8. Multiply your business system
Most of every year, usually in December or January,
business owners have to sit down with their computers
and try to figure out where their business is going in the next few years,
and how they can get there.
It’s an important exercise,
but it also gets a lot of people in trouble.
They make the mistake of focusing on a business plan before finding a life plan.
Life planning must be considered first.
Unfortunately, many of us realize this late in the game,
after we have tasted defeat.
If you asked me in the 1980s what I wanted to do,
I would not hesitate to answer: “Grow the business to $100 million.”
I don’t even think about what else I want to do in life,
and why I want a $100 million company.
I simply define a goal, whatever it is.
And, as you all know, I made my dream come true.
Granted, my life went crazy. I don’t have time for family.
I’ve never been on vacation.
I can’t do what I like best.
But, I continued my $100 million business for a while,
before the unfortunate takeover that I wrote about in chapter two.
At that point, the company started to run out of cash,
and the next thing I knew,
I was in Chapter 11 of the Bankruptcy Code.
It took three years,
but I finally got the company out of Chapter 11.
It was an experience I will never forget and hope never to repeat.
However, like other experiences it was a great lesson.
Above all, it forced me to go back and ask myself why I wanted to do business in the first place.
Now, that’s the question I often ask people who come to me for advice.
Consider the case of Mike Baicher,
who contacted me for business growth advice in the mid-1990s.
He said he had to hire a few salespeople,
but he didn’t know if he could build the business. cover costs.
Can I help you make a plan?
I agree to meet you.
As it turns out, Mike has a family shipping business,
shipping containers back and forth between ports around New York.
The company has been in operation for thirty-two years
and makes about $1.7 million in annual sales.
Mike says he wants to push it to 10 or 15 million within five years.
The question is “Why?”
He looked at me in surprise and said, “What do you mean?”
I said, “Listen, let’s forget about the business.
Business is just a tool to get to the destination.
The question is what is the destination?
Where do you want to go in your life?
From a family perspective,
where do you want to be in the next five years?
How much money do you want to earn?
How long do you want to take to develop? ”
Mike has no answers to these questions.
He never bothered to think about them.
People rarely do.
You have to discuss it with your wife.
He had to tell other family members,
some of whom were also in business.
In the end, he determined that what he really wanted was to double his modest salary.
He and his wife have two children, and their house is too small.
He said he wanted to earn more money to buy a bigger house.
He also added that he also wants to take a break from time to time.
Not so much, maybe two or three weeks a year.
Because he works every day and rarely takes vacations.
I said, “Okay, so you don’t want to grow the company to $10 million in the next five years.
He certainly didn’t have enough money to do it under any circumstances,
but if he did he would have to work eighteen hours a day,
seven days a week, and he would never see his family again family.”
Of course, if Mike came up with a different set of personal goals,
I’d give him a different answer.
After all, some people are really focused on growing the company as quickly as possible,
and are willing to sacrifice a lot in the process even their families.
I don’t try to argue with such people
because I know they will never listen.
I used to be one of them.
However, Mike was not one of them,
and so we were able to create a new business plan that would allow him to achieve what he wanted.
He aims to grow to about $3 million in sales over five years,
instead of $15 million,
but won’t hire more salespeople, but Mike himself will visit clients.
He loved selling, and he was good at it but couldn’t do it much because he was in the office.
He has a younger brother who is in charge of a full-time truck driver and is paid the family salary.
After training, the younger brother was able to take on some office work,
so that Mike could go out in sales.
So instead of spending $50,000 a year hiring a new salesperson,
the company only pays $10,000 a year for a part-time driver
to take care of his brother’s business
and Mike will have time to focus on the field.
He has the greatest impact.
I also suggest that you look for other services you can provide to your customers,
based on the principle that the most likely customer is the old one.
Finally, when we looked at the revenue forecast,
we discovered that the company was likely to earn $3.2 million in the final year of the five-year plan.
Mike thanked me for my help,
and disappeared for five and a half years.
One day, he suddenly called me and asked if he could visit me.
I’m excited to meet him to find out what happened.
When he walked in,
I could tell Mike had become a completely different person.
He has lost 40 pounds and looks more relaxed.
He smiled and told me how his life and business had changed.
First, he achieved his goal.
He earns more money, has a bigger house.
He goes on vacation and spends a lot of time with his family and wife.
Since hiring a dispatcher,
he’s been able to turn off his phone and leave the office around five
or five-thirty on most days.
On the business front, he started selling hosting
to his transportation customers and ended the fifth year with $3.6 million in sales,
beating expectations of $400,000.
He expects to earn five million dollars next year.
“Excellent, Mike,” I said. “Congratulation.”
“Yes, I am happy,” he said.
“I’m ready to take the next step.”
“What’s that?” I ask.
“Acquisition of other transportation companies,” he replied.
A bad premonition popped into my head.
I said, “It can be quite risky,
you could hurt yourself by buying the company.”
“What do you mean?” he asked.
“Well, I have a concern,” he said.
“Most of my deals come from two big clients.
Me and them really have a good relationship,
but it would be very dangerous if one of them gave up on us, or cut sales.”
I have to agree that it’s a pretty serious problem,
but there are better ways to solve it than taking over another company.
For example, Mike could spend more time selling.
He is very good at this and through that he will have a better chance of retaining old customers.
Instead of borrowing to buy the company,
he was able to develop relationships with two key clients:
one in the cosmetology industry,
the other in the makeup industry.
They are great sources of referrals,
and they will pave your way into their respective businesses.
Even if he only signed two or three more clients of similar size,
he was still in a better position than before.
You’ll sleep better when your biggest customers make up 20%
of your sales than when they make up 50% or more.
Mike is still not completely convinced.
“Getting more customers that way would take a long time,” he wondered.
“Yes,” I replied, “but did you know?
There are no shortcuts in business,
and if you look for them, you’ll get in trouble.
It took me a long time to realize that.
People like me like to get instant rewards.
One of the most traumatic experiences
is that you can’t get something good better customers and sales, for example overnight.”
Mike is still not completely convinced.
He said he wanted to think about it.
I say it’s a good idea and if you’re still determined to buy the company.
I can help you create some rules that will help you minimize the risk.
But when they met again,
he said he had decided not to go down the path of taking over the company.
I say it’s sad if you ruin the good life you have built
when there are other ways to get what you want.
But the desire for growth often leads people to make mistakes,
that’s why you must plan your life before your business plan.
THE SECRET OF SUCCESS
I’m not saying it’s wrong to want to grow your business.
Conversely, if you have a successful business,
the desire to expand it is completely natural.
It’s important not to fall into the growth trap just for the sake of expansion.
Bigger is not necessarily better,
and the reasons for your success can be difficult to pin down.
That’s the flip side of success.
When it comes to business failure,
you can look back, see what you did wrong,
and learn the appropriate lessons,
but it would be difficult,
if not impossible,
to figure out why.
How does a business idea succeed?
While you can list a bunch of important factors,
you still don’t know exactly how,
and in what proportions they combine to make your business thrive.
You should keep in mind
when you decided to take the business off to another level of revenue.
If you don’t really know what makes you successful,
you have to be careful with the strategy you’re using.
After all, you can inadvertently ruin whatever made the company so successful in the first place.
Five years ago, my father put me to work at his company
so he could spend more time out selling.
Later, he worked less and cashed out more.
Once, he said I would inherit the company;
now, turns out I have to buy it.
I am thirty years old.
I want to grow the company,
but can’t do it unless we start reinvesting the profits.
So it’s time to make an offer.
I don’t want to overpay,
but I also don’t want to offend my father with a low price.
Do you have any advice?
Before you suggest anything,
you need to do some self-reflection and life planning.
Where do you want to be in ten years?
How do you want to live your life?
Then, design a proposal that can help you achieve your future goals.
Research the value of similar companies,
and find out what you can afford.
Your proposal should specify how much you will pay,
when to start paying,
for how long, how much your father will continue to receive, and so on.
You can’t blame your father,
because he wanted to sell the company.
He built the company and he has a right to get something out of it.
But you don’t have to buy it.
In fact, you may decide to walk away.
Just make sure you leave peacefully.
Tell your father, “This is your plan.
I think I can do it if I buy your company on these terms.
I love you, daddy.
I love the company.
I want to stay. But I need a plan that will help me achieve my goals.”
For example, consider the story of a friend of mine, Seymour.
Back in 2000, he was the owner of one
of the best-selling boutiques in New York City called Hot Pants.
It’s a tiny store about 1,250 square feet located in a suburban apparel mall that sells jeans and casual wear,
mostly to young women and teenage girls.
Seymour earns several million dollars in sales in a year,
making him one of the highest revenue per-square foot entrepreneurs in his segment in the apparel retail industry.
For Seymour, the store was a dream come true.
As a self-taught entrepreneur and entrepreneur,
he has had a few successful projects before,
but none have grown as brilliantly as Hot Pants after going into operation since 1994.
He said His plan was to expand the business
and sell it over the next five years.
Between now and then, he will open a second Hot Pants store in another town about 60 miles from the first.
He also has a discount store, which sells second-hand and inventory items.
One day, I got a call from Seymour, he said he wanted to see me.
A big opportunity is coming and he wants to ask me for advice.
The area next to the first Hot Pants store is about to be vacant.
Seymour wants to rent it, tear down the wall, and double the size of the store.
He thinks he can add one to two million dollars in sales overnight. So guess what I think?
You have to understand that then Hot Pants was a very crowded place.
Almost every day customers queued up at the checkout counters and changing rooms.
Somehow, middle-class girls of a certain age say, 13 to 18 years old,
and a lot of them have made Seymour’s store a place not only for shopping,
but also for shopping. to meet up with friends.
This is good for rumors,
but Seymour thinks he is losing a significant amount of revenue
from customers who don’t want to wait in line or don’t like crowds.
He thought he could solve the problem by expanding the store.
However, I’m not sure you can make enough profit to recoup the investment.
“What does the landowner want?” I ask.
Seymour says the landlord wants him to give up his old lease
and make a new lease for the total space at the prevailing market rate.
Since the rate has increased since he signed the original contract,
he will have to pay 25% more for the old space,
plus the rent for the new space.
He also had to pay an extra “facilitation fee” a form of contract signing bonus for the landowner.
Next comes the cost of building new space,
adding inventory and hiring more staff.
“You have to look at the impact on your gross margin” I said.
Seymour agreed. So we sat down and looked at the numbers.
We quickly realized that he needed more than $1 million in additional revenue to break even on investment.
Actually, can he make that level of revenue?
No. of course. A costume shop is not a restaurant.
When a potential customer leaves the restaurant
because there are too many people in line,
sales will inevitably drop.
Why? Because most of that revenue will flow into the pockets of competitors.
However, I don’t believe the same thing happens
when a Seymour customer decides not to wait to pay.
Or try on a pair of jeans.
When you have a popular store, people come in part
because they want to buy from you.
They seek both prestige and merchandise.
My guess is that the majority of Hot Pants customers have already left
because the crowds will return when the store is less busy.
I suppose in this case,
Seymour lost very little revenue because of crowding.
The store is saturated.
People who wanted to shop at Hot Pants made a purchase.
“Oh, well, maybe I should add a line,”
said Seymour, “I like young boys.”
That’s what I’m worried about.
To recoup the investment,
Seymour might get caught up in changing his ideas.
“You’re talking about the overall business,
” I said. “You can destroy what you have.
Maybe the girls just want to be there alone.”
The truth is, Seymour doesn’t know why her business is successful, neither do I.
It could be because of the music in the store,
or even the personality of the employee
or the name of the store or his quality.
It seems more accurate to be a combination of those and a lot of other factors, even cramped spaces.
Maybe the girls like to jostle each other.
They don’t even mind waiting to try on clothes.
All Seymour was sure of was that he would destroy all ideas of the type, size,
and location of business.
His sales were 2.5 times what one would expect
from a jeans shop in a clothing mall with limited traffic.
You cannot explain that success.
You can only recognize it, cherish it, and manage it carefully.
Seymour’s most valuable asset is the brand he has built.
By doubling the area of the store,
he may find himself in a situation
where he inadvertently reduces the value of the brand.
At least in my opinion,
that’s a risk that could destroy potential revenue.
I am not saying that Seymour should not expand the business.
He built a second Hot Pants store and put it up for business.
It’s not quite as successful as the first store,
but it’ll soon be doing well.
I advise Seymour to think about opening a third Hot Pants.
I suggest that you choose a location close enough to the first store
so that the local youth can hear the rumors,
but far enough away that they are not regular customers.
If the store did well,
Seymour would have a proven idea that he could sell within five years
to someone interested in expanding across the country.
If the next store fails, at least he won’t ruin the mainstream business.
But Seymour didn’t want to take that advice.
He just wanted to know if I thought he was crazy
to double the size of his first Hot Pants store.
“Do you think I will go bankrupt?” he asked.
“No,” I replied, “but you will harm yourself.”
I guess Seymour disagreed, because he kept up the expansion work anyway.
In fact, it may be the right decision personally,
but it may be wrong for the business.
Expanding an existing store is much easier than starting a new one.
It is also less expensive.
Seymour worked six to seven days a week,
overtime every day,
and he was the type of guy who liked direct executive control.
Therefore, he may assume that he will be happier with a large main store
than with a small third store.
It was the perfect reason why he decided to do this.
(Remember, the life plan always precedes the business plan)
I was just afraid he would lose some of the value he worked so hard to build.
Ultimately, I don’t think the expansion will damage Seymour’s business value,
but he won’t profit much from it either.
He had to borrow money to make it happen, and he struggled to pay it off.
The extra revenue was barely enough to cover his time, effort, and hassle.
This usually happens when you grow just because you want to scale.
Three years ago, my sister and I started a personal hygiene products company with little capital.
This year we hit our $4 million sales target.
We have an excellent distribution network, sell to every major store across the country,
and have access to Disney,
Warner Bros and many other companies to produce private label products.
We will soon enter the big market with a different name.
The problem is that this opportunity exceeds our resources.
Do you have any advice?
I’ll give you advice I wish someone had told me
before I grew the company to $120 million and ended up in Chapter 11 of the Bankruptcy Code.
Your core business should be a top priority.
No opportunity is worth pursuing if it ruins your mainstream business even a little.
Not only money, but you are also limited in time.
Ask yourself the following two questions about each new opportunity:
Will it reduce the time it takes to build or maintain a mainstream business?
And, if that opportunity turns into a financial disaster,
will your mainstream business be ruined?
If either answer is yes,
you should definitely rethink whether it’s a good opportunity.
I suppose you can choose to grow or not.
You don’t have to grow if you don’t want to.
Definitely not necessarily trying to grow as big as possible in a short time.
If that’s what you want, that’s fine,
but there’s no law in the business that forces you to.
I can think of a lot of situations in which small companies really have a distinct advantage over large ones.
In fact, I’ve found that it’s easier to compete with a large company than with a well-run small company.
Such was the case with my record keeping company.
We beat the industry giants with service,
and location and pricing.
The number of clients (except national customers) that we lost to the giants of the record keeping industry counted on the fingers.
I don’t mean to belittle the big competitors.
I consider Iron Mountain, the industry giant,
to be a great company with world-class personnel
but they can’t deliver what we have
a small, family-oriented,
focused business in high level, close association,
with owners who are always present and actively participate in activities.
We apply this advantage in all cases.
All potential customers visit our main warehouse and meet me in person.
I said to them, “Whenever you’re in trouble, call me.”
Occasionally, customers report that big companies say the same thing.
I said, “Oh, really? Why don’t you try calling their CEO?
See how long it took him to meet them.
I carry my phone everywhere I go.
If I’m still in the country, you can see me.”
The message to our customers is one of personal approach and service,
and we are constantly looking for ways to improve them.
Each new client receives a thank you letter from me and my wife,
Elaine, who co-own the company and play an important role on the management team.
For a year, I try to visit as many clients as I can.
We invite all customers to the company to party.
We name warehouse aisles after the person
who has kept a certain number of boxes of records.
We do all the little things like that.
In addition to those logo activities,
we offer our clients a level of flexibility that large companies simply cannot offer.
For example, our salespeople have more options
when it comes to negotiating prices and extra services
with customers than their own employees.
Let’s say a small client, with less than two thousand boxes of records,
wants to track the records they send us using their own template instead of ours.
We replied, “Okay.”
Large companies cannot accommodate such requests from small customers.
They’ll run into trouble if they try to do so.
Also, why bother for a small client?
If you have 40 million boxes in stock,
like big companies, you don’t even know
when two thousand boxes will disappear.
Our size is therefore an advantage,
especially when pursuing small and medium-sized clients,
the main source of business in the industry.
Our top competitors are not giants but professionals who run businesses just like me.
And they lost that competitive advantage when they merged into a larger company.
I just hope we don’t share the same fate as CitiStorage grows
from a local to a national company.
First: Business is just a means to a destination.
Make a life plan before you make a plan business.
Second: When trying to level up sales,
don’t think you know all the factors that led to your initial success.
Third: Expanding the company is an option.
Before deciding to grow,
make sure you know why you’re doing it.
Fourth: Bigger is not always better.
Small companies have a few advantages that large companies cannot offer.