, and the message has to come straight from the top. You can’t just talk about it, either. How you act will convey your concerns far more effectively than anything you say. (Location 3376)
• The Bottom Line Point One: Your company’s culture can be your most powerful tool for finding and keeping great employees. Don’t miss the opportunities to shape it that arise every day.   Point Two: The one thing you can’t delegate is the responsibility for making sure the company has a single culture, not several competing ones.   Point Three: Expenses have a natural tendency to creep up over time. If you want to control them, you need to get everyone involved in the effort.   Point Four: Look for opportunities to send the message to employees that you really care about them, and that you want them to care about keeping costs down. (Location 3419)
• CHAPTER FOURTEEN Selling Is a Team Sport (Location 3427)
• What I’ve learned is that, for me at least, there are no shortcuts. It takes time to find the right people, time to train them, time to get them acclimated to our culture. (Location 3431)
• four rules for choosing new salespeople. (Location 3436)
• first rule has to do with the candidates’ aspirations. There are, I believe, two categories of salespeople in this world. One type will eventually go into business for themselves. The other will always work for somebody else. I like both types, but it’s the salespeople in the second category that I want to hire for my company. (Location 3437)
• What I don’t like is turnover in my sales force. I want salespeople who will stay with me forever. Other kinds of employees are different. If they don’t keep moving up in the organization, sooner or later they’re going to be overpaid. That creates problems for both you and them. You don’t have those problems with salespeople. What they get paid is generally based on what they produce. The good ones, moreover, can go on producing year after year. Those who do are invaluable to a business. Once I find them and train them, I never want to lose them. So I try to screen out the candidates who dream of having their own businesses. They may be great salespeople, but I know they won’t stick around. I wish them every success—somewhere else. (Location 3441)
• first rule: hire salespeople, not entrepreneurs. (Location 3446)
• second rule (Location 3447)
• consistently better results with the salespeople I’d brought in from outside the industry and trained myself. (Location 3453)
• new policy in the company: no hiring of salespeople from our industry. (Location 3459)
• third rule (Location 3460)
• rule is that if you want to apply for one of our sales positions, you must have held at least two prior jobs in different companies, and one of those jobs has to have been in sales. (Location 3460)
• Virtually every person I’ve ever hired straight out of school has moved on within two years. (Location 3465)
• In your first job, you assume every company works the same way. In your second job, you learn that different companies have different styles, different benefits, different procedures and rules. By the third job, you realize you’re choosing a company as well as a career. (Location 3469)
• fourth rule (Location 3471)
• never hire a hotshot. By that, I mean a superstar salesperson. A selling machine. (Location 3472)
• because they think about only one thing: closing sales. They’ll say anything, do anything, promise anything to bag a customer. (Location 3475)
• So I learned an important lesson: your salespeople represent you in the marketplace. I decided that I couldn’t afford to have hotshots representing me. They operate on a philosophy that’s different from mine. They believe in making sales at any cost. I don’t want sales at any cost. I want sales that provide me with enough gross profit to grow my business and that will keep coming back, year after year. I want to build long-term relationships with customers, and I want salespeople who will help me do it. (Location 3487)
• The Trouble with Sales Commissions (Location 3508)
• practice of paying sales commissions. (Location 3511)
• Unless you’re very careful about how you use them, they almost always have the effect of undermining any sense of unity and common purpose in a business. (Location 3511)
• commissions play the largest role in distancing salespeople from other employees. (Location 3515)
• based sales compensation system and move to paying salespeople a salary plus an annual bonus, with raises based half on their individual performance and half on the performance of the company as a whole. (Location 3526)
• There are no territories and no territoriality. The salespeople readily cover for one another when necessary. They also work closely with our operations people, often bringing them on sales calls, giving customers the opportunity to get to know the people who are actually providing the service. The salespeople themselves know all about operations. (Location 3532)
• I’d say you’re much more likely to have salespeople leave and take customers if they’re on commission, rather than on salary and bonus. For commissioned salespeople, the customer represents security. (Location 3547)
• When they interview for a sales position, the first question they ask is, “What’s the commission and what’s the draw?” If you offer them a salary up front, they give you a funny look. You can’t fight that, and I don’t. I won’t risk losing good sales candidates by trying to force them into my system before they’re ready. It’s my job to sell them on the program, and that takes time. (Location 3574)
• So we start new salespeople with what they’re used to: salary and commission. After two years, we know whom we want to keep. I’ll then go to the person and say, “Listen, you’ve been here two years. We want you to be here forever. We’ll buy out your commission and raise your salary, so you won’t lose any income. In return, you’ll get stability. Do you think you’re going to have a good year? I’m willing to guarantee that you’ll have a good year. And if you really do have a good year, I’ll guarantee that next year will be even better. Then again, if the economy goes bad and you have some down years, you don’t have to worry about a big drop in your income. You’ll continue to earn your salary. We want to give you that security because we want you to be here for the long haul.” (Location 3577)
• So salespeople, like other employees, are rewarded both for the company’s success and for their own contributions to it. The logic is simple: We want to change their mind-set. We want them to focus on doing what’s best for the company whether that means selling, or working with other employees to solve a customer’s problem, or helping with collections, or spending time on important projects that don’t necessarily result in immediate sales. (Location 3587)
• Everybody Sells (Location 3613)
• talk about a team, I’m not just referring to the sales team. I’ve long believed that, in any company, everybody sells. By that, I mean that everybody plays a role in the sales process. Whether people work in operations, customer service, or even accounting, they have an impact on customers, and that impact—good or bad—will influence the sales force’s ability to close deals and retain accounts. (Location 3615)
• I’ve assumed that owners and CEOs make the buying decisions on records storage. In fact, the key players are usually employees themselves. Even if they don’t actually have the final say, they provide all the information on which the decision is based. As employees, they tend to identify with other employees, which is one reason they respond so warmly to our culture. (Location 3684)
• The Bottom Line Point One: Salespeople are your representatives in the marketplace. Make sure you choose salespeople who will represent you well.   Point Two: Beware of hotshots and would-be entrepreneurs, and don’t hire salespeople from within your industry.   Point Three: Sales commissions cause divisions in a company and get in the way of building a team. Don’t pay on commission unless you have to, and switch to salary plus bonus as soon as you can.   Point Four: All your employees have an impact on sales, at least indirectly. With the right training, you can teach them how to have a direct impact. (Location 3689)
• CHAPTER FIFTEEN Help! I Need Somebody (Location 3697)
• No Accounting for Bad Advice (Location 3781)
• almost always a bad idea to go to an accountant for advice about business decisions. Accountants are basically historians. That’s how they’ve been educated, and that’s how they think. They can do a great job of explaining what has happened in the past. But making things happen in the future? Forget about it. They don’t even know the right questions to ask, let alone how to get the results you’re looking for. (Location 3785)
• Presumed Guilty (Location 3830)
• I feel the same way about going to lawyers for business advice. Whenever a good deal falls through or a promising negotiation goes awry, it’s usually the lawyers who are blamed, and often they’re guilty as charged. Then again, there’s always another culprit in the shadows, namely, the client. Nine times out often, problems arise because clients allow their lawyers to make business decisions for them—something the vast majority of lawyers are not qualified to do. Smart lawyers understand that and limit themselves to providing legal advice. Not-so-smart lawyers charge ahead and screw things up. (Location 3831)
• Once you really, truly understand and accept that responsibility, you become very selective about whom you go to for advice—and you don’t go to people whose main concern is to keep you from taking risks. (Location 3895)
• As a businessperson, I learned that problems can be great teachers. They didn’t stop me; they inspired me. I got a huge kick out of solving one and moving on to the next. (Location 3914)
• My longtime lawyer, Howard, is one of the best. He does exactly what a lawyer should do for a business client. He explains what various legal provisions mean. He clarifies what my legal obligations are and what they would be if I took a particular action. He makes me aware of any risks I’m taking, and he points out the conflicts I might have with other commitments I’ve made—my bank covenants, for example. (Location 3926)
• The Steady-Income Rule (Location 3942)
• The rule is: you can do almost anything as long as you have a steady income. The income doesn’t have to be as much as you want, or even as much as you need. What matters is that you can count on it week after week and month after month. Without that regular flow of funds, you’ll be constantly getting distracted from your goals. With it, you’re free to focus on the things you enjoy most and do best. (Location 3944)
• I’ve found, however, that—with the help of the steady-income rule—you can sign up the kind of talent that would otherwise be far beyond your means, and it won’t cost you a dime. How’s that possible? Because people of that caliber pay for themselves many times over, provided you give them the space they need to perform. (Location 3951)
• Funny, isn’t it? We bring in talented, creative people because we want fresh thinking, and when they offer it to us, we have trouble accepting it. (Location 3998)
• The Bottom Line Point One: When you’re struggling with a problem, get an outside perspective to make sure you’ve identified the real one and come up with a solution that’s going to address it.   Point Two: Accountants are good for explaining what has happened in the past, but don’t go to them for business advice. Talk to an experienced business owner instead.   Point Three: Your lawyer’s job is to tell you the potential legal consequences of a decision or a course of action—not to give you business advice.   Point Four: Yes, your small company can afford to hire world-class executives as long as you’re willing to create a situation in which they can make money and have fun. (Location 4002)
• CHAPTER SIXTEEN When the Student Is Ready, the Teacher Appears (Location 4010)
• No matter how far you go in business, no matter how much you learn, you never know it all. (Location 4012)
• If it was only common courtesy for a king to walk me to my car, and only common courtesy for him to find out who I was before we met, couldn’t I do as much for people who came to see me? (Location 4041)
• when people I didn’t know would come visit me, I would make sure that I had some background information about them, just enough to establish a bridge I could use to begin building rapport. And at the end of our meeting, I would walk them to their cars. (Location 4045)
• personal, handwritten message (Location 4059)
• There’s no magic formula for creating those bonds. It’s a matter of doing the simple little things that build loyalty and trust—calling customers, visiting them, caring about them, treating them as well after five or ten years as you did when the relationship was brand new. (Location 4067)
• Problems, Problems (Location 4069)
• The fact is that if you don’t eliminate the root cause of a problem, it only goes away temporarily. For that reason, I’ve tried to introduce a certain discipline in my company by constantly reminding people that there are two steps involved in fixing problems. First, you have to stop the bleeding—that is, deal with the consequences and minimize the damage. Then you have to figure out why it happened and make sure that it doesn’t happen again. (Location 4120)
• My advice is to get yourself and your people into the habit of asking, “Why did this problem arise in the first place?” (Location 4149)
• Be Prepared (Location 4152)
• eventually learned that I can take a company only so far and don’t enjoy running it beyond that point. I need to bring in real managers—patient, detail-oriented people. They aren’t good at starting businesses, and I’m not good at managing them. We get along just fine. Just remember that you’ll need to have a good working relationship with the person you bring in. That means both of you have to be open to learning from each other. —Norm (Location 4237)
• Hurry Up and Wait (Location 4241)
• So I came up with a rule: don’t make any major decision without taking a shower. (Location 4265)
• Understand that, while I do my best thinking in the shower, I don’t have time to take one during the day. So I’m actually telling myself to put off the decision for twenty-four hours. (Location 4268)
• What I needed was a mechanism I could use to slow myself down, and the shower rule served the purpose. It was a way of selling myself on the idea of waiting. It forced me to give myself time to think through the decision, hear what other people had to say, take into account the likely effects of whatever I decided. (Location 4272)
• The Bottom Line Point One: There are great business lessons to be learned wherever you go, but you have to remember to look for them.   Point Two: Solving a problem is a two-step process. First, you should stop the bleeding, and then you need to address the underlying cause.   Point Three: Preparation is a crucial competitive edge. Don’t assume you know what’s in a contract—even an old contract—unless you’ve gone back and reread it.   Point Four: The harder someone pushes you to make a quick decision, the more insistent you should be about taking your time. (Location 4289)
• CHAPTER SEVENTEEN Keeping Up with the Stones (Location 4296)
• it’s generally wise to assume that new salespeople won’t make any sales during the first year. You won’t be able to judge their performance objectively if you’re counting on their sales to make ends meet. (Location 4312)
• Let’s say the person costs you $45,000 in salary and benefits, plus another $5,000 for other expenses (telephone, travel, whatever). Suppose also that your average gross margin is 40 percent. The salesperson would have to bring in $125,000 in sales at a 40 percent margin ($125,000 X 40 percent=$50,000) just to cover what you’ve spent on him or her in the first year. (Location 4323)
• That’s a tough concept for many people to grasp. Most companies don’t even try to teach it. But you’ll have continual problems with your salespeople if they don’t understand how the business works and what you’re counting on them to contribute. (Location 4326)
• They came up with a plan, gave Steven goals for gross margins as well as sales, and got him involved in tracking how he was doing. (Location 4331)
• The Internet Opportunity (Location 4360)
• there are many places you can go to get unbiased advice, including industry conferences, business seminars, and networking groups, not to mention organizations like SCORE (Service Corps of Retired Executives), the counseling arm of the Small Business Administration. If you want one-on-one advice from an entrepreneur still active in business, look around your town and pick out a business you really admire. Then I’d write or call the person behind it. —Norm (Location 4371)
• Follow the Numbers (Location 4423)
• Love Thy Business (Location 4497)
• Whatever your company does, you need to believe in your gut that it’s the most interesting, exciting, worthwhile enterprise you could be engaged in at that moment, or you’re going to have a hard time convincing anyone else—employees, customers, investors, whoever—to make commitments to you. If I thought storing boxes on shelves was boring, I never would have been able to attract the great people I work with, and we wouldn’t have been able to accomplish what we’ve done. (Location 4549)
• Life is too short to waste your time—and everybody else’s—on things you don’t believe in. (Location 4556)
• The Bottom Line Point One: Be prepared to carry new salespeople for up to a year before getting the kind of production that will justify what it costs to hire them.   Point Two: If you want salespeople to make good sales, teach them how your business makes money.   Point Three: Watch your numbers carefully, and—when they change—find out why. There’s always a reason.   Point Four: Enthusiasm is the lifeblood of a business. Be generous with it. (Location 4559)