What, you want my five favorite small business tips for business owners? That’s flattering, thanks for asking. I had to think about it, because, like all business owners, I get so busy with the details that I forget to take a step away and think about the larger picture. Looking back on decades of it, I survived, and supported my family, through more than a decade of self employment; and then two decades of building this business, Palo Alto Software, (sponsor of this blog and the entire bplans.com site that it’s on), from zero to where it is now, without outside investment. So yes, I do have a few tips to offer.
1. Profits are not Equal to Cash
This is vital. Cash flow is not intuitive. Profits are accounting, depending on rigorous rules and fuzzy decisions, basically an opportunity for creativity and fiction. Cash is rock hard reality, what’s in the bank. I saw a study showing more than a third of the companies that went under were profitable as they died. You can be profitable without having cash in the bank. Sales on credit to business customers are sales for the Profit and Loss Statement, whether theyve been paid or not. Profits don’t care if they hang around forever in Accounts Receivable, not in your bank balance. But cash flow does. Repaying debts doesn’t count against profits, but eats up cash. Buying assets doesn’t count against profits, but eats up cash. Money spent on inventory doesn’t count against profits, but eats up cash. For more on this: you think in profits, but you live on cash.
2. Don’t Mistake Business for Life
Your business is supposed to make your life better, not your life make your business better. This is vital, but so easy to forget. Do not give up what’s important in life because you are building a business. Don’t spoil your relationships. Don’t miss the soccer games. It seems obvious, but most of us have fallen into obsession at one time or another, waving the hand, taking the attitude of “Don’t you see that I’m running a business? I don’t have time for that.” That can become habit forming. And your people start to assume it, and leave you out. For more on that, don’t mistake business for life, a previous post on this blog.
Take care of your health. And mind your priorities. Make it a mantra: business for life, not life for business.
3. Never Compromise on Ethics and Integrity
This isn’t just some touchy-feely cliché; it’s solid business advice. Every day our technology makes what we do more transparent. Every time we cut a corner, rationalize operating on anything but the high road, we risk having that come out and spoil our brand, our reputation, and our business. Pushing that sale you suspect your client doesn’t really need creates the risk of an unhappy client going public on you, maybe even viral. No business is so small that it can’t be embarrassed by something like the Youtube video of United Airlines breaking the passenger’s guitar. Angry and unhappy customers have instant amplified word of mouth, and I’ve seen research that shows that angry customers are way more likely to go public with complaints than happy customers with testimonials. Don’t risk it.
Along the same lines, don’t make enemies. For example, with contracts, maybe you can get away with screwing the business ally by misreading the contract, or negotiating cleverly to allow you a loophole; but that kid of business doesn’t work well on the long term. There’s a stock market adage: “sometimes the bulls win, sometimes the bears win, but, on the long term, the pigs don’t win.”
4. It’s Planning, not just Plan
The most undervalued tool in management is planning process done right. Just like steering is constant course corrections, so too is managing a business right. Let the plan set the course from long-term goals (the horizon) to specific steps along the way (milestones, metrics, responsibilities, etc.) and the essential numbers you need to keep cash flow.
It’s such a shame that people think of a business plan as a big daunting document that you use once and throw away. For business owners who don’t need the old-fashioned formal plan, lean business planning is a like having a destination, route, and real-time information with GPS to run your business right. It builds accountability. Instead of being voided by change, it manages change. For more on that, lean business planning as dashboard and GPS, a previous post on this blog.
5. Compete on Quality, Not Price
We are way too influenced by that first lesson in economics that suggests the lowest price gets the highest volume. That was always true only qualified for commodity products with no differentiation. Adam Smith wrote about lumps of coal. But in the real world, where real businesses compete, the lowest price strategy works only for very large, very well capitalized businesses. McDonald’s, Burger King, Costco and Sam’s Club can manage low price strategies; but they are a select few.
For most of us, it’s way better to aim for high quality and relatively high price. Price is your most powerful marketing message. Be better. Be exclusive. Charge more and make your customers glad they paid more. For small businesses, that’s much more likely to work than trying to be the lowest price offering.
(Postscript: My thanks to Eventbrite for suggesting small business tips as a topic for a blog post.)