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Do You Have the Knack?

I recently finished reading “The Knack: How Street-Smart Entrepreneurs Learn to Handle Whatever Comes Up” by Norm Brodsky and Bo Burlingham. It struck a note because, as I write this, the world economy is on the cusp of an agonizing global depression. Of course, that depends on whose definition of “depression” you cite. But if you are a major shareholder in the financial industry, you may think October 2008 is a repeat of October 1929.

Lehman Brothers, a 158-year-old company, recently folded almost overnight, and several other institutions would have followed suit without a massive cash infusion from the Federal government. Richard Fuld Jr., CEO of Lehman Brothers, earned an estimated $47 million in 2007 while his company slid into bankruptcy. Fuld and other CEOs only see the “street” as they enter their limousines. They have been insulated from the real world.

Norm Brodsky, on the other hand, has started eight businesses over the last 30 years, one of which went bankrupt. The bankrupt business is where he learned the most valuable lessons. He believes in the popular refrain “a smart person learns from his mistakes. A wise person learns from other people’s mistakes.” “The Knack” can supply that wisdom. Brodsky’s co-author is Inc. magazine editor-at-large Bo Burlingham. Together, they created a slide show on Inc.com titled “10 Things Every Entrepreneur Needs to Know,” something of a CliffsNotes version of “The Knack.”

To summarize:
  1. Numbers run a business. If you don’t know them you are flying blind. Chuck Violand is a big fan of Brodsky and you can see why. Chuck loves the numbers and instills that same passion into his students. Be the business large or small, the owner or CEO must know the numbers. This can’t be left to the accountant.
  2. A sale isn’t a sale until you collect. The small-business owner has to be on top of accounts receivable. Most of the bank failures resulted from the failure of consumers to pay their mortgages. Most small businesses fail because of poor cash flow.
  3. When your short-term liabilities exceed your short-term assets, you are bankrupt. Nos. 2 and 3 are a rehashing of the same idea. You are not a bank you are a carpet cleaning company and your technicians want to get paid Friday regardless of whether or not the customer has paid.
  4. Forget about shortcuts. Run a business as if it is forever. There are no shortcuts. Building a business is a slow and sometimes painful process. Build slow but steady. Most businesses fail during periods of rapid growth. Even the mighty Starbucks is struggling (although I am doing my part to keep them solvent).
  5. Cash is hard to get and easy to spend. Make it before you spend it. In the beginning you can easily work out of your house, you don’t need a fancy office. Hiring the first technician can’t be done until you have sufficient work, no matter how tired you are of running the wand.
  6. You have no friends in business only associates. Nick Paolella is fond of saying “don’t do business with your friends but make friends of the people you do business with.” Unfortunately friends expect special treatment and they should be treated the same as other customers. This is even worse when friends become employees.
  7. Don’t focus on the top line. Gross margin is the most important on your income statement. Sales are critically important but they don’t guarantee profit. Brodsky says gross margin is the most important number for a new business. Before you offer 20% of your service figure out what that means to your bottom line. It will scare you.
  8. Identify your true competitors and treat them with respect. You know the good competitors in your town and also the “bozo cleaners.” Stanley Steemer creates a lot of business through their consistent marketing. Other quality independents may be needed for assistance especially during restoration periods. Develop those relationships before you need them.
  9. Culture drives a company. In the long run the bosses’ most important job is to define and enforce it. A company is a refection of the people on top. You establish the values and you must enforce those values. Whether it is through a mission statement or leadership through example, you must walk the walk.
  10. The life plan has to come before the business plan. Hopefully when you started your business you had a goal in mind. Steven Covey says begin with the end in mind. Steve Toburen created the Strategies for Success program so that you had a step-by-step guide to reach that goal. Keep in mind that your business plan has to be continuously tweaked in order to reach your ultimate goal. This was best repeated by Lewis Carroll in “Alice in Wonderland”:

“Cheshire Puss,” Alice began, “would you please tell me which way I ought to go from here?”

“That depends on where you want to get to.” said the cat.

There are so few books written for small business. “The Knack” is even more rare because it is written as a how-to and also as a how-not-to. Brodsky is not a tenured professor but a get-down-in-the-gutter-and-fight-it-out type. He loses a few but wins most of the fights. Read this book and you will win a lot more than you lose.

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