Most people don't understand the value of cash when they go into
business. If they did, they wouldn't waste it by purchasing things that they
don't really need and deplete their start-up capital without
getting
their business any closer to viability -- that is, the point at which the
company can sustain itself on its internally generated cash flow.
But it's not just start-up entrepreneurs who waste cash. The corporate
landscape is littered with the corpses of companies whose leaders thought
the good times would last forever and spent money they hadn't yet made on
luxuries they didn't need. Make the money first. If you are smart, you will
put some of it aside for a rainy day.
(6) No Friends in Business
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Don't do business with friends. Friends, I learned, inevitably make
assumptions that hinder your ability to do what's best for the business.
Even though I could tell them up front that they would be treated
like
any other vendor, they still expected me to make exceptions for them. When I
wouldn't, the relationship went sour, and I lost a friend as well as a
supplier.
It's even more important to understand that you can't be friends with your
employees. I'm not saying you shouldn't treat them with respect and
affection, but neither you nor they should ever forget that it's a business
relationship.
(7) Focus on your Gross Margin
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Focusing exclusively on sales is very dangerous, especially
when you are starting a business with a limited amount of capital. Why?
Because sales do not
necessarily
result in cash flow, and cash is what you need to survive.
Instead, you should be focusing on your gross margin -- the percentage of
profit you make after covering the direct cost of whatever it is that you
are selling. In my opinion, gross margin is one of the two or three most
important numbers in any business and by far the most important in a new
business. You have to pay all your expenses out of gross profit.
(8) Identify Your Compitators
Not everyone who does what you do is your competitor. Rather, you compete
against only those suppliers that offer the same services, are more or
less
equally reliable, and charge prices similar to yours.
I came to see that our real competitors were extremely important to our
long-term success. They played a critical role in shaping our reputation in
the industry--which was our most valuable asset -- if only because their
opinion carried more weight than that of any other group. When they spoke
well of us, everybody listened. So I made a habit of treating them with the
respect I hoped they would show us, and I insisted that our salespeople do
the same.
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(9) Culture drives a Company
When I started my first business, I didn't realize that companies had
cultures, let alone that cultures might actually affect the businesses'
performance. It was only 15
years
later that my wife, Elaine, joined CitiStorage -- that I began to think
seriously about the matter. She introduced programs that fundamentally
changed our culture, making it much more employee friendly, with business
games, contests, educational programs, new employee benefits, and group
activities.
It dawned on me that setting the culture was ultimately the CEO's
responsibility. Not only did I have to give Elaine the resources she needed,
but I also had to modify my behavior to fit in with the new regime and make
sure that everyone else went along.
(9) Set Your Goals
For my first eight years as an entrepreneur,
I
always put my business goals first. My life was one full-bore, supercharged,
nonstop, 24/7 rush to create a high-growth business. You know how that
turned out.
Fortunately, my descent into Chapter 11 came early enough in my life to
learn the appropriate lessons and make a fresh start. Building a successful
business is not an end in itself. It is a means to an end. It is a way to
create a better life for you and those whom you love, however you -- and
they -- may define it. You need to do the life plan first and then keep
revisiting it, to make sure it's up to date and your business plan is
helping you achieve it.
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