Street Smarts

by Norm Brodsky

  In addition, Arnold had bought a new car for himself every four or five years. So he was a mil ion-dol ar customer.

  And the guy at the service desk knew exactly who he was. Arnold was incredulous. “Wait a minute,” he said. “Are you real y tel ing me that I can’t drive my car out of here because you don’t trust me to pay a minor repair bil ?”

  “I’m sorry, sir,” the guy said. “Those are the rules, and we can’t change them.”

  Arnold went home and cal ed the owner of the dealership. He said, “Jim, what’s going on here? This is ridiculous.” The owner apologized and told him not to worry. He’d take care of it. He’d personal y bring the car over. Arnold could drive it for a day or two and pay the bil when he was satisfied.

  So what had the owner accomplished with his rule? He’d aggravated one of his best customers. He’d made an employee look like a fool. And he’d caused himself embarrassment and inconvenience.

  I can sympathize. I’ve done it myself.

  I understand why companies have rules. You get to a certain size, and you suddenly realize that you need them. Employees have to know where the boundaries lie—how they’re supposed to conduct themselves, what’s going to get them into trouble and what isn’t. Some rules you establish for survival’s sake, to avoid mistakes that might put you out of business. Others you have because you want to maintain certain standards. Stil others you decide you need after you get whacked on the head. Then there are those you institute because you think you’ve discovered a terrific new way to boost your sales or streamline your management system or cut your costs—whatever.

  Behind every rule there’s almost always a good reason, or at least a good intention. At the time you establish them, the rules appear to make al the sense in the world. And yet, if you’re not careful, you run a high risk of creating rules that wil hurt your business. What happens is that you take away your employees’ ability to use common sense in responding to the reasonable requests of customers.

  In my business, for example, customers often ask to have boxes delivered to their offices. We charge a regular fee for the delivery and an additional fee when the boxes have to be delivered in a rush. As in any business, customers sometimes cal up afterward to dispute the charges. A couple of our customer service representatives were giving in too easily, and so I established a rule: no credits could be issued without the approval of someone in management.

  The rule came back to haunt us whenever a dispute arose in which we were truly at fault. Say a customer placed a rush order and, for some reason, the box didn’t arrive on time. The customer would cal up, irate, refusing to pay for the delivery. The customer service rep would say, “I’m sorry. We made the delivery, and you have to pay for it.”

  “But it came too late to do us any good,” the customer would say. “We’re not paying.”

  “Wel , you’l have to speak to a manager,” the rep would say.

  The manager, of course, would waive the charge after hearing the story, but the customer would stil be angry. First, because the delivery was late. Second, because we would have charged for it anyway if no one had complained. Third, because it took a cal to a manager to get the charge waived. So the customer went away thinking, “That damn service stinks.” And the next thing we knew, the account was in jeopardy because the person responsible for the contract had heard that we charged even when we didn’t deliver on time.

  By the time I realized what was happening, my rule had already done some damage. Needless to say, I got rid of it. Subsequently, our customer service reps were al owed to decide for themselves whether or not to issue a credit. At times when we were at fault, I hoped they did. Did some reps make bad decisions? Yes, but then we just had to train them to do better. In retrospect, it was obvious I’d made a mistake by establishing a rule just because a couple of employees were loose with credit. The right response would have been to put in the time and effort required to get them up to speed.

  And that’s real y the point. We tend to make bad rules not when we’re attacking problems but when we’re avoiding them. We fal into the trap of looking for shortcuts and easy answers. So one bad customer drives off without paying his bil , and we put restrictions on al our good customers.

  Or one employee uses poor judgment in issuing credit, and we tie the hands of al those whose judgment is perfectly sound.

  The result is bad customer service. Our employees take the rap, but we’re the ones to blame. If you’re lucky, you find out about the problem and eliminate the rule before too much harm has been done. You may get upset with yourself when that happens, but at least you can minimize the damage. What should worry you are the bad rules you’ve set and haven’t yet found out about.

  The Bottom Line

  Point One: Customers don’t like feeling that they’re supporting your lavish lifestyle. Don’t give them reasons to think they are.

  Point Two: Make a habit of having smal price increases on a regular basis so that you aren’t forced to have a big increase later on.

  Point Three: Your company is probably your most valuable personal asset. Don’t undermine its value by letting your margins erode.

  Point Four: Beware of the rules you make. They may inadvertently force your employees to provide poor service to customers.

  CHAPTER ELEVEN

  The Decision to Grow

  Most company owners have a regular routine they go through every year, usual y in December or January. They sit down with a calculator and try to figure out where their business is going over the next few years and how it can get there. It’s an important exercise, and yet it gets an awful lot of people into trouble. They make the mistake of focusing on their business plan before they’ve figured out their life plan, and the life plan must come first.

  Many of us, unfortunately, come to this realization fairly late in the game, after we’ve already taken our lumps. If you’d asked me in the 1980s what I wanted to do, I would have answered without hesitation, “Take my business to $100 mil ion.” What else I might do with my life, and why I wanted a $100 mil ion company, I never even thought about. I was simply determined to have one, no matter what. And, as you know, I got my wish. Granted, my life was crazy. I had no time for my family. I never took a vacation. I wasn’t doing a lot of the things I most enjoy. Stil , I did have my $100 mil ion business for a while, thanks to the disastrous acquisition I wrote about in the second chapter. Then the company started hemorrhaging cash, and the next thing I knew, I was in Chapter 11.

  It took three years, but I eventual y brought the company out of Chapter 11. The experience was one I’l never forget and hope never to repeat.

  Like most such experiences, however, it was incredibly educational. Among other things, it forced me to go back and ask myself why I was in business in the first place. These days, that is usual y the first question I ask people who come to me looking for advice.

  Consider Mike Baicher, who contacted me in the mid-1990s for advice about growing his business. He said he had to hire some salespeople, but he didn’t know if he could afford the expense. Would I help him come up with a plan? I agreed to meet with him. It turned out that Mike had a family-owned trucking business, hauling containers to and from the ports around New York. The company had been in operation for thirty-two years and was doing about $1.7 mil ion per year in sales. Mike said he wanted to take it to $10 mil ion or $15 mil ion in five years. My question was,

  “Why?”

  He gave me a funny look and said, “What do you mean?”

  I said, “Listen, let’s forget about business. Business is just a means to an end. The question is, what’s the end? Where do you want to go in your life? Where do you want to be in five years from a family standpoint? What do you want to earn? How much time do you want to take off?”

  Mike didn’t have answers to these questions. He hadn’t given them much thought. People seldom do. He had to discuss them with his wife. He had to talk with other members of his family, several of whom wer
e in the business. In the end, he decided that what he real y wanted was to double his modest salary. He and his wife had two kids, and their house was too smal . He said he’d like to earn enough to afford a bigger one. He added that he’d also like to take some time off now and then. Nothing much—maybe two or three weeks a year. As it was, he worked every day and took few, if any, vacations.

  I said, “Wel , then, you don’t want to grow your business to $10 mil ion in five years. You probably don’t have the money to do it in any case, but—

  if you did—you’d wind up working eighteen hours a day, seven days a week, and you’d never see your family.”

  Understand, if Mike had given me a different set of personal goals, I’d have given him a different response. Some people, after al , real y are driven to grow their companies as fast as possible, and they’re wil ing to sacrifice plenty of things in the process—including their families. I don’t try to argue with people like that. They won’t listen. I know. I used to be one of them.

  Mike wasn’t one of them, however, and so we were able to come up with a new business plan that would al ow him to get what he wanted. He would aim to grow the business to about $3 mil ion in sales in five years, rather than $15 mil ion, and he wouldn’t hire any new salespeople just yet.

  Mike himself would be making sales cal s. He enjoyed sel ing, and he was good at it. He just hadn’t been able to do much of it because he’d been needed in the office. But he had a brother who’d been driving a truck ful -time while getting paid a family member’s wage. With a little training, the brother could take over some of the office duties, freeing Mike to go out and sel . So instead of spending $50,000 per year on a new salesperson, the company would be spending $10,000 per year on a part-time truck driver to fil in for the brother, and Mike would be focusing on the areas where he could have the biggest impact. I also suggested that he look for other services he could offer his current customers, on the principle that the easiest customer to get is the one you already have. When we final y got around to doing sales projections, we figured that the company could reasonably be expected to do $3.2 mil ion in the fifth year of the plan. Mike thanked me for my help—and disappeared for five and a half years.

  Then, one day, he cal ed me out of the blue to ask if he could drop by. I was eager to see him and find out what had happened. When he walked in, I could see at once that Mike was a different man. He’d lost forty pounds and was far more relaxed than I remembered him. He laughed as he told me how his life and his business had changed.

  To begin with, he’d fulfil ed al his goals. He was making more money. He had a larger house. He took vacations and spent lots of time with his kids and his wife. Since hiring a dispatcher, he’d been able to shut off his phone and leave work most days at 5:00 or 5:30 p.m. On the business side, he’d begun sel ing storage services to his trucking customers and now had several warehouses that provided an additional revenue stream.

  Business was great, he said. With obvious pride, he told me that the company had finished the fifth year with $3.6 mil ion in sales, beating our projections by $400,000. He expected to do $5 mil ion the fol owing year.

  “That’s terrific, Mike,” I said. “Congratulations.”

  “Yeah, I’m happy,” he said. “I’m ready to go to the next step.”

  “What’s that?” I asked.

  “Buying other trucking businesses,” he said.

  An alarm went off in my head. “That can be awful y tricky,” I said. “You can real y hurt yourself with acquisitions.”

  “What do you mean?” he asked.

  I explained to Mike the inherent risk in every business acquisition. For openers, you never know exactly what you’re getting until you own the company and it’s too late to go back. Buying other trucking businesses would be especial y risky because most of the contracts are at wil . Mike could acquire a company and discover that a lot of customers were leaving, or that the salespeople control ed the accounts and were threatening to take them away, or a mil ion other things. Since he’d have to borrow money to do acquisitions, he could get into major cash flow problems. In the worst case, a bad acquisition could bring the company down, as I’d learned to my chagrin in the 1980s.

  Understand, I’m not saying that people should never buy businesses. Sometimes it’s the best way to grow. Moreover, there are steps you can take to protect yourself—for example, by persuading the sel ers to let you pay them out of sales and over time. But Mike had another issue to consider. He’d just spent five years creating a good life for himself. Did he real y want to take a chance on throwing it away?

  “Wel , I have a concern,” he said. “I do almost al of my business with two large customers. I’m real y in good with them, but it would be tough if one of them dropped us, or cut way back.”

  That, I had to agree, was a pretty serious concern, but there were better ways to address it than by doing acquisitions. Mike could, for example, spend more time on sales. He was good at it, he enjoyed it, and he’d have a much better chance of keeping the customers he got by doing it.

  Instead of borrowing to buy companies, he could leverage his relationships with his two main customers—one in cosmetics, the other in apparel.

  They were fabulous references, and they gave him great entree to their respective industries. Even if he signed up just two or three more customers of equal size, he’d be in much better shape than before. You can sleep a lot more soundly when your largest customer accounts for 20 percent of your business than you can when it represents 50 percent or more.

  Mike wasn’t completely convinced. “Getting more customers that way takes a long time,” he said.

  “Yes, it does,” I said. “But you know something? There are no real shortcuts in business, and when you look for them, you usual y get in trouble. It took me a long time to realize that. People like me want instant gratification. One of the hardest lessons I had to learn is that you can’t expect good things—like more customers and better sales—to happen overnight.”

  Mike stil had reservations. He said he wanted to think it over. I said I thought that was a good idea. I made it clear that—if he was dead set on buying companies—I’d help him lay down some ground rules to minimize the risks he’d be taking. But when we got back together, he told me he had decided against going the acquisition route. I have to say I was relieved. It would have been a shame for him to jeopardize the good life he’d created for himself when there were other ways to accomplish what he needed to. But the urge to grow often leads people to make those kinds of mistakes—which is why the life plan has to come before the business plan.

  The Mystery of Success

  Now, I’m not saying there’s anything wrong with wanting to grow your business. On the contrary, if you have a successful business, it’s only natural to want to expand it. Just don’t fal into the trap of growing for growth’s sake. Bigger isn’t always better, and the reasons for your success may be difficult to pinpoint.

  That’s the problem with success. When you fail in business, you can look back, see what you did wrong, and learn the appropriate lessons, but it’s often difficult, if not impossible, to figure out why a particular business concept clicks. While you may be able to list a number of important factors, you stil won’t necessarily know exactly what combination of them came together at the right moment and in the right proportions to make the business take off. You should bear that in mind when you’re deciding how you’re going to take your business to the next level in sales. If you don’t real y know what’s driving your success, you have to be careful about the strategy you adopt. There’s a risk, after al , that you may accidental y undermine whatever made your company successful in the first place.

  Ask Norm

  Dear Norm:

  Five years ago, my father brought me into his company so that he could spend more time doing outside sales. Lately, he seems to be working less and taking more cash out. Once I was told I’d be given the company; now it turns out I’ll have
to buy it. I’m thirty years old. I want to grow the business, but I can’t unless we start reinvesting our profits. So it’s time to make an offer. I don’t want to pay too much, but I also don’t want to insult my father with a low offer. Any advice?

  Robert

  Dear Robert:

  Before you offer anything, you need to do some soul-searching and life planning. Where do you want to be in ten years? What kind of life do you want? Then design an offer that wil al ow you to attain your life goals. Do some research into the value of comparable businesses, and figure out what you can afford. Your proposal should specify how much you’d pay, when you’d start paying, over what period of time, how much salary your father could continue to draw, and so on. You can’t fault your father for wanting to sel you the company. He built it. He has a right to get something for it. But you don’t necessarily have to buy it. In fact, you may eventual y decide it’s better to leave. Just make sure you can leave on good terms. Tel your father, “Here’s my plan. I think I can do it if I buy the company from you under these conditions. I love you. I love the company. I’d like to stay. But I need a plan that’s going to let me achieve my goals.”

  —Norm

  Take, for example, a friend of mine whom we’l cal Seymour. Back in 2000, he owned one of the hottest little clothing stores in the New York metropolitan area. Let’s cal it Hot Pants. It was a tiny shop—about 1,250 square feet—located in a suburban strip mal , and it specialized in jeans and casual clothing, mainly for young women and teenage girls. From that one location, Seymour racked up several mil ion dol ars a year in sales, giving him one of the highest sales-per-square-foot figures in his segment of the retail clothing industry.