Billy’s Thirty-Eighth Law: Every part of the process is important and everyone deserves respect.

The 737, which is made up of 367,000 parts, is assembled at a factory in Renton, Wash., south of Seattle. Boeing delivered 372 of the single-aisle 737s last year — a little more than one a day.

·       NBC News

I was in the pub just the other day, when one of my fellow Old Goats (See the the importance of belonging), a former pilot, was talking about the importance of his profession.  His son-in-law retorted, “If it wasn’t for the tool and die maker (his profession), you wouldn’t have a plane to fly!”

The conversation got me to thinking of the complexity of roles in modern businesses.  There are a myriad of different tasks performed by a number of different people in a numerous of different roles.  In our society, we often value one role over the person performing the role.  In business this is incredibly stupid! 

Think about your own organization.  How many people does it take to get your product / service to your customers?  How many people does it take to run your business?  Each person, whether an employee or a sub-contractor, plays a role in your business.  My business is simple…in fact when I started out I did everything.  I sold myself, wrote the workshop materials, kept the books and, since I was still a proprietorship, I even did my own income taxes.  The only sub-contractor I had was Staples Printing Centre.  

For most businesses and organizations this is not the case.  It amazes me how many people open, and subsequently close restaurants.  On the surface, restaurants seem simple.  By food, mark it up, prepare it and sell it.  In reality a restaurant is a combination of custom manufacturing, high levels of customer care and a highly competitive industry.  Staff turnover is also high.   Successful restaurateurs are strong in marketing, manufacturing (cooking) and human resources.   Restaurants are tough.  Those who run successful restaurants are superb business managers.  (There is an old saying in the restaurant business that 1/3^rd of your revenue goes to food, 1/3^rd goes to staff, 1/3^rd goes to overheads and the rest is profit!)

The point, and there is a point, is to remember those in critical, yet traditionally undervalued positions in any organization.  Doctors and nurses are important.  So are ward clerks.  Teachers and principals are important.  So is the school custodian.  We often respect highly paid roles more than those at the other end of the scale.  Everyone deserves respect.  If there is a position in your organization, commercial or non-commercial, that is unnecessary then it should not exist to begin with.  When a position exists, that role contributes to the organization.  So does the individual performing that role.

I once noticed that those who had the worst jobs were often the worst paid and the worst treated.  (I have often thought that those with the worst jobs should get the higher pay... but that's never going to happen!) Sometimes, nasty jobs have to be done.  Sometimes, pay is a function of ability to pay. I understand all of that.  That said there is never an excuse to treat people badly.  So to all of you retail clerks, security guards, dishwashers, janitors and cleaners… you are important.  Your role is important and you deserve respect.   To all you owners and managers out there… remember it!

Billy's Thirty-second Law: Somebody always gets screwed

“Nothing is fair in this world. You might as well get that straight right now”

― Sue Monk Kidd, The Secret Life of Bees

I have long held a theory in business that somebody usually gets screwed.  What is ironic is that this is often consistent with an organization’s values.  Since we spend a great deal of time in planning sessions on Mission, Vision and Values; I thought it interesting that values are rarely fair.  Values, when they are truly lived out by the company, are generally ‘biased’ in a particular direction of another.  Typically, these directions are the customer, employees and shareholders or owners.  These are often values that work against one another – as customer needs, employee needs and shareholder needs pull the company in different directions.



 

Fairness, and often unfairness, often results from the organization’s values with respect to each of these stakeholder groups.  In British Columbia, where I live, liquor is sold through the Liquor Control Board.  This is a government organization that holds a monopoly on liquor distribution and a near monopoly on the retail distribution aspect of the business.  The LDB does very well.  Not only is there a 10% liquor tax, but the LDB in fiscal 2013, LDB made of 30% profit on sales.  Not bad for retail these days.  The employees at the LDB have a wage of $21/hour plus government benefits.  Guess who is getting screwed?  Well, when you consider alcohol prices in the US and the UK then you guessed it…the customer is paying way too much.  Somebody gets screwed!

Now consider Wal-Mart.  Let’s accept the fact that it is a competitive world, and set aside the impact that Wal-Mart has on the retail landscape, and just think for a moment about Employees, Customers and Shareholders.  Wal-Mart is, in revenue, the largest company in the world.  They have low prices so the customer is well taken care of.  The shareholder’s do ‘OK’ but the stock has underperformed, when compared to the Dow Jones Industrial Average, and the dividend yield is only 2.5%.  But it is the employees, and the suppliers, who really get screwed.  Wal-Mart is not a great paying organization.  Its average full time employee in the US earns $12.83/ hour, according to the Huffington Post (October 23 2013).  Part time workers earn less.

It is interesting the Costco, a direct competitor, pays well $21/ hour, prices well, but is criticized for its lower profits.  The return on sales… merely 1.9%, Wal-Mart's most recent year was 5.64%,  and the dividend yield is only 1.123%.  This time, the shareholder / owner gets screwed. 

Values:  Values define what a business will and will not do.  Values provide boundaries and direction for the planning process.   Values are not good or bad, until some kind of judgment is placed on them.  Consider the following scenario – which illustrates different business values.

A business has just received a report from a consultant advising them that the company could raise their prices 1% without any effect on their unit sales volume.  That one- percent would drop right to their bottom line!  Three executives of the company were discussing what strategy they should employ in order to move forward. 

The first executive said, “We can’t raise our prices – that just wouldn’t be fair to our customers.  We are only where we are because of our loyal customer base.

The second executive said, “I think that we should raise the price and pass that revenue directly to our employees.  One percent of sales would represent a 10% wage increase!   Our employees made us what we are today and they deserve this.

The third executive said, “I think that we should increase the price and then declare a dividend to the shareholders.  They took the risk to invest in the company and they are the ones who should finally benefit from their faith in this company!

Nobody is wrong…they merely have a different take on company values.

Billy’s Thirtieth law: The Three Business Skills Every Entrepreneur Needs - Being an Analyst

I never guess. It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.

·         Sir Arthur Conan Doyle’s Sherlock Holmes, A Study in Scarlet

When we facilitate planning sessions with our clients, we begin our session with the diagnostic section. Diagnostics form the second of the three important skills all entrepreneurs must acquire in order to ensure the sustainability of the business. All entrepreneurs managing in a changing environment must master the art of business analysis.

Analyzing a business is not simply using a series of metrics.  As you know, I believe that Happiness is a warm spreadsheet, but by the same token, the spreadsheet and information found are the tools…the entrepreneur is the craftsperson. Here are some key ways to use both analytics and business judgment to help you grow and develop your business.

Step One:  Determine important measures

Many entrepreneurs look at financial metrics.  There are other important metrics in other parts of the business.  Marketing, Human Resources and operations all have measures that help keeping an eye on the health of your business.  Establish a series of monthly and even weekly measures that allow you to take fast action, and annual and quarterly metrics that give you a sense of the ‘long term’ health of the business.

Step Two:  Look for changes

Spotting trends and changes is an essential part of analyzing the business. For example, a drop in sales may represent a downturn, or simply a seasonal shift.  Comparisons to the previous year help reduce these seasonal factors.  Changes can come due to three factors.  Internal factors are changes to the metrics caused by internal actions of the company.  External factors are changes to the metrics caused by outside forces.  Anomalies are random fluctuations with no identifiable cause.  A single change does not necessarily indicate a trend, but may have no cause. 

Step Three:  Take Action

Once you have examined and sorted the changes, create strategies, or execute tactics to overcome these changes.  Alternatively, take action adapting to the change.  For example, if sales are down, execute a marketing strategy to increase sales, or reduce staffing levels.  In the case of an anomaly, keep an eye on the metric involved and see if there are any underlying factors that are driving change to the metric and to your business.

Underlying Conditions / Assumptions

When performing your analysis over a longer period of time.  For example US consumption of soft drinks is off by 20% over the past ten years.  This trend indicates a change in the ‘underlying conditions’ under which beverage companies are operating.  Demographics changes also change the underlying assumptions in healthcare, financial services and travel & leisure. 

Spotting these changes longer term changes is challenging.  Missing such changes often trips up large businesses. Ken Olsen, CEO if Digital Equipment Corporation (DEC) was quoted as saying, "There is no reason for any individual to have a computer in his home."  DEC went on to merge with COMPAQ and then…disappear.

Good entrepreneurs often started their businesses by sensing changes.  Great entrepreneurs, with the help of great analytics, sense these changes and adapt before the changes overwhelm them.

Billy’s Thirtieth law: The Three Business Skills Every Entrepreneur Needs. Skill One, develop great Tactical Skills

As I previously wrote in The Eighteenth Law, the entrepreneur must develop his or her skills ahead of the development of the enterprise. We can look at specific business aspect skills; learning more about finance, management, marketing and the operations of the business. Development also includes developing skill sets in three important components of business planning. These skills are Analytical, Strategic and Tactical.

Analytical Skills include all aspects of measuring, and interpreting those measures to make more effective business decisions.

Tactical Skills include all aspects of achieving goals set by the company.  These include everything from performing tasks to the systems and workflows that efficiently get things done. 

Strategic Skills are the planning, goal setting and visioning aspects of your company.  Strategies set direction while tactics get you to the destination.   

To use a simple example, when you take a vacation, strategy is deciding where to go, tactics is deciding how to get there and analysis tells you how long it will take. These three skills are taken from business theory; but don't let that scare you. You are already using each skill on a regular basis. The challenge is developing skills and building on the skills in which you may be weak. Over the next three blogs, I will shed light on each skill, why they are important to your firm and how these skills are essential parts of developing your enterprise.

Tactics:  Most Entrepreneurs' Strongest Skill

Strategy requires thought, tactics require observation.

·         Max Euwe, Chess Grandmaster & Mathematician

Most of the entrepreneurs I have met have little idea of why they are successful.  They attribute success to creativity, insight, hard work and other factors popularized by the press.  When I look at successful business owners they do not invent a better mousetrap, but rather build and sell mousetraps better than their competitors.  Successful entrepreneurs deliver well and deliver early.  This simple fact is not exciting, but it is the truth. 

In a previous blog, I suggested that success was more than simply hard work.  Successful entrepreneurs combine hard work with great tactics, especially when the goals (strategies) in the early stages of business development are quite straight forward. 

Tactical thinking is essential to success…especially early success.  An entrepreneur with whom I worked was in the solar control business.  This industry uses window tinting and roller blinds to reduce heat and glare in both buildings and automobiles.  The owner got his start installing tint automobiles and recreational vehicles.  He was extremely good at it, got a good reputation in the industry and built a profitable business. 

He didn’t invent window tinting.  He didn’t apply it to an entirely new industry.  He just found a better way of doing thing others were not doing well, and then building on it. There are tactics in production…finding better ways to produce your products or deliver your services.   There are marketing tactics, ways to influence your customers in ways that help you achieve your sales and profit goals. 

The challenge, as we shall discover going forward, is that strong tactics alone only take you so far.  This comes back to the hard working entrepreneur who works hard, but never really achieves much of anything.  It is fine to have your business exist to provide you with a job, if that is what you want.  There is nothing wrong with that…in fact that describes my own situation.  Many people want more…and tactics alone will not allow them to accomplish that goal. 

Good tacticians always look for a better way.  They know that there are no best practices, just best practices thus far.  In manufacturing they look at systems such as LEAN, TQM and Theory of Constraints; apply behavioral event interviewing in their recruiting efforts and apply online efforts to marketing.  Smart tacticians take from the best systems, adapt them to their unique situation and improve their ability to deliver.  

The weakness with tacticians hurt businesses in the long run.  These include a lack of the ability to delegate, assuming their tactic is the best tactic and failing to realign tactics when the company needs to change strategy.  Firms can get stuck in a ‘tactical trap’ where the means becomes more important that the ends. 

Most entrepreneurs are tactical and that is great when both the enterprise and the economics are stable.  Alas, we live in turbulent times; times that require more than great tactics, but add analytics and strategic thinking to the mix to develop a growing and sustainable enterprise. 

Billy's Twenty-ninth Law: Entrepreneurs are forward looking,"Future people".

Don't stop, thinking about tomorrow,

Don't stop, it'll soon be here,

It'll be, better than before,

Yesterday's gone, yesterday's gone.

Christine McVie

Entrepreneurs share many characteristics.  We are focused, persistent and often stubborn.  One characteristic shared by many successful entrepreneurs is a forward view of life.  I thought that this was normal until a friend of mine recounted a recent episode he had with a customer.

This customer didn't treat my friend's staff well.  He was interfering, critical and downright rude.  My friend is a great believer in customer service, however; he draws the line at this kind of disrespectful behaviour towards his people.  He brought it up with the individual involved and nothing changed.  He then went over the head of this individual to the customer's boss.  My friend told the boss that he was at the point of refusing the work if the situation did not change. The situation improved, but the bad blood remained for years.

My friend is a proactive fellow.  He doesn't like 'bad blood' so he visited the individual in question.  He went to his house (it's a small town) and wanted to resolve any issues.  He man was so angry he was shaking.  He accused my friend of costing him $20,000, presumably in bonuses.  They had a drink, talked it out and my friend left on better terms.  This happened four years after the original event!  This customer had held on to this for four years...all the time still working with my friend's company.

So Bill...what's your point?

People live lives in one of three ways.  Some people live in the present.  They really live for today.  I envy people like that as they don't tend to worry or fret about the uncertainties of the future or the mistakes of the past. They can take life as it comes and enjoy each moment for its own pleasure. 

Some people live in the past.  They remember the 'good old days', which were often not nearly as good as they thought that they were.  They dwell on past successes, they obsess about past wrongs.  They cannot get past their previous mistakes.  I think of Bruce Springsteen's song Glory Days:

Glory days well they'll pass you by

Glory days in the wink of a young girl's eye

Glory days, glory days

Entrepreneurs live in the future.  They learn from, but don't dwell on mistakes.  They have the sense of urgency to get today's work out today, but keep the medium and long term in mind.   Things are always going to get better.  Mistakes are just 'water under the bridge'. (OK, we use many clichés as well.)  Entrepreneurs are 'future people'.

There is a psychological concept called 'egocentricity'.  It can mean self-centered, but it can also describe the ways in which we see our own behaviour as normal.  If you are forward looking, you assume that everybody else is forward looking as well. This is a problem, especially when communicating with an individual rooted in his or her past.  This difference in perspective causes difficulty, especially in the work place.  When communicating with a backwards looking person, consider the following:

1. Acknowledge the importance of the past.
2. If the past was positive emphasise ideas such as ‘carrying on the tradition’.  If the past was negative, emphasise the importance of learning from past mistakes.
3. Sharing your future vision is less important than celebrating past successes. Watch your ‘present/past/future ratio.
4. Realize that you communicate differently and that you value different things.

Awareness is half the battle.  Effective communication means adapting to the receiver.  This is especially true when communicating with customers and employees.  Remember, not everybody is a forward looking entrepreneur.  Keep this in mind next time communications difficulties arise.

Billy’s Twenty-Third Law: Up is hard and slow…Down is fast and easy!

There must be fifty ways to kill your business.

With apologies to Paul Simon

If you are like most entrepreneurs, at least most successful entrepreneurs, you have devoted time, effort and money to build your business.  I know a few people whose businesses were successful very quickly, but I have never met an entrepreneur who didn’t work hard while building the business.  Building a business is tough. It's like riding a bike up hill...slow, hard and painful!

Screwing-up is remarkably easy!  If you have read many of my ‘business laws’, you will quickly notice that there is a split between things you should do and things you should avoid.  If you have any brains at all, take the laws telling you what to do with a grain of salt.  I’m just not that smart.  However, take everything I have written on what not to do and take them to heart! 

When things begin to go downhill, they tend to accelerate.  One year things are looking good, and the next you have lost a key client, have a collections problem and key people quit.  In my experience it is usually that toxic concentration of several things happening simultaneously.  Friends of mine manufactured clothing.  They had a supply disruption caused by the weather in Eastern Canada together with a bad debt.  They couldn’t recover financially and their successful business was out of business within just a few months.

Big companies have the same problems.  Blockbuster went from a single outlet in 1985 to over 6,000 outlets at the beginning of 2010 to bankrupt in 2014.  What’s interesting is that they in 2000 they had the opportunity to purchase Netflix!  (IBM had an opportunity to buy a substantial portion of Microsoft but turned that down as well!)

Hindsight is easy, but it goes to show you just how quickly things can go wrong and go wrong badly. Dr. Theodore Levitt wrote a seminal article in the Harvard Business Review called Marketing Myopia.  In the article, Dr. Levitt asks the question “What Business are you Really In?”  His example came from the turn of the last century with railroads.  They thought they were in the rail business…not in the transportation business.  They ignored the threat posed by long-haul trucking at their peril.  The Blockbuster story was so similar…they thought they were in the rental business not in the entertainment business.  I know the internet has changed business, but the principles of business do not change.  Applications change, speed really changes but the concepts are true.

Over the next few weeks, I want to present some blogs on ‘minding the store’.  How do you play good defence, while at the same time generating offence or growth? I want to look at some of the big mistakes made by businesses and some of the ways you can mitigate those errors. We can call the next few weeks...Quit Messing Up Your Business!

Billy’s Eighteenth Law: The entrepreneur must develop ahead of the enterprise.

A business growing faster than its owner is like a little kid taking a big fast dog for a walk.  Sometimes, we wonder who is walking whom.

Several years ago, I worked with Elizabeth Lake Ledoux of Denver Co. on some consulting concepts relating to business development.  Elizabeth, along with her business partner Dr. Mel Wernimon developed a methodology of moving a business through seven different ‘strata’ with the ultimate goal of developing a sustainable, transferable enterprise. 

When I looked at it, I thought it was great, but that it needed something.  That something was the development of the entrepreneur.  This later became the Entrepreneur’s Strata in their highly successful Entrepreneurial Flight™. 

The eighteenth law emphasises the need for the entrepreneur to develop ahead of their enterprise.  When the businesses’ development outpaces the development of the founder, the results are disastrous. The founder / owner is quickly in over his or her proverbial heads.   If the ultimate goal of a business is to become transferable, then it must have the systems in place that allow it to operate successfully without the founder’s involvement.  This allows for a successful succession plan… through either sale or a family member operating the business. 

Businesses develop through three stages as they become ‘mature’ enterprises:

Nascent:  This is the foundational stage of the business.  The founder is usually an expert in the field, and is now learning about operating the business.  Many founders never develop the business past the nascent stage and are happy to remain self-employed. They own a business that provides them a job.

Developmental:  When the business owner begins to develop the business, they spend less time in operations or production and more time managing the business.  At the same time, there are more specialist positions that develop within the company.  If the business founder cannot develop managerial skills, the business often stalls in this area.

Sustainable: A sustainable business is a systems based business not dependant on any one individual…even if there are essential positions within the company.    The business is often both scalable and duplicable increasing the growth potential.  The founder must now develop even higher level skills called executive skills… thinking about the long term future of the business. 

Matching these levels of business development are levels of entrepreneurial development.  These three roles are:

Operational: In this role, the founder is an essential part of selling the product or service and producing or providing the same.  She works in the store, provides the legal services or helps construction of the products.  The time frame at the operational level is next week!

Managerial:  In this role, the founder is actively managing the business.  Although she is not necessarily producing or providing, she is actively recruiting, hiring and directing the operations of this company.  This stage becomes a trap…with a larger enterprise requiring constant attention.  The time frame is one month to one year.

Executive:  In this role, the founder is directing the long term vision and direction of the company.  She is thinking ahead, and ensuring that the development of the enterprise is consistent with her pre-determined vision and values.  The executive time frame is beyond one year.

The eighteenth law is a warning… if you want to develop your business you must develop your skills before you enter the next phase.  You must develop managerial skills before you leave the Nascent stage and enter the Development phase.  To develop a sustainable business, you must develop your executive skills before you get there.  To use a football analogy you ‘the passer must lead the receiver’ allowing him to run into the ball. 

When I am working with my clients, I am constantly using the term ‘move north’.  I get the owners to spend less time working on ‘today’ and more working on the future of the business.  This inevitably means that others must also ‘move north’ in order to fill in the space left by the owner.  This creates a chain reaction, of people moving north and fulfilling more executive and managerial positions.  The result is a business reliant on positions rather than individuals. 

If you want to develop your business, ask yourself, how much time you are spending on operational, managerial and executive tasks.  The more time you are able to spend in managerial and executive tasks, the better ready the enterprise is poised for business growth. 

If you are interested in more on the Entrepreneurial Flight, purchase Accelerate Your Entrepreneurial Flight: How to Energise Business Value and Entrepreneurial Growth, by Elizabeth Lake Ledoux and Dr. Mel Wernimont, Ph. D. It is available from Amazon.  Alternatively, contact them through their website at:  http://www.vnacelleconsulting.com/

 

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 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.