Billy’s Fifteenth Law: Always look bigger than you really are.

Perception is reality!

This, again, is a borrowed law.  I have taken this from my business partner George Slade, who is much better at this kind of thing than am I.  Many of the most successful business owners I know are bold; often exaggerating their skills and abilities in order to gain that important sale.  (I won’t go as far as to say lying but…)  George always made sure that our small technology firm looked like a big technology firm.  George began consulting for a large, international firm, but realized that the teams they put onto a project were no larger and no more competent than our small business.

The logic is simple, if KPMG is going to use a five person team for the project, and George can assemble a five person team for the same project, then George is as good as KPMG.  This is not to knock KPMG, or any other large firm, but to present things in a way that assures the customer that they were getting the same value and more personalized service than with the large business behemoth. 

George presents himself well.  He has well produced business cards, letterheads, website and the other accoutrements necessary in his business. His presentations and proposals are first rate.  He goes to the additional expense of printing on heavy bond paper.  He once told me, “It doesn't matter how good you are if you don’t get the job.” 

There is an important marketing lesson behind this law.  There are four primary buying emotions.  They are:

•  Control
• Security
• Belonging 
• Status

People gravitate towards ‘large’ because it seems a safe decision, thus meeting the customers’ security need.  If the customer needs this kind of assurance, then George provides it.  He not only had a clear idea of exactly what he could do for the customer, he had a clear understanding of the decision making processes of his clientele.

George and I were in a meeting with a client and she asked me a question about modeling her financial plan or some other arcane business process.  I thought for a minute, and then responded that we could do that for her. After the meeting, our discussion went like this:

George:  You were figuring out exactly how to develop that model right in that meeting weren't you?

Bill:         I didn't want to provide her with an answer until I knew the solution. 

George:  That’s the difference between you and me.  I would have simply told her in no uncertain terms that we could do it.  I have enough confidence that between you, me and Scott (another associate) we can solve most problems and if we can’t, we can find someone who can.

George knew that we could do it…I needed to have a good idea of how to do it before taking action.  His bold approach got more business than my cautious approach even though the customer gets the same result. It is that kind of confidence in yourself, and in the team around you that lets you be bigger than you may really be. 

So I leave the quote of the week to my friend George:

Say yes first, and figure out how you’re going to do it later. With the vast resources available to today’s entrepreneur, there are very few problems you cannot solve.

Great advice!

Billy’s Fourteenth Law: Know Thy Customer

“If I had asked people what they wanted, they would have said faster horses.”

Henry Ford

Good businesses understand what customers' want and how customers' want to buy. Great businesses know what customers will want and provide it exactly when they want it.  This requires a combination of insight, foresight, empathy and trend spotting.  It involves knowing not only what customer’s buy, but anticipating what they need and how you can best provide it to them.  In short, it means truly knowing your customer!

It is not unusual for business owners to understand their customers from a consumption point of view.  For example, a clothing retailer understands customers' clothing needs or a bookkeeper understands her clients from a financial perspective.  This level of customer knowledge is just the beginning to truly understanding your customer.

In the book The Discipline of Market Leaders, Michael Treacy and Fred Wiersema define three value disciplines in large corporations.  They are operational excellence, product leadership and customer intimacy.  They argue that although you practise each discipline, one emerges as the dominant discipline in the most successful corporations.  They emphasize the nature and importance of this discipline this way.

Companies and organizations whose discipline is customer intimacy really know their customers; not simply from a customer perspective but from a personal perspective. Good B to B firms understand their client's industries and business challenges.  Don’t make the mistake of simply understanding your customers’ needs…understand your customer.

One author and researcher who really ‘gets it’ is Paco Underhill.  He has several books, including Why We Buy: The Science of Shopping, however; the book that best illustrates this point is What Women Want: The Global Market Turns Female Friendly.  Time and again, Underhill provides examples of how firms understanding of women led to understanding a need and subsequently creating a business opportunity.

To desire to understand you must truly love your customers.  I am lucky.  I work with entrepreneurs and business owners.  I understand business and I understand business owners.  I hope this comes from truly caring about both the enterprise and the entrepreneur.  I was working as part of an entrepreneurial training team in the nineties.  The project coordinator told me that I cared more about the participants business plans than they did.  He was probably right!

When it comes to customer intimacy, you really have to care about the whole customer and not simply their commercial needs.  This value must permeate throughout your firm and be evident in everything you do.  Caring leads to understanding and the understanding in turn leads to opportunity. 

Again…your comments are welcome.

Billy’s Thirteenth Law: Sometimes thinking is more important than doing!

Thinking is the hardest work there is, which is probably the reason why so few engage in it.

Henry Ford

Think for a moment about the ways in which you spend your working day.  We spend time on routine tasks, managing people, addressing the needs of your clients and, to be honest, wasted on things like writing blogs.  The reality is that we often react to situations, or we follow tried and true methods.  We know from psychology that in times of stress, we revert to habit.

The problem with these behaviours is they are the same… and the same actions lead to the same results.  Ben Franklin said, "The definition of insanity is doing the same thing over and over and expecting different results."  In today’s world, with rapidly changing market conditions, we need new approaches.

Our tendency is to ‘do something’.  In our society, especially in the commercial world, we value action.  We love terms such as ‘go getter’ and ‘self-starter’.  Rarely, if ever, have I heard the word, ‘thinker’ considered a superlative in a business context.  We consider thinking a more academic pursuit…not worthy of the real world.  As executives, we need to take time to think!

When was the last time you thought about your own business?   Take some time to think…even to dream about what you do, how you accomplish it and even for whom you are doing it.  Think of how your situation has changed in the past few years, and how it continues to change.  Engage in some extreme thinking.  I first discovered this term in a book by Faith Popcorn.  She suggests looking for a trend, and take it to the extreme.  For example, if there is a trend towards vegetarianism, ask the question, “What would my business look like if everybody was a vegetarian?” If you are in the restaurant business…then this could have profound consequences.   Then bring it back to reality and ask yourself, what I should do given this trend. 

Thinking is tough.  The best way to begin is to continually ask two questions…they are the two golden questions of entrepreneurship and they are:

Why?

What if?

So here is this week’s challenge.  Ask yourself either a Why or what if question as it pertains to your business.  Remember, take time to think!

Billy's Twelfth Law: Tim's law of Negotiation. If you are not willing to walk away you are not negotiating...you are begging

You don't get what you deserve, you get what you negotiate.

Chester L. Karrass

I am not a great negotiator, so I turn to my friend Tim Thompson for this law.  Many of you are probably great negotiators.  For those of you who need some work, this may be helpful to you.  Here is why.

When we start out as entrepreneurs, we want and need to make sales.  The idea that the customer is always right or that the customer is number one is a predominant part of our thinking.  As our businesses develop, we add costs, staff, products and new customers.  The problem is when it comes to negotiating; many entrepreneurs give away too much just to make the sale. 

Here are some of the reasons we don't negotiate the way we should: 

1. We are desperate...we really need the business.
2. We really don't want to be turned down by the customer.
3. We want to make the customer to be happy.
4. We don't want the customer to take his or her business elsewhere.
5. We desire certainty in the outcome.

For many of us, and I include myself in this group... this desire to please as another example of the fourth law of the greatest strength being your greatest weakness.   The problem, as Tim pointed out to me, you need to take the chance that you will lose the business, the feature or the terms you were looking for. 

Walking away is difficult, but is sometimes necessary.  This is a tough concept to learn and even tougher to implement.  As entrepreneurs, especially new entrepreneurs, we hear messages such as: “sales are everything” and “the customer is always right”.  Taken to the extreme… this is dangerous.  Sometimes, you can respond with options, rather than having a take it or leave it attitude, but you must have a point at which you are willing to say no.

I have seen too many cases where business owners were so desperate for a sale that they failed to take profit and cash flow into account.  Unfortunately, it doesn’t take too many bad deals to take down an entire enterprise.

One lesson I try to provide to my entrepreneurship students is to ‘fill in their gaps.’  If your financial skills are weak, fill them in.  The same holds true for negotiation.  You must learn how negotiate.  Take a course, read a book, learn from friends, but most importantly, determine what you need to see if there is a deal which is fair to both parties and not just to your customers.

Men vs. Women

I have heard it said that men are better negotiators than women.  I don’t know if that is true in the general population, however; amongst entrepreneurs some of the best negotiators I know are women.  So ladies, don’t let gender be an excuse not to negotiate well. 

Some of my negotiation tips are:

1. Know what you need…have you walking point.
2. Don’t try to take everything off the table.  You want people to deal with you again.
3. Not all business situations should happen.  Perhaps you can’t pay what your supplier needs for her products or services.  Doing a deal under these circumstances is bad for both parties. 
4. Try to find alternatives instead of compromises. 
5. Remember a future law…your head must say yes, but your gut can say no. 

So here is a quote with which to start the New Year:

“You must never try to make all the money that’s in a deal. Let the other fellow make some money too, because if you have a reputation for always making all the money, you won’t have many deals.”

 – J. Paul Getty

Billy's Christmas Law: Give yourself a gift this year.

Man does not live by bread alone.

Matthew 4:4

Merry Christmas!  For Christians, this is the season for remembering the birth of Jesus Christ hence this week's quote. So here is my Christmas message for all of you...for what it is worth.
 

Running a business is all consuming.  Long days and nights, working weekends are all 'a part of the territory;' especially when you are in those early stages. This level of 'workaholism' often becomes habitual.  Many entrepreneurs see high levels of workload and stress as normal, and while the evenings and weekends may no longer be necessary, the work-style (for it is hardly a life-style) remains the same.

There are commercial and personal ramifications from this behaviour. From a commercial perspective, I remain unconvinced that this level of work is effective.  Tired work is ineffective work and often lacks creativity or efficiency.  From a personal perspective, devotion to business may hurt your devotion to your family and even your devotion to yourself. 

So here is my Christmas wish for all of you.  Give yourself the gift of time.  Get away...get some exercise...go to a play...read a book (preferably a non-business book).  In short - get a life away from your business. For those of you who spend time on the road, don’t forget your health…especially diet and exercise.

Make yourself and your family your priority for this year.  Not only might you enjoy your new lifestyle, I believe that your business will benefit greatly.  You will think more clearly, work more efficiently and your employees might even get the sense that you trust them to do things without them.  To put this into more commercial terms...take this year to make an investment in you. 

I wish all of you a Merry Christmas and a Happy New Year.  I hope you are prosperous in all the ways that matter for you and for your family, and that 2014 is a year for growth and development both for the enterprise and for the entrepreneur.

Billy's Tenth Law: Don't Buy the Porsche too soon

 Never confuse a tail wind with good management.

Jeff Immelt, CEO General Electric

So...you have started your business, survived the first year, did alright in the second year, and thrived in the third year. Congratulations, but beware...the fourth year is often one of the danger years in business development. (Watch for the seven year business cycle, coming up in this blog in early 2014.) 

Sometimes success breeds success, but sometimes success breeds complacency or even arrogance.  I have heard this story, or variations on the theme, dozens of times.  It usually goes like this. 

I started my business on a shoestring, and through hard work and determination, built it into a going concern.  In the early days, there was barely enough money for any extras for myself or for the business.  Now we are successful, and on an upward trajectory.  It's time for a treat so I went out and bought myself a…

You can fill in the blanks with anything you like.  My favourite is the Porsche.  It is a bit of a 'guy thing' but for some people, this is the iconic trapping of success.  The problem is that in any business, things ebb and flow.  There are successful times and there are slower times.  The problem is that we don't know if an upturn in sales & profits represents a long term trend, or a fluctuation in the natural flow of business. 

Entrepreneurs are nothing if not optimistic. When things are going up, then there is no place to go but up.  The problem is that one of two things happens.  Either the entrepreneur commits to higher monthly payments, (on the Porsche) or they deplete the business of cash to pay for the Porsche.  Either way, the business is now more vulnerable to a down turn.

I must confess that I am way too risk-averse to ever make one of those 'bet the company' moves.  (Boeing and 747 come to mind.)  It is one thing, however; to make the big bet with company resources for the company, and quite another to 'buy the Porsche' when you have some excess cash.  I have always been a big fan of retained earnings and contingency funds and I have never been big on borrowing money and increasing cash overheads with lease or loan payments. 

I knew two very successful entrepreneurs who made this kind of mistake.  They had a wildly successful business, and after about five years, started to draw heavily out of the business.  They got hit with two consecutive factors.  Firstly, ice storms in Quebec caused a disruption of supply for their manufacturing.  This cost them six weeks production.  Secondly, they were forced to write off some bad debts made to customers who their factor wouldn't finance. (You should have listened to your factors guys.)  They company had a great income statement, but a weak balance sheet.  They couldn't finance their working capital needs caused by the bad debt and the reduction of production, and as a result went bankrupt as a result.
 

I am not saying that their problems would have been solved, but, retained earnings, derived by taking less money out of the company, would have provided a cushion that would have helped them withstand the adversity.
 
So before you buy that Porsche, put away three months cash in a contingency fund. Retain earnings in order to strengthen your Balance Sheet.  It may not be nearly as cool as a Porsche, but it could save your business during a rough patch.  

Billy's Ninth Law: The Dangers of Settling

Hire Slow…Fire Fast

From Fortune Magazine’s Best Advice I ever received.

Now I am not so sure that this is always the best advice, however; in the world of business Human Resources is amongst the least understood and the poorly executed aspects in business.  Because people can ‘take care of themselves’, there is a tendency to focus first on Sales & Marketing, then on Production (or provision, if you are in a service industry), then on finance (see the law on cash flow) and finally on Human Resources.  Human Resources strategy is the last developed and Human Resources tactics are often the worst applied.

Human Resources, is often the least respected parts of enterprise.  When was the last time that a Human Resources Executive became the CEO of a major company?  In my experience addressing the needs of small and medium sized enterprises for over 25 years, most business owners claim to know the least about finance…in reality they know the least about Human Resources. 

When I work with business owners, executives and managers I ask this question, “Do you have anyone working here whom you know you should fire?” People look uncomfortable, and inevitably they admit to having “one or two.”  My next question is, “Why haven’t you fired them yet?”  People have ready excuses, but in their own hearts they know the answer… firing people is hard for most people.

Firing goes with the territory.  It is one of the unpleasant aspects of management and business ownership.  Firing for cause, or for downright incompetence is one thing, but firing someone for mediocrity is quite another.  As a business changes, especially when it is growing, there are changes needed to not only the staff levels, but to the staff composition. 

One client, in the financial services industry no less, had an employee who resisted any notion of productivity measures or expectations.  His attitude was that professionals were not subject to such pedestrian measures.  The problem for the company; he was generating fewer billable hours than his contemporaries.  His work was good, however he was insufferably slow.  His poor output was causing problems with respect to profitability and there was resentment amongst his peers.  The company and importantly the owner had settled for this level of performance.

In another case, again a growing company, growth caused the job to outgrow the employee.  A person may be able to fake one level, for example a bookkeeper working as an accountant, however; it is impossible to stretch two levels (i.e. the bookkeeper now having to stretch to a comptroller.)

These and other similar situations create challenges for the owners and managers.  Traditionally we only fire for incompetence; however you should always ask yourself, "Would I hire this person for this position if it were vacant?" The decision not to settle can have positive, unintended consequences.

I had a client who, on finally making and acting on the decision not to settle, found that everybody was on his side...and that the dismissal worked to improve rather than diminish morale. The most comment was "It's about time."  Often our worries about the negative impact of dismissals are overblown and exist only in our own minds.

Jack Walsh of General Electric used the formula that in any organization 20% of the people are stars, 70% are good and you should fire the remaining 10%.  When companies put this into practice, they found that the first two years were easy, but that by year three it became difficult.  Jim Pattison is alleged to fire the poorest performing sales person at his car dealerships. 

I wouldn't make hard and fast rules such as those previously mentioned, however when a company is growing, finding new challenges or are in a rapidly changing environment, it is useful to ask yourself, "When it comes to people, am I settling, and how does settling impact the company".  This is a tough but necessary question every owner and manager must ask him or herself on a regular basis.