Be Successful in Business - Think like Andrew Carnegie

Here is a multiple choice test. What is the inscription on Andrew Carnegie's tombstone?

A. Here lies a man who hired the least expensive CPA, attorney and
business advisers that he could find.
B. Here lies a man who thought he knew everything so he never
asked for help.
C. Here lies a man who knew how to enlist the services of better men than himself.

If you answered "C" you are correct. Mr. Carnegie was smart enough to know that not only are two heads better than one, but that the "second head" should be the smartest one you can find.

So often business owners and managers try to go it alone. They either see asking for help as a sign of weakness or they consider paying for quality help as being a cost they just do not want to incur. The question I always have is, why do business owners and managers think that they never need help? Why do they think they know it all?

Check the website of your favorite NFL football team. You will see listed numerous coaches, coordinators, trainers, scouts, etc. They are all there to help the team win. Professional golfers have swing coaches and sports psychologists. Their job is to help the golfer win.

Do you really know it all? Is your business as profitable as it can possibly be?

To be as successful as you can be in business, you should always surround yourself with the best people you can find. Hire the best employees. Saying that you will not hire someone because they are overqualified is simply nonsense. If you had three hall of fame outfielders on your team, would you not still want a fourth if you could get him?

Associate with other successful business people. Being around other successful people will enable you to hear their ideas and philosophies. They will help you grow as a business person.

Obtain the services of the best attorneys, CPAs and business advisers. The best are worth their fees. They can charge high fees because they are the best. Their advice and consultation will enable you to make much more than they cost you in fees.

If you want to be as successful as Andrew Carnegie you must think like Andrew Carnegie. Enlist the services of the best men and women you can find.

Developing Better Ideas For Your Business

We have all heard that old definition of insanity - "Doing things the same way over and over again and expecting different results." Despite knowing that, many business owners continue to do things the same way, or perhaps with some small adjustments. When that happens and you are not achieving the results you desire, it is time to go to what I call Zero Based Development.

You are most likely familiar with zero based budgeting. Zero based budeting says that you do not start with last year's budget and add or subtract an amount or percentage. With zero based budgeting, you throw out last year's budget and every line starts at zero. You develop your budget from that point.

The same should be true with your procedures, practices and policies. When most business owners do not achieve their desired results with their current procedures, practices or policies, they try to make their current ones bigger, faster, or use them more often. When an advertising program is not working, they assume they need to make the ad bigger or run it more often. When a motivational program is not working, they assume they have to make the reward bigger.

In most cases when you are not getting the results you want, it is time to STOP the current practices and start all over again. Start from ZERO. Develop an all new program. As another old saying goes, "Stop beating a dead horse."

Don't let your pride and ego get in the way. Yes, you thought it was a great idea. Yes, everyone said it would work. However, it didn't work. Sometimes it is best not to even worry about why it didn't work. You may never know. In addition, at this point it is better to spend your time developing a new program that has a better chance of success.

Always set a time objective when you develop any program. Select a reasonable time in which you expect a program to achieve the desired result. It you are not sure, ask an expert. It is better to pay someone a small amount of money than to waste a large amount of time and money waiting for something to materialize that never will.

Remember, to keep away from that definition of insanity, consider Zero Based Development. It may be the answer for you.

What Do I Need to Do to Start A Business?

One of the two questions that is asked of me the most is, "What do I need to do to start a business?" Ninety-nine percent of the time, what the person wants to know is how to register a name, set up an LLC or corporation, etc. What I answer surprises them. My answer is "You need to (1) find out if there is a market for your product or service and then (2) determine how you are going to get that market to choose you instead of your competitors."

One of the frequent mistakes I see is people starting a business without knowing anything about the market. The novice assumes that since she likes the product that she intends to sell, there are enough others who like it as well. Have you ever been to dinner with someone who says, "My meal is wonderful. Here, try some. You'll like it." That person assumes that you will like the entree because she likes the entree. Many people make that assumption when starting a business. Furthermore, she assumes that her hard work will be enough to get people to buy from her instead of her competitors. I wish it was that simple.

I always advise clients that before they do anything to start a business, they need to do market research to determine (1) whether a market exists and (2) whether or not the market is growing, stagnant, or shrinking. I often have people tell me, "Of course there is a market. All of my friends and relatives say they will buy from me." First of all, I know from experience that they will not live up to that and secondly, your business won't survive by just having your friends and relatives as customers. Without a market, there is no business.

Once you have done the research and determined that there is a market, you need a marketing program that will convince that market (or a good percentage of that market) to buy from you. Just because you make it, does not mean they will come. There have been many businesses that made wonderful products, high quality products, low priced products, or made the first product in their industry, but are no longer in business. Just running an ad that says you are the best, biggest, fastest, cheapest, or whatever, is not a marketing program.

If you do not know how to develop a good marketing program, hire an expert. Marketing brings people to your business who are interested in buying your product. If you don't market properly, no one will come to your door. If you invest in a good marketing program, you will receive a good return. The key word is "good." Therefore, let me repeat. If you do not know how to develop a good marketing program, hire an expert.

So before you worry about a name for your business or how to register it, before you decide whether to be an LLC or S-Corporation, before you start shopping for office furniture and computers ......... determine if there is a market for your product and how you are going to get a big enough percentage of that market to buy from YOU.

Use Your Business Skills and Talents Wisely

If you had a choice, would you rather earn 10% on $100 or 10% on $1,000? That's an easy question to answer. What about earning a return on your skills and talents? Do you spend your time wisely when using your business skills and talents or do you try to save money by doing things in your business which you should be paying someone else to do? The principle of earning a return on a larger amount of money is the same as earning a return on your best business skills and talents.

Often I see business people spending their time very foolishly. A business person who is a great sales person will spend hours and hours trying to do the accounting for her business in order to save the cost of paying a bookkeeper instead of hiring a bookkeeper and spending her time selling. A very skilled craftsman who does not enjoy sales will spend his time trying to sell instead of hiring a good salesperson and spending his own time on his craft.

"But, " you say, "even though I am not good at accounting and it takes me an extra long time, I do the books in the evening when my business is closed or at times when I can't call on my prospects." My response is that is the time you should be planning your sales calls. Focus on your strengths. Get the return on your best skills and talents.

I use sales or a skilled craft as an example but the theory applies to all lines of work. DO WHAT YOU DO BEST AND PAY SOMEONE ELSE TO DO THE REST.

Many start-ups say they just don't have the money. Then perhaps they should have waited to start their business until they had the necessary funds. I am sure that you have heard that one of the reasons (if not the main reason) that most new businesses fail is undercapitalization. That means they started too soon - before they had enough money to operate the business until the business becomes self-sustaining.

There is no law that says we have to improve our weaknesses. It is often best to NOT try to improve your business weaknesses but instead to pay someone else to cover that area and for us to improve (get the return) and concentrate on our strengths.

Read my opening question again. Use your business skills and talents wisely and you will have a better chance to grow your business.

Do You Know Why You Are Making Money?

When sales or profit are decreasing, do you start paying attention to the details in your financial statements? Did you ignore the details when sales were increasing and profits were fine? Have you vowed to pay more attention in the future? If you answered “yes” to these questions, you are like many business owners – large and small.

It is typical of many business owners that when business is good, they tend to ignore the details in their financial statements. Am I spending a bit too much on office supplies? Who cares? I have plenty of money in the bank. Is the annual company party more expensive than usual? Who cares? I have plenty of money in the bank. Do I have more employees than I need? Who cares? I have plenty of money in the bank.

Oh No!!!!! Suddenly there is no money in the bank. Cut costs immediately!!!!! Turn off the lights. Lay off some employees. Print on both sides of the paper. Cut costs !!!! Cut costs !!!! Cut costs !!!!! What happened? Why is there no money in the bank?

It's too late. You should have been doing two things when you were making money. First, you should have asked, “Why am I making money?” My brother’s favorite saying is this …….. “If you don’t know why you are making money when you are making money, you won’t know why you are losing money when you are losing money.” How true.

During good times, most business owners never ask “why?” They simply assume they are making all of the right decisions. They think they are doing a good job. Maybe they are. Maybe they are doing a great job of managing their business …… BUT ….. they need to be sure. You need to ask these kinds of questions:

• Am I making money because of lack of competition?
• Am I making money because of a boom in my industry?
• Am I making money because of one super sales person that I have?
• AM I making money because my product is a fad?
• etc. ..... etc. ..... etc.

Secondly, you need to pay attention to the details even in good times. Some businesses, like individuals, tend to overspend instead of save when times are good. Since they believe that their decisions are the reason for making money and they will certainly continue to make the same kinds of decisions, then they will make money forever. Who cares about spending? Have you used a UNIVAC computer lately? Have you flown on TWA airlines recently? Did you drive to work in your Studebaker today? All of these companies (and many more) made money at one time. Today they are out of business.

The message is this …….. know why you are making money and be as careful with your spending when you're making money as when you are losing money. Don’t wait for the next recession to start saving, cutting costs, and paying attention to every line on your financial statements. Start NOW.

What Did You Learn From This Recession?

There are those who say you should never look back, only forward. I disagree. Looking back can be very valuable when you are learning from the past. The question every business owner and manager should be asking is “What have I learned about running my business during this recession?”

A good analysis will enable you to perform better in the future. So how do you analyze the situation? Here are a few questions that will help you.

Did I anticipate a recession and when it could start? You may wonder how you can anticipate a recession. Once again, look back. A quick review of previous recessions will show that our economy goes through cycles. When we are in a growth cycle, consumers and businesses tend to think that the growth will last forever. They tend to over-borrow, over-spend, etc. This causes some kind of artificial boom, such as the dot-com boom or the housing boom. When everyone realizes that the boom item (such as housing prices and the mortgage supply) is inflated, then spending, borrowing and everything else stops and into a recession we go. If you look at the years that past recessions started, you can get a good idea of the length of each growth/boom period. You may not know exactly when that is going to occur, but you will have a general feel for the potential start and be better prepared.

Did I respond quickly to the recession? Did you continue on your merry way even though you knew the economy was slowing down? Did you find yourself reacting when it was too late? I can’t predict the future but I can guarantee you this will not be the last recession our economy will experience. Therefore, you should have a “recession plan.” Based on what worked and what did not work for you during this recession, develop a plan so you will be ready for the next one.

Did I only make short-term decisions? Sometimes during a recession, we make decisions to cut costs that save us money now, but hurt us for the future. Did you lay-off your best employees? Did you cut your marketing too much? Did you cut ties with valuable suppliers who may not give you favorable terms in the future? Take a hard, realistic look at the decisions you made and determine what you should have done differently. Make that part of your recession plan for the future.

I think we all agree that we should learn from our mistakes. The difficulty that some people have is admitting that we have made mistakes.

Be honest with yourself. Analyze the past carefully and thoroughly. Develop a plan and be ready. Another recession will come.

How to Set Prices

Business owners and managers make a lot of difficult decisions. Setting prices falls into that category. Fortunately, there are only two factors that need to be considered when setting your price - (1) margin, and (2) what the market will bear.

Margin (or margin contribution) is what is commonly called "gross profit." Gross profit is the difference between selling price and the cost of goods sold. It is the "contribution" that you have to cover overhead and (hopefully) have enough left for profits. Here is an example. If you sell an item for $10.00 and it costs $3.00 of material and $2.00 of labor to produce, your cost of goods sold is $5.00 and your gross profit is $5.00. For each item that you sell, you have $5.00 to put toward paying your overhead and for profits.

Your overhead (rent, insurance, utilities, etc.) stays basically the same each month. Assuming your cost of goods sold per item stays the same each month (your supplier does not increase the price of the material and you do not give any wage increases), your gross profit goes up or down based on the volume. Thus, the first area to examine is how many items you need to sell at a $5.00 margin or gross profit to cover your overhead. If your overhead is $5,000 per month, you would need to sell 1,000 items to break-even.

That's arithmetic. It is the easy part since your costs are a known (or easy to forecast) factor. The difficult part is determining what the market will bear for a price. Are there 1,000 customers every month who are willing to pay $10.00 for your item? ......or are there 2,000 customers willing to pay $7.50 every month? ...... or 5,000 customers willing to pay $6.00? How many customers are willing to pay MORE THAN $5.00 (your cost of goods sold per item) for your item? That is the difficult question.

If you are selling a product or service that is currently being sold by other companies, you know what their customers are paying. That may make setting the price easier, but your challenge becomes getting those customers to become your customers.

If you are selling a new product or service, setting the price becomes more difficult. You need to do some research. You may need to take some surveys. You may want to compare the features and benefits of your product with the closest existing substitute and then adjust accordingly.

When you finally arrive at a starting price, it is wise to start a bit higher rather than lower. It is easier to reduce a price to generate more sales than to increase it to create more margin. If your price is too high, customers are faster to respond to a reduced price. If it is too low, you may lose too many customers when you increase the price.

Unfortunately, there is no exact formula for setting a new price. Some trial and error is involved. Just remember, it is better to err on the high side.

Those are my thoughts on setting prices. I welcome your commetns.