Street Smarts

by Norm Brodsky

  You should never make important business decisions when you’re feeling driven by urgency. I don’t care whether the urgency is coming from your own impatience or from other people putting pressure on you to decide. If you feel as though you have to make the decision right away, don’t make it. When you make decisions hastily, you don’t think them through the way you should, and there’s a very good chance that they wil come back to haunt you.

  That isn’t an easy rule to fol ow. Most entrepreneurs are impatient people by nature. You wouldn’t go into business in the first place if you didn’t feel a strong desire to get somewhere, to make things happen. But that same desire can turn into your worst enemy if you don’t learn how to control it. I, for one, had to get whacked in the head before I realized the danger of being in too big a hurry to reach our goals.

  It was impatience, after al , that—in the late 1980s—led me to acquire a company with major problems. In my heart, I knew it was a bad deal. My inner voice was saying, “Are you nuts? You need these problems like a hole in the head. You’re putting the whole company at risk.” But you don’t listen to your inner voice when you’re being driven by a sense of urgency. You override your good instincts. You make excuses. You tel yourself what you want to hear. I’d turned around other insolvent companies before. I knew how to handle salespeople. I could deal with any problem they threw at me. Hey, I felt like Superman.

  So I went ahead and did the deal. You know the rest. (If you don’t, go back and read chapter 2.) Over the next three years, as we worked our way out of Chapter 11, I spent a lot of time thinking about what I’d done wrong. There was more to it, I realized, than one bad decision. That decision was connected to some fundamental character traits, one of which was my need for instant gratification. I do things on the spur of the moment, without considering the consequences or consulting with other people. And when I set a goal for myself, I’m single-minded about achieving it—even if it turns out to be the wrong goal. Looking back, moreover, I could see that such traits had led me to make countless other mistakes over the years, in my personal life as wel as in business. Somehow I had to figure out a way to control those tendencies. I knew that I probably couldn’t get rid of them. They were too deeply embedded in my personality. But I didn’t want to go on letting them make my decisions for me.

  So I came up with a rule: don’t make any major decision without taking a shower.

  By major, I mean a decision that wil have long-range consequences. I’m not talking about routine, day-to-day issues. I deal with those as they arise. But if an opportunity presents itself, or if there’s a big problem to handle, or if we have to make some change in the way we operate, I always take a shower before I decide. Understand that, while I do my best thinking in the shower, I don’t have time to take one during the day. So I’m actual y tel ing myself to put off the decision for twenty-four hours. That was very difficult to do, at least in the beginning. I like to make instant decisions. When people want me to do something, I have a lot of trouble saying, “I’ve got to think about it. I can’t give you an answer right now.”

  What I needed was a mechanism I could use to slow myself down, and the shower rule served the purpose. It was a way of sel ing myself on the idea of waiting. It forced me to give myself time to think through the decision, hear what other people had to say, take into account the likely effects of whatever I decided. Often I wound up doing the same thing I’d have done in the first place, but I did it with the confidence of having gone through the right thought process. And sometimes that thought process would save me from a mistake I was about to make or point me to an opportunity I’d have otherwise missed.

  My shower rule eventual y became a habit. I learned to recognize the sense of urgency and stop it in its tracks. Now, whenever there’s a big decision to make, I put it off automatical y. My managers accuse me of procrastinating, but they’re wrong. What I’m doing is giving my unconscious mind a chance to work on the problem. I’m making sure that my sense of urgency doesn’t drown out my inner voice. It’s a trait I’ve noticed in other successful businesspeople, the ones who’ve been running companies for a long time. Nothing is urgent for them. They don’t rush into decisions prematurely. They’ve learned how to take four steps back, weigh al the factors, and decide calmly how to proceed.

  But stepping back doesn’t come easily to young entrepreneurs who are eager to get ahead. The fear, of course, is that they’l lose the opportunity in front of them. It’s a feeling that smart salespeople know how to exploit. They make you believe that the opportunity they’re offering today won’t be around tomorrow, and then they use your sense of urgency to push you to a fast decision. With age and experience, however, you learn two things: first, that the world is ful of great opportunities, more than you can ever take advantage of, and, second, that real opportunities don’t disappear. I can’t think of a single opportunity I’ve lost since I adopted my shower rule.

  And, meanwhile, I’m just about the cleanest CEO in town.

  The Bottom Line

  Point One: There are great business lessons to be learned wherever you go, but you have to remember to look for them.

  Point Two: Solving a problem is a two-step process. First, you should stop the bleeding, and then you need to address the underlying cause.

  Point Three: Preparation is a crucial competitive edge. Don’t assume you know what’s in a contract—even an old contract—unless you’ve gone back and reread it.

  Point Four: The harder someone pushes you to make a quick decision, the more insistent you should be about taking your time.

  CHAPTER SEVENTEEN

  Keeping Up with the Stones

  We began with Bobby and Helene Stone, and I’d like to end there as wel . I’ve kept in close touch with them over the years and watched their progress as their annual sales grew from $162,000 in 1992 to $3.2 mil ion in 2007. Looking back now, I can see there were several important milestones along the way.

  One of the first came four and a half years into the business, when they reached a turning point that every successful new business goes through eventual y. It begins the day you decide you need to have another salesperson in addition to yourself. Bringing on clerical help or front-line people is a different story. You do it because you have to—because you simply can’t handle the work on your own. But when you hire a salesperson, you’re making a decision to grow, and how you go about it can have long-term consequences for you and your company. Bobby and Helene were approaching that transition in the middle of 1996. At one of our regular meetings, they asked me what it would take to bring in their twenty-seven-year-old son, Steven, as a ful -time salesperson. I told them that, like most things in business, it would take good planning.

  There are three major chal enges you face when you hire a salesperson, particularly the first one. To begin with, you need to make sure that he or she is going to have enough time to succeed. How much time is enough varies from business to business, depending partly on the sel ing cycle. In my records storage business, for example, it typical y takes two years to close a sale. In other businesses, the sel ing period can be as short as a few weeks. But even in businesses with a short cycle, you need to give new salespeople time to adjust to the culture, learn the products, develop a sales base, and so on. You can’t expect them to start making sales—and I mean good sales, with healthy gross margins—as soon as they walk through the door. In fact, it’s general y wise to assume that new salespeople won’t make any sales during the first year. You won’t be able to judge their performance objectively if you’re counting on their sales to make ends meet.

  So I advised Bobby and Helene to put off hiring Steven until they had accumulated enough cash to pay his salary for a ful year. Even then, I said, they shouldn’t bring him on unless they were projecting the same volume of sales in the next twelve months—without any contribution from Steven—

  as they had in the previous twelve. My advice was, I admit, very conservative. I wanted Bo
bby and Helene to have a big cushion. With other people, I might have settled for less. The size of the cushion you need depends to some extent on the level of stress you feel when you’re operating without any cash in the bank. I knew Bobby and Helene would have a hard time handling that pressure. So we agreed on some goals that would pretty much ensure their survival even if everything went wrong after Steven came on board.

  As it turned out, they hit the goals by the end of the year, which brought them to the second chal enge: giving Steven the right kind of training.

  When you hire a salesperson, you’re making an investment, and you have a right to expect a return on the investment in a reasonable amount of time. Let’s say the person costs you $45,000 in salary and benefits, plus another $5,000 for other expenses (telephone, travel, whatever). Suppose also that your average gross margin is 40 percent. The salesperson would have to bring in $125,000 in sales at a 40 percent margin ($125,000 X

  40 percent = $50,000) just to cover what you’ve spent on him or her in the first year.

  That’s a tough concept for many people to grasp. Most companies don’t even try to teach it. But you’l have continual problems with your salespeople if they don’t understand how the business works and what you’re counting on them to contribute. They’l make bad sales. They won’t fol ow the rules. They’l constantly complain about being unappreciated and underpaid because they don’t know what’s real y going on. Education is the only way around those problems. You need to change the way your salespeople think. You need a process that teaches them the business while they go about their jobs.

  Bobby and Helene used the same process with Steven that I’d used with Bobby. They came up with a plan, gave Steven goals for gross margins as wel as sales, and got him involved in tracking how he was doing. Having a little competition helped. Steven dug up Bobby’s records from his first year and set out to do better. Meanwhile, he and Bobby competed to have the best sales and gross margins each month, with Helene acting as referee.

  It took time for Steven to learn. He finished 1997, his first year, with sales wel ahead of what Bobby’s were in his first year, but with lower gross margins. Although he’d covered his salary, the company stil wasn’t breaking even on its investment. In effect, Bobby and Helene were carrying him.

  So we went back and focused on the gross margin issue, and gradual y Steven caught on. By August, it was clear that 1998 was going to be a blowout year for him in terms of both sales and gross margins.

  Which brought us to the third major chal enge: keeping him focused and motivated.

  In the fal , Bobby, Helene, and Steven said they wanted to meet with me. They’d come up with a new compensation scheme for next year. Their notion was to motivate Steven by giving him an incentive to exceed the numbers in the plan. He would receive a monthly salary, for which he’d be expected to hit the agreed-on targets. In addition, he’d get a commission on any sales he made above the targets. They asked me what I thought. I told them I thought it was a bad idea.

  I don’t like commissions, for reasons I explained in chapter 14. I admit that I’m sometimes forced to pay them to new salespeople, but eventual y I move the best ones to straight salary. It’s better for them, for me, and for the company. With a salary, salespeople work as members of a team.

  When you put them on commission, you’re giving them an incentive to fol ow individual agendas.

  That’s what I feared would happen with Steven. Let’s say his monthly target was $20,000 in sales. How would he feel if he got to $18,000 with three days left, and Bobby and Helene needed his help to fil mail orders, or they had to go away for a while, leaving him to cover the office? And what if, at the end of the month, Steven found himself with a choice between servicing a high-margin account or going after additional low-margin sales? The first might be more important to the company, but the second would clearly be better for him. Commissions create divisions in a company, and this plan was bound to drive a wedge between Steven and his parents. I asked them, wasn’t it better to pay him a salary, adjusted annual y to reflect al his contributions to the company? Sure, they could give him a bonus if he did something real y extraordinary, but shouldn’t everyone be rewarded for doing what’s best for the company as a whole? They thought about it and agreed.

  So, after seven years, Bobby and Helene had passed another milestone. They’d made it through the start-up; they’d achieved viability; they’d moved beyond critical mass; they’d successful y brought in another salesperson. The company finished 1998 with total sales of $725,000, up from $162,300 in 1992. The average gross margin was 38 percent. The main problem was that—with three ful -time people and part-time clerical help, not to mention al the computer supplies they kept on hand—Bobby and Helene were running out of space in their house. They were using a shed in the backyard as a warehouse, and the basement was fil ed to capacity. Even the children’s old bedrooms had been converted to storage. There were no rooms left to convert.

  Sooner or later, Bobby and Helene would face a choice: move the business to a new location, or stop growing. They weren’t yet ready to decide.

  The Internet Opportunity

  Meanwhile, the business environment was rapidly changing. The Internet, in particular, offered a world of new chal enges and opportunities. While it was obvious, to me at least, that the majority of new Web-based businesses wouldn’t survive, there was no question that the Internet could be an enormously powerful sales tool for many traditional businesses, including Bobby and Helene’s. In fact, it completely transformed Bobby’s and Steven’s roles as salespeople.

  Ask Norm

  Dear Norm:

  I have a $3 million business and several paid advisers—accountants, lawyers, and so on-but I feel alone and, frankly, confused. Where do I find someone I can talk to who doesn’t have his or her own agenda?

  Henry

  Dear Henry:

  First, understand that there’s nothing unusual about feeling alone and confused. Entrepreneurs are always alone, and we al do a lot of groping in the dark. In fact, loneliness is the biggest chal enge we al face. Fortunately, there are many places you can go to get unbiased advice, including industry conferences, business seminars, and networking groups, not to mention organizations like SCORE (Service Corps of Retired Executives), the counseling arm of the Smal Business Administration. If you want one-on-one advice from an entrepreneur stil active in business, look around your town and pick out a business you real y admire. Then I’d write or cal the person behind it.

  —Norm

  Both of them had grown used to doing their work the old-fashioned way: prospecting for customers over the phone, setting up appointments, making sales cal s, and so on. Then, in 1997, the Stones got an offer of a free Web site and one month’s free hosting, provided they’d agree to pay $25 a month for the service thereafter. They accepted the offer and posted their product list, along with the name, address, and phone number of the company. Within a few days, they had enough new sales to cover the cost of the site for an entire year.

  The Stones were happy to have the additional business, but they didn’t real y discover the sel ing potential of the Internet until the fol owing year, when Bobby put up a new Web site (in addition to the original one) and began educating himself in the fine points of Web-based marketing. He focused most of his attention on the search engines, looking for techniques to attract customers to his site by getting it listed among the top choices for the products he wanted to sel . Thus, for example, he figured out how to make sure that their company, Data-Link Associates, would come up first or second when somebody searched on Google for, say, “DLT bar code labels.”

  As Bobby and Steven improved their Internet sel ing skil s, the company’s sales took off, increasing 50 percent in 1998 and almost doubling—to $1.4 mil ion—in 1999. In 2000, they increased again, to $1.5 mil ion. Meanwhile, between 95 percent and 98 percent of Data-Link’s new business was coming via the Internet. The only other source of new custome
rs was referral.

  What I found most interesting was the effect that the Internet had on Bobby and Steven as salespeople—what they did, how they did it, and the consequences for their company. I could see at least six critical changes that had occurred as a direct result of their move to sel ing online: 1. More leverage with prospective customers. Instead of going out to find customers, Bobby and Steven would now work on figuring out how to let customers find them. That change had important repercussions. For one thing, it fundamental y altered the relationship between salesperson and sales prospects. As the salesperson, you were no longer the one pestering prospects with phone cal s; instead, you were the person answering their questions. That gave you a significant psychological advantage. You could close a higher percentage of sales as a result.

  2. More time for selling. By 2001, Bobby could hardly remember the last time he had gotten in his car to go on a sales cal . Steven hadn’t done any cold-cal ing in at least a year. I’m a great believer in the benefits of cold-cal ing, but there’s no question that it takes a lot of time.

  You can spend hours locating decision makers, setting up appointments, traveling to meetings, and so on. By cutting out al those activities, Bobby and Steven had more time to fol ow up on leads generated by the Web site—answering queries, closing sales, writing up orders.

  There was also more time to study the sales data and identify trends. Were certain products getting hot? Should the company run a special on something? Did the Web site need to be modified? Did Bobby need to work on search engine placements?

  3. Cheaper, faster, easier access to customers. Data-Link’s new customers were Internet users by definition, and so—it turned out—were most of the old ones. After putting up the Web site, the Stones discovered that a majority of their regulars liked using it, too. As a result, Bobby and Steven could reach almost their entire customer base faster and less expensively than before. They used to have to spend time and money sending out brochures, doing fax mailings, and trying to reach people by phone during office hours. Now customers could check the Web site to see what was in the brochure or to find out about specials. As for direct customer communication, Bobby and Steven could do a lot of it by e-mail—at any hour of the day or night.