Growing a Business

{original squeezed contributor: davidw}

Key Points

  • “For the new and growing business, too much money is a greater problem than too little”.

  • The purpose of business is not to take risks but rather to get something done.

  • “With low overhead, frugal means, and fragile budgets, you can’t buy your way out of problems. You have to learn your way out.”

Summary

The best businesses are those that do not focus on merely earning money, but those that have a broader vision. They are not formed by people asking themselves what to do, but by someone who is already deeply involved in some job or hobby, and who can apply that knowledge and passion to their business.

Most businesses are not spectacular successes or failures, but your first will without doubt be a learning experience. Start your business at the beginning - not the business plan or paperwork or an office, but your idea, reduced to its core essence. You have to know the intimate details of how everything runs, or you won’t be able to delegate those tasks later. Entrepreneurs are risk avoiders - they seek opportunity, not risk, but stepping into the unknown is always unnerving, for any entrepreneur. Loneliness is part of the territory, and many people won’t understand what you’re going through. Going into business is a test of your character, because business is about people, and people are liable to the unexpected. You must also be “playful” as an entrepreneur - when things aren’t going right, “play” with the product or the idea - transform it, innovate, change it. Practice makes perfect, and a lot of practice is necessary in business to be as good as you possibly can. Being constrained by too little money is better than having too much. Small companies are best at solving problems that cannot simply be made to go away by throwing money at them.

“If money could solve problems, there would be no small businesses because the big businesses with plenty of money would run everything”.

A smaller business is easier to manage - many executives of huge firms are “along for the ride” in that no one person can really have a handle on that vast an organization.

Problems are, of course, are part and parcel of any business - a constant. Often they are also a source of opportunities if you can creatively overcome them. “A good business has interesting problems”.

Small is good

Smaller firms are better suited to deal with many problems in today’s post-industrial economy, where raw scale is the brawn behind a company’s success. Smaller companies are more nimble in their ability to respond to changing demand, new niches, and desires of their customers. Size is no longer an advantage for many companies - mass markets and mass production mean that no one is entirely satisfied, whereas a smaller firm can tailor its products more specifically to its clients. “Meaningful change almost always comes from the edge, the margins”. Smaller companies are often better interacting with “customers”, rather than “consumers” - because they are better at providing quality and service before, and after a purchase.

Business ideas

The best ideas for businesses are things that are already interwoven with your life, things you are passionate about and have a deep understanding of. Good businesses often start with people wanting to be able to buy something that they can’t find, and thus end up in business making it themselves. Don’t start more than one business - do one thing and do it well. Several thought processes that might work for generating ideas include: recreating something that has been lost - a business that is no longer done with the quality it once had, taking something ordinary and doing it really well. Look for a business that can be separated into its components - for example cookware can be sold in a specialized shop instead of in a department store. Be the most complete at what you do - the one people go to for the details. Aim to be the lowest cost provider by being attentive when buying from suppliers. Lastly, make the whole experience fun for people.

Build incrementally

A business plan can be helpful to articulate your business in order to have a broad idea of the nature of your business, and if you so choose, attempt to secure investments. A good plan will be specific regarding how you plan to bring your product to market, and its analysis of the competition. A business plan forces you to think in depth about your business. Be honest in your planning. “Enterprises fail more often because of the sum total of seemingly inconsequential events acting upon them than because of a sudden disaster or discontinuity” - so make learning a part of your plan. Create a plan that allows for some failure, rather than one where everything must go perfectly in order to succeed. Initially, survival is more important than success. Healthy growth is growth done on your own terms, rather than forced. Take enough time to do it right, but no more, and no less. Try and create a business that will last one hundred years or longer - plan for the long run. Plan for success, because by the time you succeed, you might not have time to make plans. Write your business plan as if it were going to be read by a good friend who you wanted to convey your ideas and situation to, rather than selling it to a stranger. A good business plan contains these elements:

  • Executive summary.
  • Discussion of the nature of the business.
  • Description of the product or service. Be brief.
  • Marketing plan.
  • Competitive analysis.
  • Description of management.
  • Financial projections.

Business types

  • The sole proprietorship is the simplest, easiest way to be in business. There are no legal fees, board of directors, stock, and your income taxes are simply your own income taxes. This can be a limiting form of business if you ever plan to grow, however. Furthermore, the biggest problem is that you are personally liable for the business - you could lose everything.

  • Partnerships are often problematic and do not offer limited liability.

  • A corporation is the best way to structure a business.

You will need a partner, and to be a real partner, this person should be there from the beginning. Of course, they have to be the right partner as well. Include your employees as owners of the company. It’s simpler, easier, and more pleasant for everyone to get people involved 100% in the company and its success. Make sure that, if needs be, the partners and owners can leave the business without killing it. The best form of organization for the company is one where you would work best as an employee.

Money

Money is a difficult subject to talk about for most people. Money doesn’t create anything, but flows to where there are ideas and initiative. Start your business with the amount of money you feel comfortable dealing with. It is better to start slow and steady rather than get in over your head and feel nervous about the money involved. “With low overhead, frugal means, and fragile budgets, you can’t buy your way out of problems. You have to learn your way out.” Obtain financing before you need it - this will leave you in a better bargaining position. Do not borrow too much money, and never borrow money from friends that you can’t repay personally. If you think you need to grow a business a lot in a short period of time, bootstrapping probably wont’ work - you will need investments, and likely lose money initially, and if things go well, after some initial period of losses, come out ahead. Banks are generally a very poor way of financing your business, because they probably won’t loan you money. Smith and Hawken successfully sold some stock directly to the public, which isn’t easy to do, but can be managed by keeping investors informed, making sure their investments are liquid, and avoiding surprises.

“Tradeskill”

Businesses don’t require intelligence, per se, to run, but “tradeskill” - the “knack of understanding what people want, how much they’ll pay, and how they make their decision”. This is most likely a skill that’s easiest to acquire at a young age, and more difficult as you get older. It’s most often encountered in people who are very sensitive to the market. It can’t be learned from a book or an MBA program. Most people know whether they have this ability or not, and should plan accordingly.

Persistence is, of course, fundamental, but is different from being bull-headed or aggressive. You must also be able to face the facts - observing the world in a “detached, pragmatic way”. Minimizing risks is important to an entrepreneur. Keep track of them, and work to eliminate or isolate yourself from them. Be wary of any strategy that has no redundancy or backup.

Be a hands-on learner, and get involved with all aspects of your business, so that you know exactly how they work down to the details.

You must know the numbers of your business, and familiarize yourself with basic accounting, because this is what tells you whether things are working or not. The relationship between money coming in, and money going out is critical. You should know by heart how much money comes in daily, weekly and monthly, how much goes out, and how much you are owed, and your cash balance. Beyond money numbers, also measure and learn numbers that are important to your business, such as customer support calls.

Sales

Selling is something the customer lets you do, and to best do so, a reputation for honesty and integrity is important, and must be genuine. You must have the market’s “permission” to sell. Market products that you would want, since you can’t always know what other people want. Don’t fake “bigness” - because if people want “big”, you simply won’t be able to deliver. Honesty can be far more effective than hype. Honesty delivers a better “signal to noise ratio”.

Treating your customers right

“The customer is always right” is a fine thing to say, but your business is you, and it’s up to you to live those words, or they will not be part of your firm’s culture. Many firms are geared up to deal with fraud, waste, hassles and scams, but many have consequently become terrible at providing good service. This is, however, a great opportunity for your business. To build a culture of service and helpfullness towards your customers, you must hire people who have those qualities to begin with. Give them the authority to make calls in favor of the customer, and say “to heck with the company”. In the end, it pays for itself in customer loyalty and a stellar reputation.

Some guidelines for customer service:

  • Customers want a long term relationship.
  • Give your employees the right to make things right for your customer.
  • A job isn’t done until it’s checked.
  • Having one person follow the entire life cycle of a customer’s request is less efficient, but more rewarding.
  • Use mistakes as an opportunity to improve.

How to be a good customer:

  • If you don’t raise your voice when something’s not right, no one will. Make yourself heard.
  • Don’t forget a bit of praise when you are pleased with the product/service.
  • Be articulate in your requests.
  • Demand speedy service.
  • If something isn’t right, act immediately - don’t wait for a month.
  • Be kind to the person on the other end of the phone.
  • Keep after it and don’t be afraid to pursue the problem higher up in the company.

Working with people

You must treat your people well for your business to succeed. This shouldn’t be a weight, a responsibility, but rather an agreeable and rewarding part of your business. People need to be treated like people, rather than dilbert-esque cogs in a machine. “Firing is failure”, and the simplest way to look at it is that everyone took part in the failure - if you hire well in the first place, it’s far easier to avoid firing. Hire people as individuals, rather than as a specific role. The best people are adaptable enough that they will likely enjoy a challenge of performing a new job, and will do it better than someone with more experience but no enthusiasm left. Hire people you admire, respect, and look up to, and never hire anyone you look down on or feel superior to. Giving people responsibility makes them feel more enthusiastic and more involved. When growing, it’s important to only grow as fast as your employees can, otherwise you will overwhelm them, and the business will suffer. Try and be as open as you can, and communicate with your employees - ask their opinions, and listen to the answers. They are the ones closest to emerging problems, and are the most likely to be able to spot them in time. One idea that has proved effective is the 5-15 report, a very brief weekly report discussing the weeks activities, the employee’s morale, and an idea each week to improve the company in some way. It is important to avoid people becomming territorial about their information. By staying lean, even slightly understaffed, people depend on each other more, and are less likely to be “political” about their role in the company. And remember that people will immitate the boss - if you’re open and share information and ideas, everyone else will as well.

Links

http://www.paulhawken.com/


Comments (1)

davidw
Said this on 2-4-2012 At 02:41 pm

This is one of the better business books I’ve read. It’s 20 years old at this point, but still very relevant, and was years ahead of many more recent books that say very similar things. I really like the author’s attitude and style, and he does an excellent job at transmitting his passion for doing business well, not just in terms of making money, but in creating a good place to work with happy customers, that creates genuine value in the world.

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