Years ago, I learned from one of my mentors a very valuable lesson. If you want to be successful at something model the best. Meaning, find what successful people are doing, do the same thing and you too will find success. While building our businesses I have spent a lot of time researching what successful entrepreneurs did, interviewed many and created friendships with several as well. During that time I discovered four tips that truly changed the way I approached business completely based on modeling the entrepreneurial elite.The four tips are what guides my philosophy in running my companies, allows us to have the success we do and provides some restful nights
Tip #1 – Look at your business from the shareholder prospective. Too many entrepreneurs will think they are making money in their company because they take home a paycheck, or make as much money as they did working their last job.The problem with that is that you are not giving the shareholders (you) a return on your investment. You may earn a wage. But, couldn’t you have received that same wage working for someone else and not having the headaches that come along with running a small business? You must view yourself as an investor in your business. A shareholder that invested either time, money or both to get your business off the ground should receive a return. You already get a wage, which you would have earned working for someone else, so now you need a return for the shareholder.There are three ways you can receive a return. First, you can pay money in form of distributions to the shareholders. Second, you can increase the value of the company. This creates an asset worth selling at some point. Third, you can create a lifestyle business where you can walk away and have others run the company. You can still earn a living from it and give yourself free time to do what you want.Take at least one day per quarter to sit down and evaluate your business from the shareholder/investor point of view. You savings account will be glad you did.
Tip #2 – Focus on what’s most important to your business.Take out a piece of paper, turn it sideways (landscape) and draw three lines creating four sections. On the far left write Revenue, next column write Increase Quality, third column write Decrease Expenses and last Everything Else.
I remember these columns with a simple acronym (R.I.D.E.). Entrepreneurs that don’t track there schedules and where they have spent their time on a daily basis will find this exercise very enlightening. Take one week and use this piece of paper to write down all your activities and the amount of time you spent on each. Make sure you categorize what type of activity it was and place it in the appropriate column.If you spent time selling, that would be classified under the revenue column. If you spent time dealing with human resource issues or paperwork that would be classified in Everything Else column.Once you have a full weeks worth of activities logged add up the amount of time you spent in each category. If you have employees ask them to do the same. Now you have a measurement of how much time is being spent on the key areas of your business. If you find that you are only spending 10% of your time creating revenue and 90% on everything else you need to change your activities to be more focused on generating cash for your business. After all, CASH IS KING! Generally, the appropriate percentage of time that should be spent in each category is:
45% Revenue
25% Improve Quality of Products and Services Offered
20% Decrease Expenses
10% Everything Else
Tip #3 – What you measure you can manage.Imagine playing a football game with no one recording that stats, score or tracking the time clock. No one would know when the game is over or who won and individual players wouldn’t know how well they did. Now put yourself in the shoes of the coach. Where would you spend your time in practice? What would you have your players work on? How do you know what they need to do to improve? By not tracking key metrics for your company you are essentially playing a football game with no stats, score or time clock. Key metrics for a business let the business owner know exactly how successful the business is, what direction the business is going in and what the focus needs to be to improve quality, increase sales and decrease expenses.Every business has its own key metrics. It’s virtually impossible to say “the following key metrics are the measurements for success in your businessâ€. Every business should have a set of core metrics that tell them how they are doing. Some examples would be, profitability of the company measured by Profit Margin Percentage; Return on Investment – showing the amount of return the shareholders are receiving based on their initial investment; Return on Marketing Dollars – the amount of return in sales from one dollar spent in marketing.I have read books 400 pages in length that all they talked about was the metrics to use for marketing departments. The key is not to get caught up in creating hundreds of metrics for your company, but to focus on a number between 10-20. Now, the company overall may have 15 metrics it looks at from the shareholder prospective, and the marketing department has 15, the sales department 15, the fulfillment department 15, etc. Each manager or department should have their own set of metrics.Now that you have determined which metrics to use, you must found out how you create the report that shows those metrics. You don’t want to create a position in your company for someone to just come up with metrics. You want to automate the reports as much as possible, keeping work loads down and access to the reports efficient.
Then you need to create a RED ALERT system. The red alert system tells you when your metrics show something disturbing. For example, one metric might be cost per sale. If you see a trend moving up 20% a week or day on the cost to generate a sale, you would want to look at your marketing and find out why. So, you want to have a RED ALERT set that goes off if the metric falls above or below a certain level.
Last, you want to create an action plan. A plan of what you will do for each metric if it falls into the RED ALERT area. You will want to develop the plan before you fall into a RED ALERT area. Most entrepreneurs that find themselves in that position become emotional and make irrational decisions. So it’s best to have the plan prepared ahead of time.
Tip #4 – Have an advisory team. Whether you are starting a business or growing an existing business you need people around you that will expect more of you than you do.
When I started my first company, my friends were impressed. They were amazed that I actually took the step to quit my well paying job to branch out on my own. For a year or so I continued to spend time with my friends and felt really good about what I had done and created. I started to slow down on my approach to growing the company because I felt I had reached a good level of success. The feedback and comments my friends were giving me created that belief.
I then joined an entrepreneurial group in our local area after 18 months of first starting the company. I was now surrounded by other entrepreneurs who had created nine figure businesses. All of a sudden I had a different view point of where I was. By interacting with the members of this group I found that the entrepreneurial drive I had when I first started my company burned brightly again. It was critical to my future growth to surround myself with people that expected more of me than I did.
I continue to spend time with members of the entrepreneurial group I joined, but I also have created a board of advisors that I work with. The board of advisors are individuals that work with me to challenge me. They ask why? They expect big results. They challenge my goals and push me to do more. The advisors are a mix of professionals, successful entrepreneurs and trusted advisors. Other than my wife, there are no family or friends. I found that family and friends tend to hold back. They don’t challenge you enough. I am fortunate enough however to have a wife that does challenge me. So I rely on her for a lot of guidance as well.
The individuals you point on your board of advisors may be someone you pay or someone you just ask advice from time to time, or someone you spend a lot of time with and is willing to give you advice for free. I don’t gather my group of advisors together and meet all at once, these are people I typically talk to one-on-one.
There is also another board that I communicate with frequently and that’s the board of directors for my businesses. The board of directors are individuals who understand running a business and / or my specific industry. This group works with me to grow the business they area director of and we work as a team.
These four tips if implemented and used appropriately will provide you with a great deal of comfort. Being able to sleep at night as an entrepreneur is a challenge. However, by using these four tips I have had many restful nights.
David Gass
President/Founder
Business Credit Services, Inc.
