Thick Skin and Open Mind

It takes a thick skin to be in business. We don’t get better by ignoring the bad news, we get better by fixing the bad news. The problem is, we are hardwired to get defensive when someone points out flaws. In today’s culture, the attitude of you are either with us 100% or you are against us 100% promotes knee jerk reactions that leads to hiding issues that would normally wither under the light of day.

The balancing act of seeking out solutions to problems while remaining positive is difficult. I have never had a problem finding someone willing to complain and find fault. And it is usually not difficult to find someone who doesn’t believe there is a problem either. Finding a balanced solution can be difficult.

In my career, I am often in the position of pointing out problems to business owners. Things like your target demographic is not big enough to support a business. Your financial controls are inadequate to grow your business. Your sales force is cutting your margins to unprofitable levels. There are hundreds of other examples, but what really stands out is how a person responds to the problems. Someone who gets defensive, denies the problem and attacks the messenger is not going to perform as well as someone whose response to negative feedback is to ask questions and seek understanding.

So what does it take?

First of all, a curious and questioning mind. One that is open to the possibility of being wrong. One that is looking for a better way. Embrace the scientific method of testing hypothesis and coming to well thought out conclusions. A mind that is more interested in progress than always being right.

Second, there must be trust. Trust that the person bringing the problem to light will not be punished, but heard. Trust that a problem is not a personal attack, but a means of improving the current situation. Trust that a solution developed by all stakeholders will be make life better.

It takes a thick skin and an open mind to admit there is a problem and create a solution. Develop those skills and you will go far.

Making Lasting Changes

It is often relatively easy to identify broad areas that you need to change – lose weight, exercise more, spend less, save more.  The real trick is to implement those changes, and not just for a week or two.

A good friend of mine who has been sober for 8 years often tells me – People are only motivated by two things – avoiding pain and finding pleasure.  Understanding this helps him find ways to stay sober and help others do the same.  I have a variation that I have used in training for years – “People will only change when the pain of staying the same exceeds that of changing.”

I often struggle with getting clients to make lasting changes.  For instance, one week after telling a client that they needed to go on a fiscal diet and stop spending money that was not generating income, I got the “I know you are going to yell at me, but, I just spent $2500 on my daughter” phone call.

The question is how do you make lasting changes?

#1  Accept that the responsibility rests solely with you.

Your business is not failing because of the economy, you made a series of mistakes that did not account for changes in the economy.  No one is making you take another bite of ice cream.  Salespeople can talk and even be ruthless, but at the end of the day, it is you that takes your credit card out of your wallet and gives them the number.  So until you are ready objectively listen to yourself and look at what needs changed with a clear head, NOTHING will change.  Listen to others for advice, because let’s face it, we are not special, hundreds of others have made the same mistakes we are just about to make.  Having said that, it is very important to understand why you make the decisions you do, what influences are at play and your biases.  But at the end of the day, the responsibility rests with you.  Make up your mind, set a path, and start walking.  Set some realistic goals and lay out a plan to achieve them.

#2 Change your processes

Automate the change whenever you can.  Set up a separate bank account and move 10% of your income into it every time you make a deposit.  Make it more difficult to spend money – leave your debit card at home.  Carry a set amount of cash so you cannot spend more than what you have.  Cut up credit cards.  Put cash into envelopes to cover a budget category.  Become a bad cook so you eat less.  All are tricks to change your habits.

#3 Change your focus

This is the most powerful Jedi mind trick in your arsenal.  Shift your focus to a pain point to avoid a habit or a pleasure point to create a new habit.

If you are on a diet, it is easy to be tempted by your favorite food – a big Mac, cake, bagels with cream cheese – there is always a temptation.  But if you shift your focus from “its only a few hundred calories” to “that is 70 minutes on the treadmill at 5 miles per hour”  you can reframe the narrative happening in your brain.  Same thing goes for changing financial habits.  Change the focus from the instant gratification of buying an expensive meal to the long term goal of retiring at 55 and you can make lasting changes.

Even subtle changes in focus can be extraordinary.  Years ago, a child I know was diagnosed with leukemia.  He is doing wonderful now, thanks to a bone marrow transplant from his brother.  At the time, the brother did not want to be the bone marrow donor, making it a very tough sell to a head strong 8 year old.  In his words, “I hate my brother”.  It took a while and a very talented therapist who uncovered that underlying issue was he did not want to be responsible if the bone marrow transplant failed.  In his mind, if the transplant didn’t work, it would be his fault, a very heavy burden for any child.  The therapist managed to shift his focus from hating his brother to hating cancer, and the best way to beat cancer was with him being the bone marrow donor.  By defining cancer as an entity separate from his brother, the therapist shifted the rage target 6 inches, just enough to turn the tide.  It worked beautifully and is a lesson that I will never forget.

Here is the bottom line:  making changes to your habits IS difficult.  Pay attention to the narrative in your head so you can shift the focus by adding a pain point to discourage a behavior or add a reward for reinforcing a behavior.  But stick to it.  It is worth it.

Focus. On the Important Stuff.

I grew up on a commercial dairy farm and we had to grow hay to feed 300 cows. As you can guess, that’s a lot of hay. One of the things that was common knowledge was if you harvested hay at the beginning of July, it had grown as much as it would and started to dry down, making it easier to harvest and giving you the most tons of hay per acre. With this time frame, you could then harvest again in September and maximize the tons of hay per acre for the year.

Then came the new ideas. Harvest the hay as soon as it starts to bloom, and then every 30-40 days afterwards depending on the weather. In Northeast Ohio, you could usually get 4 cuttings per year this way. The total tons per acre was about the same as 2 cuttings, and often less. And you did double the work.

So why in the world would anyone consider doubling their work? Because we discovered that tons of hay per acre was not the important thing. It was the protein content of the hay that made cows give more milk. By cutting the hay as it was just starting to bloom, the protein levels were peaking at 18-20%. The plants were storing up energy for blooming and reproduction, protein levels were at their highest. If you wait until the plant hits full growth, the protein has been used up and is only 3-5% of the total weight. This hay is bulky filler with little nutritional value outside of fiber. From the standpoint of producing hay to feed to dairy cows, the important thing to maximize is not tons of hay per acre, it is tons of protein per acre.

All of this is a very nice lesson in agronomy and feeding cows, but most of you don’t milk cows for a living. What lesson is there for you? As entrepreneurs, we do many things, but what we all have in common is we spend time producing or selling a product. And most of us measure our efforts in hours per day or week. We take pride in knowing that we can outwork just about anyone else. We know what it takes to make our business go, and we’re not afraid of the hard work to get there. But what if we are measuring the wrong thing? The tons of hay per acre, not the protein per acre. Would it be better to measure productivity in a way that did not involve hours per day? Something that relates to the value of what you produce? And even more shocking, what if working fewer hours actually produced more value to your business?

I can tell you with absolute certainty that time is even more important for you to budget than money. And on top of that, not every hour is equal in terms of productivity. But as long as we measure productivity as working hours per week, we will never find out what is truly important.

 

The curse of being of too busy

Small business owners are notoriously busy.  I grew up on a commercial farm with 800 acres of crops and 300 cows to milk and I have managed multiple businesses at the same time.  I know busy.  I know long hours.  I know what it takes to make things run.

All of my clients are busy – from the online sales-based businesses to the farms and machine shops.  Not to mention the inevitable curve balls that crunch your schedule even more, tiny windows of opportunity that force 24 hour days, tax season for CPAs,  the death of a key employee.

The response of just about every business owner to a curve ball is put their head down, pull harder, and work longer.  These are managers who are already too busy to read, too busy to hire new person, too busy to keep up with the never-ending stream of deadlines.  But that’s the coveted work ethic that is hard wired into entrepreneurs.  We make things happen.  Somehow, we find a way to push through and get it done.

When I meet with a client I will often say “Perhaps you are spending too much time working in your business and not enough time working on making the business stand by itself.  What if there is an easier way that you don’t notice because you have your head down and are so focused on the work?”

Here are three changes I made to break the “too busy” cycle and transition to balance in my life.

#1 – I walked away from low margin customers.  After telling a brand new BIG customer three times that I could not meet with them when they wanted because a low margin customer already had something scheduled, I stopped and said you know what, I will make it work to fit your needs.  That move made me more in 2 weeks with the new customer than I did in 2 months with the low margin customer.

#2 – I set aside time to work on MY business and MYSELF.  Not my clients, but me.  Time thinking about what I want the business to give me in return for my time.  Time spent in deliberate learning and expansion of my knowledge base.  I set goals, develop new products, and plan how to reach those goals.

#3 – Focus.  I keep my values, mission, goals, and task list aligned and focused.  I know that 80% of the output of my business is controlled by 20% of the input.  I find that 20% and leverage that knowledge by sharing it with everyone in my business.  I say no to things that are outside of the mission.

You have heard about my journey.  What is yours?

 

 

Why do we have managers who can’t manage finance?

The failure rate of startups has always dismayed me. In my consulting, I see two main reasons for business failure. First, people don’t have a firm grasp of their financials. They just don’t know their numbers. Second, people underestimate the toll on their physical and mental health. Depression, divorce, heart attacks and strokes from stress are all too common and dismantle many companies that have everything else going for them.

Let’s look at the first reason for failure – Managers who can’t manage finances. The bulk of our entrepreneur class consists of people who start a business out of passion – I love to bake, to farm, to fix computers – but they don’t have any business background. How do they get their start? They are disgruntled employees who are so fed up with the way their boss does things that they quit and start their own business, with the barest of plans.

If you think about it, the entire restaurant industry has managers who do nothing but sooth irate customers and make sure people show up for work. Manufacturing is no different. From line managers to shift managers, financials are hidden from people. The focus is make your production numbers, or we will find someone who can. Anyone who has had a sales job knows it is all about hitting the sales quota. Just sell more, more, more. Rarely does anyone get to see the whole financial picture.

Is it any wonder todays entrepreneurs are missing critical skill sets? Budgeting. Reading financials. Financial controls. Cash flow. Profit and loss. Balance Sheet. Net Worth. Top that off with the misconception that having a CPA do their taxes once a year is more than enough and you have a small business at a disadvantage.

Here is a news flash. If you can’t put your hands on rock solid financial numbers to back up a decision and plan for the future, you are not managing. You are working hard and hoping for the best. Maybe it’s time to start working smarter, not harder. Focus on your financials.

Focus, but on the right thing.

Last week I met with a sales professional who was pretty darn good. At sales. She told me “last year I made 88 thousand. But in November, things got slow, and now in February, I have nothing left. I have been eating off of credit cards, and I don’t know where all that money went. I have over $12,000 in credit card debt.”

It’s not an uncommon scenario among people who make a living off of sales commissions. Real estate agents, car sales people, insurance agents – all of them are able to “sell” their way out of a financial hole. So how did she get in this financial hole? For starters, she was focused on one goal. Sell as much as possible. Generate lots of income. Period. Strong sales compensates for weak financial management skills, and when the sales dry up for whatever reason, the crash is hard and fast.

The solution?

First step: Change your focus. From sales, to net worth. Choosing the right metric makes all the difference in the world. Set realistic financial, sales, and personal goals.

Second step: Find out where you spent all the money. Download your check book register to QuickBooks, Excel, or any other program that lets you sift through the data easily and find out where you spent your money.

Third step: Create a budget. Replenish your cash reserves, plan not only your income and expense, but also your assets and liabilities. Make the budget robust enough to handle the variability in your income stream while adding to your net worth.

Fourth step: Develop processes that support your goals. Formalize your sales process to fill your sales funnel from prospects to sales. By keeping your sales funnel filled at the top and following your process, sales droughts are leveled out and financial stresses are reduced. Follow the sales processes religiously! Develop financial processes that alert you well before any financial issue becomes a business threatening disaster. Build in automation to make sales and finance functions efficient.

Fifth step: Breath. Control your thoughts and don’t panic. Decisions made in the heat of the moment are rarely good decisions. Gather data, develop a solid plan, and implement.

That’s the path out.

 

Do you know what you don’t know?

I met with a plant manager a while ago about training his line managers to become proficient at Excel. You know, that fun number crunching spreadsheet program that people love to hate? So we sat down and I started asking questions. What skills do your line managers currently have? How many people? What do you want them to know how to do? So after about 10 minutes, I have a pretty decent idea of the skill level they were at, and where he wanted them to be.

I asked if he was going to be in the classes, and he quickly said, no, I know more about Excel than all of the line managers. I responded no problem, just checking.

Then I asked him to pull up a spreadsheet that he wanted the line mangers to be able to use so I could tailor the training to something they would use every day. He loved the ideas, and quickly pulled up a spreadsheet the mangers would need to use daily and a calculator, punched some numbers on the calculator and said “We take the daily production numbers, divide by hours of operations and plug the hourly rate in this cell right here”.

I stopped.

I stared.

I shut my mouth and tried very hard to be diplomatic. Because this self-proclaimed Excel expert that didn’t need training had missed an easy one. For those of you who don’t know anything about Excel, it is basically a giant glorified calculator with a monster memory. If you have Excel open, you don’t need a calculator, it is the calculator. On top of that, every time you reenter data, you double the chance for data entry error. I responded, “Is there a reason you don’t use Excel for the calculations?” He looked at me blankly and said “What do you mean?” So I showed him how to enter a formula in Excel to do the calculations automatically. He looked at me sheepishly, and said thank you. That was it. Never mentioned it again, never showed up for class.

Here is my question to you: Do you know what you don’t know? Because that’s what can hurt your business.

And if you don’t know what you don’t know, that’s ok. Call us. We can help fill in the gaps.

Mental Monday

I truly admire Jenny Lawson.  Her post this morning really struck a cord with me:  http://thebloggess.com/2018/01/31/escape/

We are all stronger than we think we are.  Jenny fights a thousand demons each day, and yet manages to write books, blog posts, and keep on moving.  Entrepreneurs must do the same thing.  Some days you win, some days you lose.  But each morning, you get up and get back in the game.  We are stronger than we think we are.

But be careful.  Strong as we are, the mental illness rates for entrepreneurs is significantly higher than the general population.  Alcoholism, drug abuse, divorce, depression, anxiety, anger issues, suicide, you name it, we have got it in spades.  There are some games you DON’T want to win.  We tend to push ourselves harder, take on more stressors, and not take care of ourselves.  Pay attention to your mental health, because without it, you risk losing much more than your business.

Cycles…

I see patterns of failure in businesses. Over the life cycle of a business, the first reason for failure is lack of sales. The sales may not be there for a multitude of reasons, but at the end of the day, the sales are not there.   Business crashes.

Succeed in building sales to a sustainable level and the next hurdle will be finances. Perhaps it is trying to cash flow rapid growth, or maybe you are not monitoring your cost of production properly, but there will be a financial issue that comes close to killing your business. Solve it, and you advance to the next level of problems.

Make it this far and you will face a wellness issue brought on by the stress of running a business. It may be a heart attack, depression, divorce, substance abuse, or a multitude of other issues, but it will come. Be prepared, build a support network and have plans to take care of your mind and body as you run this marathon of building a business.

The next issue you face will be how to effectively managing the people you need for continuing growth. People skills are often overestimated and always in short supply.

Master the issues of managing people and guess what? You have to start all over again, because running a business with lots of people requires more sales, which changes your finances, adds to your stress levels and means you need to hire even more people. An ever growing circle of complexity for you to figure out.

The good news is, others have figured it out before, and have laid out paths for you. It is your job to apply these concepts to your business. Turns out, building a business is half art, half science.

Good luck!

Feedback Loops

 

An interesting read about “overnight successes”:

https://medium.com/personal-growth/how-ernest-hemingway-became-an-overnight-success-3277b482c39c

I found “Section 3: Realize that Feedback is the Only Shortcut” to be particularly thought-provoking. I often think of production metrics and financials as the feedback loop you set up to monitor your business. So the better job you do on setting up the metrics, the better feedback you get, the better your performance.

Hope you enjoy the read and let me know your thoughts in the comments!