Volume 1, No. 8, May 10, 2001

Executive Summary

Thanks to everyone who provided feedback, we’ve learned that many subscribers want to read just 1 page rather than 2-4 per issue. So if you’re in a hurry, here’s a summary of our fifth and final Top Success Factor, Finances & Facilities:

1. Cash flow is king. It doesn’t matter how much your company, product or service could make. What matters, your lifeblood, is, do you have the cash today to pay your bills? Watch it like a hawk.

2. Cash flow is always cyclical. The cycle may be annual or multi-year (like the current recession), but to everything there is a season, and what goes up will come down. It is so tempting to spend and so wise to save your money when you’re "on a roll."

3. You cannot save yourself out of a hole. Cutting expenses can help when times are tough, but it almost never helps as much as increasing sales. Keep your spirits up and aggressively pursue new business.

4. Offer more than one suit on the rack. Never let price keep a prospect from doing business with you. One suit does not fit all. Options, options, options are the way to win-win engagements that are more profitable for you but leave the customer feeling in control.

5. Know what everything really costs. Treat every job as a project, and use project or time tracking software to know what every job really costs. It’s the only way to be sure every job is profitable.

6. The customer never buys a product or service. The customer buys value. Customers pay willingly only for value that they can perceive. Provide higher value, such as more useful information, to justify your prices (whatever theyare) and keep customers loyal.

7. You are judged by the company they see. Just a closing note about facilities as a success factor. People, especially prospective customers, gain such a strong impression of your corporate personality (e.g., trustworthiness, professionalism) when they visit your space, it is very hard to undo any negative impressions. Make it look right--not gold-plated, but appropriately professional.

Thanks to everyone who responded to our request for feedback! If you still have not done so, please take 2 minutes to visit http://www.lciweb.com/MLEdge/feedback.htm. We’d love to hear from you! Although responses varied, there was a strong preference by many for one page every 2 weeks. Since many of our topics can’t be covered in one page, I've started with this issue a 1-page (approximately) executive summary for readers in a hurry. But they'll miss some of the color and examples which make each point more vivid and understandable.

Our topic today: The final success factor, Finances and Facilities. The two are closely intertwined, since owned facilities are both financial investments and financial assets, and rented facilities are a major expense. We don’t claim to be financial advisors, but we’ve worked through several recessions (worse than this one so far) and seen a lot of companies have similar problems. So here are a few timely financial success tips from one who’s been on the firing line.

1. Cash flow is king. It doesn’t matter much how much your company, product or service could make. What matters, your lifeblood, is, do you have the cash today to pay your bills? The main reason so many dot-coms became dot-bombs is they used their cash (from investors) so fast they called it (and still do) "burn rate." That’s like living at home and having your parents pay all the bills -- not the real world.
    To succeed in business or other endeavors, you have to watch your cash flow very carefully. Accrual accounting is great for forecasting your success, but it does not reflect cash in the bank, so you need to watch both carefully. In fact, if you are a top officer, you should watch your cash flow so carefully that you have an intuitive feel for it. That way if something goes wrong (like embezzling or a sudden income drop) you can sense the problem and check it out.

2. Cash flow is always cyclical. I have never seen a business yet that did not have ebbs and flows in cash volume. The cycle may be annual or multi-year, but those who’ve been around a while learn that there’s a real law of nature -- to everything there is a season, a time to reap and a time to sow. When your cash flow is strong, it is so tempting to spend it and so wise to save some. Frugality always pays big dividends.
    I remember years ago talking to an old entrepreneur who had turned a small business into a major manufacturer of boots for the Army and was a multimillionaire. He seemed to be just a basic "good old boy," as they say in the South. I asked him, in effect, how did he get so rich? And I’ll never forget his answer: "By not spending money."
    Before you sign that lease for the expensive office or buy all that new furniture, be sure there will be a whole lot of cash in the bank left over for the inevitable slow times. That way you will be more likely to survive much longer.

3. You cannot save yourself out of a hole. I’ve seen many companies hit hard times and try to cut, cut, cut to get out of the hole. Cutting expenses can help, but it almost never helps as much as increasing sales. Severe cutting tends to make the patient bleed to death. Morale hits bottom and instills a negative mindset.
    Instead adopt what psychologist Wayne Dyer calls "an abundance mentality." There’s tons of business out there, and if you’ve followed our other Success Factor tips, you know how to target your markets, sharpen your advantage and go for it. Keep your spirits up and go cheerfully after new business. Price your products/services aggressively. Be a joy to work with. "The Lord helps those who help themselves." Self-mutilation is not the way out of the hole.

4. Offer more than one suit on the rack. That saying is from a former client who did not like me to tell him, "This one solution is just right for you." He liked choices and options. Again I’ve seen many companies back themselves into a hole by offering a very limited line of products or services. They get it fixed in their heads that a Model 2034X is worth $199,000 or an audit is worth $29,000 or whatever. They forget that no product or service is intrinsically worth anything. Things are worth exactly what people (the market) are willing to pay.
    But even beyond the issue of market-demand pricing, offer your customers lots of options. Everybody likes choices, as long as there aren’t too many. We rarely bid one price on any job -- we prefer to provide at least 3 options (low, medium and high) and let the client decide. Of course you have to learn -- in some cases create -- options by thinking about what you can count (if not products, count hours, visits, pages, meetings etc. and use that to quantify your options for the client).
    Some professions such as architecture, building and construction unfortunately are in a difficult tradition. They bid jobs almost always in fixed numbers (dollars). In no way does this allow for problems beyond their control, for overly demanding customers or many other variables. They can also lose a bid on a slim margin. So my advice to anyone who is caught in the fixed-price trap is: offer every customer more than one suit on the rack. Options, options, options are the way to win-win engagements that are more profitable for you and leave the customer feeling in control because he/she made the choices! You’d be amazed all the options you can "unbundle" from traditional service packages to give your clients all the options they’d ever want. Don’t overdo it, of course, because too many choices can lead to analysis paralysis. Just offer options which other customers have wanted or considered or might reasonably want.

5. Know what everything really costs. Cost-accounting is not just CPA rocket science. If you treat every job as a project, and allocate time and expenses by project code, you can know fairly well whether any project made or lost money. If you don’t do this, buy some project-billing or tracking software and start tracking. This is essential for any business because, if you don’t know what each output product or service costs to compare with what it sells for, you can’t know if you’re making any profit on it.
    Personally I believe every product or service should aim to make a profit. On one hand, if you’re really hard up, there’s the old saying, "Some money is better than no money." But if you go into a job knowing you’re going to lose, or thinking you’ll do a loss-leader then charge more the second time, there often is no second time, and you get burned.
    Perhaps you’ve heard the story of the old merchant who bought shirts for $1.00 and sold them for 95 cents. A friend of his said, "Alvin, how do you ever expect to get rich selling shirts for less than they cost you?" Alvin quickly replied, "The volume! Think of the volume!"
    Too bad a lot of Internet companies never heard the Alvin story. Don’t let it happen to you.

6. The customer never buys a product or service. The customer buys value. That is a paraphrase of Bradley Gale’s great book, Managing Customer Value, which we’ve mentioned before. If you want to increase sales and profits, give the customer more value. How do you do that? You begin with a customer survey (or better yet use a professional survey firm to help). Find out exactly what the customer values when selecting a supplier like your firm. Don’t guess--it’s a lot more complicated than top quality at lowest price with great service. Other factors such as fast turn-around, innovation and image (Mercedes, BMW, Polo etc.) are also important in many sectors.
    One of the best ways to offer more value than your competitors, to justify an equal or higher price, is to provide more information. Don’t just give an ordinary product or service. Give the customer extra information about how to use what you sell to enhance their business or life. Help the customer avoid traps. Go beyond the Golden Rule to the Platinum Rule: Do unto others as they would have you do unto them. The added value you offer may not mean added costs for either party, but it sure can mean added customer satisfaction, retention, or that favorite ‘90s word, "delight."

7. You are judged by the company they see. Just a closing note about facilities as a success factor. People, especially prospective customers, gain such a strong impression of your corporate personality (e.g., trustworthiness, professionalism) when they visit your space, it is very hard to undo any negative impressions. Now if your customer never visits your hole in the wall, no problem. But rather than "our work speaks for itself," unfortunately research has shown that your place of business speaks such volumes that your prospect may never get past that powerful perception of your space.
    Generally lawyers, accountants and physicians who charge big bucks all know this. And if you want to come across as the low-cost provider, you don’t need or want leather chairs or oriental rugs. But that doesn’t mean your customer or prospect is going to enjoy sitting in your waiting room in a chair that feels and smells like a sweaty dog or gliding across your brown linoleum floor with the ambience of, what, the ‘50s?

Well, I’m probably preaching to the choir. Enough for now.

In our next issue we’ll begin to address some of the great suggestions or questions of those wonderful caring subscribers who filled out our feedback form. We even plan to answer managing-leading questions for free, so be sure to send yours in. . . Until then. . .

-Best regards from The Managing-Leading Edge, Buck Lawrimore

*P.S. No amazon.com links this time, but watch for our "Top Business Books" section coming soon, also suggested by a subscriber. Meanwhile we’ve put all our past issues easily accessible on our main page, http://www.lciweb.com/MLEdge.