The failure rate of small businesses in the United States is staggering. And most failed businesses can attribute their lack of success to the owner’s lack of understanding of basic business principles. Providing quality goods and services in a timely manner is just the first step in running a successful business. As the business owner, your job is to manage the success of the business. One way to do that is watching the company’s operating cycle. Your operating cycle is the time it takes from producing a product or service to collecting the payment from the customer. The longer your operating cycle, the better your chances of having cash flow problems. As the business owner, you must decrease the amount of time to collect your receivables to become and remain a healthy company. Take time and regularly review your accounts receivables. Don’t become another failed small business.
What is your reputation in your local business community? Are you considered to be a person of your word? To be trustworthy? Do you have a reputation for doing what you say you are going to do? Or is your reputation less than honorable? Nothing irritates me more than to be told one thing by a customer or a vendor and later learn that it was not true. Everyone makes mistakes, and I will give grace to any long-term business associate. But nobody wants to work with someone who lies. It is simply unacceptable. People like to do business with people they like. And people of integrity like to do business with other people of integrity. So in business and in life, always strive to do the right thing.
Many businesses struggle to build cash reserves. But maintaining a healthy cash balance is vital to the health of your business. There are many advantages to having extra cash. First, you can avoid a short-term cash crunch. With enough cash reserves, you do not have to fret over making the next payroll. Second, having extra cash will allow your company to seize opportunities that it might otherwise have to pass on. Opportunities like buying out a competitor or expanding into a new market. How do you build up your cash reserves? Just like you build your personal savings. Set aside a little every month. Make a habit of reviewing your net profits and cash balance monthly and setting aside a percentage into a separate account. Then, leave it alone. Don’t touch this cash until absolutely necessary. And keep saving until you have six monthly operating capital in cash.
Ever been guilty of saying too much? I think we all are guilty of saying too much at some time or another. Whether you are interviewing a potential employee or terminating a long-term employee, whether you are selling services to a new customer or introducing new services to an existing customer, whatever the given situation may be, people tend to say too much. Over-promising and over-committing are never habits of successful people. Success requires disciplined action, including restraint with your words. No successful person tells everything they know. And they certainly do not promise more than they are prepared to deliver. Most would rather under-promise and lose a business deal than to over-promise and lose respect. In EntreLeadership, Dave Ramsey says, “Even a fish can’t be caught if he keeps his mouth shut.” So when you find yourself talking too much, be wise. Be quiet and listen.
When you are confronted with the complexities of life, it is important to seek out the advice of experts. And the more successful you become, the more you will need to rely on these experts to make your most important decisions. Some of these experts may become team members for your organization, giving your company valuable skills beyond what you are able to provide. Others will remain outside of your organization, giving you valuable personal advice for navigating the many issues that come from living a successful life. Whether you need an estate plan, year-end tax planning, or a personal financial plan, it is important to build your personal team of experts to help you make the best decisions for your life. No one can be an expert in all fields. So, do not try to be one. Surround yourself with great people, and great things will occur.
Everyone suffers a little from know-it-all syndrome. While most of us relish in giving advice, few of us wish to receive advice. And when we do, how many of us actually heed the instruction of someone who has learned by experience? Look at the lives of the ultra-successful. Many are quite willing to share their experiences. And most show gratefulness to their mentors. They credit their success to the advice they received from those who preceded them. If the ultra-successful can acknowledge the instruction they received, then why are the rest of us so stubbornly determined to succeed by our own efforts? Most businesses fail within the first five years. If you are struggling with your business, seek out the advice of someone who has successfully run a business. And if you are fortunate enough to have a mentor, take time today to thank them for their influence.
As a business owner, one must decide how he will treat those around him. Will he treat his employees, his customers, and his competitors fairly? Will he be truthful? Will he be merciful? Certainly, there is a prevailing notion in our society today to succeed at all costs. That one should be willing to do anything to succeed. But I believe that you can succeed fairly. You can live a successful life and still treat others with respect and deal with them honestly. And when you are the victim of unfair business practices, you take the high road. Because winning at business is a small part of winning at life. How you win matters. This week, take a hard look at how you are treating the people around you. Be truthful. Show mercy. Live a life worth living.
Being a business owner is hard. It’s like the old maxim. You avoid mistakes through your experience. You gain experience by making mistakes. By owning a business, you are guaranteeing yourself a fair number of mistakes. Embrace it. If you have never owned a business, you can never understand the struggle. So, if you are considering starting a business, be careful what you wish for. There is no experience quite like borrowing money to make this week’s payroll. Sometimes you will wonder why you bothered starting your company at all. Building a business is a struggle. You struggle to build something out of nothing. To impart some of your vision on the world. And to try and make the world a better place. As you struggle, strive to build a company where great people come together to make great things happen. You struggle, but you can also win.
In The Hard Things About Hard Things, Ben Horowitz likens running a business to driving a race car. When driving a race car, you must focus on the road. If you focus on the wall, you will run into it. By focusing on the road, you will stay on the road. Any given day, there are hundreds of obstacles lurking in and around your path to success. And as long as you focus your attention solely on these obstacles instead of focusing on your goals and vision, you will never achieve your dreams. Life is a journey. Keep your eye on the road. As a business owner, do not obsess with what can go wrong with your business. When obstacles occur, address them, look for the opportunity within the obstacle, and move on. And remember to always stay focused on your vision. Look ahead and keep moving forward.
You must develop an environment of open communication with your team. The size of your team does not matter. If your team consists of more than one person, then you must have effective communication to be an effective team. Nothing destroys communication quite like having a jerk on your team. Really, the only thing worse than having a jerk for a team member is having a jerk for a team leader. Either way, an argumentative, quarrelsome individual will naturally shut down communication from most of your other team members. In this environment, company issues will not be fully discussed, if they are brought up at all. Always be mindful of the chemistry of your team. If someone is a jerk, you must deal with it. If you are the jerk, you must change. Because no matter how brilliant the jerk is, eventually they will have to mellow or leave.
If you stay in business long enough, you will experience negative events completely out of your control. Life happens. When it does, your company’s ability to survive will depend on the health of your company. Good companies can weather storms. Bad companies do not. You can measure your company by the attitude and work ethic of your employees. People like working for good companies. People want to enjoy their work and feel like their work will make a difference for the company. And people want to know that they will be rewarded for the difference they make for their company. Ben Horowitz writes, “Being a good company is an end in itself.” And yet, there are so many small businesses that fail because they are not built to be good companies. Would your employees say that you have a good company? If not, start building a good company today.
Nobody wants to hear bad news. And nobody wants to deliver bad news, either. Phrases such as “don’t shoot the messenger” highlight society’s problem with blaming the deliverer of the bad news for the bad news. And it is safe to say that we have all done this in the past. As leaders, we cannot shoot the messenger many times before our team will learn to hide bad news from leadership. And hiding bad news from leadership prevents the organization from working to solve problems while the problems are still small. Instead, encourage your team to tell it like it is. Not only will that get your issues out in the open, but discussing problems with your team will engage more minds working on a solution. After all, that is what your team is for. So, ask your team what issues you should be talking about today.
It takes the entire time you know someone to build trust, and only a second to destroy it. As a leader, your team will trust you only as long as they believe that you are a person of integrity. That you will do the right thing no matter the situation. That is how you build trust with your team. In The Hard Thing About Hard Things, Ben Horowitz recalls a restructuring he initiated so his core company could survive. The bottom line: 150 employees would become employees of another company. And 140 employees would be looking for a job. Instead of going to New York for the announcement, a mentor advised him to go tell his employees where they stood. It could not wait a day. By showing integrity with these employees, he maintained his trust with the employees who would stay. How have you shown integrity with your team?
Starting a company is not easy. There are times of enormous stress. Times when you wonder if it is really worth doing. Times when you are just ready to quit and walk away. But walking away will cost your people their jobs. Walking away will cost your investors their funds. Walking away will cost you your reputation. So you keep going. And you keep losing sleep. It is hard to understand the stress of owning a business. Yes, you may have the next great idea. But reading books on leadership and business organization will never prepare you for having to fire people because of a bad decision. Or bad timing. There is no secret formula for success. Sometimes, things just do not go as planned. Life happens. Seek out a mentor. Find someone who started a business and succeeded. Lean on their advice. Because sometimes you will need it.
Who will replace you? The answer to that question is the ultimate gift any leader can provide. No matter where they are in life. No matter how old or young. No matter how long they have been with the organization. Real leaders must have a succession plan in place for their organizations. Obviously, the longer you are with an organization, the better you will be able to train up a leader to replace you. Ideally, you will go out on top and pass the baton to a fully developed leader. This situation should be seamless. But you must plan for the worst. Because sometimes, succession is unplanned. Life happens. Unexpected events occur. As the organization’s leader, you must plan for the unexpected. If you do not have a succession plan in place that can be implemented tomorrow, you have work to do. Don’t wait another day. Start planning today.