The Business Brickyard

I am re-posting the below chapter from my book.  I get that everyone is worried about being able to borrow from a bank.  But if the survivial of your business counts on relying on the bahavior or stability of a bank then it is time to make a fundamental change.  I have been there and will never go back again.  Attacking how clients paid me was a big step in getting there. I plan to go deeper into this topic this month as this is one of those basics that does not get the attention it deserves.

Everyone loves to talk about cash flow and your CFO will work hard to cast a positive light on the bottom line on your profit and loss statement. But before complex analyses of cash flow, amortization, counting your unpaid client invoices as an asset and ignoring the ones you have not paid yet comes a more fundamental philosophy that sets everything else in the right direction. Pay fast. Get paid faster.

Step 1: Pay fast

Everybody loves to pat themselves on the back about how long they can string out paying bills/invoices but if that is how to need to operate your business then you already have some cracks in the foundation.

Some truths:

a) You want to be valued by the businesses that consider you their client.

b) No matter how good a relationship you may think you have with them nothing will break it faster than you being a lousy payer.

c) Every day you don’t pay that bill you add stress to their life and their business.

d) When you pay fast you become considerably more valuable to them as a client. Many good things come from that position

Step 2: Get paid even faster

To make step 1 really work for your business you need to get paid even faster than you get paid. I have grown into a bit of a fanatic on this topic with good reason. Nothing cramped my old freight business more than how long it took us to get paid by our clients. It caused us to consistently increase our borrowing from our banks and grabbed focus from and added pressure to every other aspect of our business. Here is the rule, please repeat it with me and to your customers/clients:

“We are not a bank”

Allow me to give an example with a little story…I once had lunch with a gentlemen who, at the time, was the CEO of one of the largest freight companies in the world. He had grown it to this position in roughly 5 years from a business that was similar in size to my own. Here is how he told me he set the foundation for his amazing growth.. He took a look at his list of money he was waiting to receive from his clients and how long it was taking to get paid. He set out, himself, to visit each and every customer and tell them “We are not a bank. If you want to continue to be our customer then you need to stop treating us like one. You certainly do not want to start paying us like one.” And he was willing to lose a client if they didn’t value the relationship enough to pay promptly.

The result in this fundamental shift was a huge surge in cash in the bank
that gave him the power and leverage to spend money on expansion,
marketing, innovation and acquiring other companies that were strapped
for cash.

Reset the foundation:

a) Make it clear right at the start that you will run through walls for your clients but they must pay you timely.

b) Send your bills out to clients right away (I am amazed at how many vendors I have to ask to send me an invoice)

c) Be relentless about collecting the money that is due to you when it is due. The more you bend on this one the farther down into the hole you will slide. “They are an important customer so it is OK” will not cut it. Want to appreciate your clients more? Work with clients that keep their word and do not take advantage of you.

Pay fast. Get paid faster. “We are not a bank”

Add those principles to your business plan, projections, VC Presentations and key goals for the year. Most importantly, drive it into the core of your business. The results will be found in YOUR bank.

UPS has over 94,000 delivery vehicles, 282 airplanes (the 8th largest fleet in the world) and over 425,000 employees across the globe. Over the years they have developed one of the most sophisticated hand held devices ever devised. By the end of 2008 they will have over 70,000 of them deployed worldwide. They call it the Delivery Information Acquisition Device, DIAD for short. The latest iteration has 3 different radio types and is the instant entry point for a tracking system that averages over 10 million tracking requests a day.

So how do you put a device that sophisticated in the hands of so many people without bringing the company to a crawl or opening a small university to train everyone? Make the interface dead simple.

Every time I see those DIAD devices in the hands of my UPS delivery person it reminds me of an experience I had with a UPS driver almost 8 years ago. As I watched him click clack away at the large array of buttons on this intimidating notebook sized device with such extraordinary speed and precision I had to ask him “How hard is that thing to use?” What he showed me has stuck with me ever since. On the small monochromatic screen, just above 2 sets of blue up/down arrows were the words “Hit the blue up.” — “It’s great” he said “totally dumbed down.”

Now, he did not say “dumbed down” in a negative way. He was clearly proud about his speed and proficiency on this complex piece of electronics that anyone would be overwhelmed by at first (or tenth) glance. The story has stuck in my mind because that phrase, “dumbed down,” continues to come up so often over the years.

When I tell this story to clients or prospects the response I often hear is:
“No, no… I don’t want to dumb it down. Our customers are smarter, more savvy, more…”

It got me thinking, when we get worried about dumbing something down, whose intelligence are we worried about insulting? Do you think the UPS drivers think they have dumbed things down for him or her? Or does the extreme simplification make the cumbersome manageable? When someone visits your web site and there is language that makes each move incredibly clear do you think the visitor feels insulted?

I will be the first to admit, it is a difficult battle. We all want to push the envelope of innovation and, enjoying/exploring a beautifully designed website is great fun (and a great experience) for many of us. In fact, it should not have to be one or the other. The challenge we all face is to make something so incredibly powerful and complex, like the UPS DIAD, yet make it so extraordinarily accessible that it takes seconds for the user to put that power to use.

Whether it is a multi billion dollar global communication system or making it extraordinarily clear where someone can find something in your catalog, website or store you are not insulting their intelligence, you simply give them ones less thing they have to work through.

Not dumbing it down would have caused the tightest ship in the shipping business to sink just when they were trying to make a huge innovation leap. How many businesses do not embrace new technology because they fear that doing so would bring the company to a grinding halt? If the new way is more painful than the old way then the old way will always be too easy to fall back on.

How much did UPS save in training/support/complaint/re-training costs by dumbing it down? Hundreds of millions at least. How much did making the interface dead simple change the kind of real time information it wanted back from the devices? None.

Whatever it is you are offering, selling or trying to convey, no matter how complex it may be, how do you explain it as easily as Hit the blue up?

Fred Wilson's brilliant post this morning calls for the candidates to focus on a turnaround vs a bailout or "change."

"Leaving Iraq and getting rid of the Bush tax cuts are not the only things we need to do to fix the financial mess we are in but they are the obvious first two things we need to do. When you are doing a turnaround, you need some early wins and those are low hanging fruit that must be grabbed quickly..... That’s what turnarounds are all about. You must make the tough calls."

I have struggled through a few turnarounds in my career and helped a few others through them as well. I can tell you that you do not get through them by saying or doing what is popular.  Leaders have to navigate a ship through a hurricane and that requires tough choices that do not feel safe and require pain and persistence.

Most importantly, as we are learning about reacting to the financial crisis so late in the game, is that turnarounds work out best when you make the hard decisions early.  Sometimes taxes have to go up so they can come down.  As I mention in my book, you need to spend at least 1 dollar less than you earn. Getting a business (or government) back to that truth is hard work.  That is why it is a truism that it is lonely at the top. But if you want to be at the top, this is as much a part of the job as the glory.

The lessons I have learned (the hard way) is best summed up by this famous quote from Henry Kissinger:

"What will come out eventually must come out immediately. The implication being, it's the striptease that kills you." 

Jason Calacanis sent out his latest email blast this weekend (That has replaced his blogging) and has turned his attention to how startups can/should react to the present and future economic pressures.  Many interesting points to consider (Although not necessarily agree with). You can read a reprint here.

I like this idea in particular:

"8. Hold an optional off-site breakfast meeting on a Sunday and see who shows up: If folks don't show up for you to grow/save the company on a Sunday for a two hour breakfast, they probably aren't going to step up when the sh#$%t really hits the fan. You need to know who the real killers on your team are and you need to get close with them now.
Again, it's fine to have 9-5ers on your team--if you're the Post Office. You can't have them at a startup company. Note: if you reading this and saying I'm anti-family, save it. Folks don't have to work at startups and some of the hardest working folks I've met have families and figure out how to balance things."

My 2 cents: When your business is going through times of stress, one tends to circle the wagons and keep the pain to themselves under the belief that if you shared it with all it would create a stampede out the door.  What you should consider is the power that comes from a group attacking the problem, the reality that you are not in it all alone and the energy that will come from knowing who truly cares about the company (and you).

And, of course, strip the business down to its PURE basics. Execute x 10!

American Express has launched a terrific campaign called Member's Project. What they call project is what I call purpose. A fundamental goal that states how you will make a difference in the world. And purpose is the rocket fuel for passion.

The idea that drives you to do more and be more. The TV ad (video below) highlights the purpose of some of AMEX's famous celebrities and then invites the user to a web site where they can state their project for others to vote up to a top 5. The top 5 projects are funded with 2.5 million dollars.

Their overall recipe for a solid brand building campaign.

1) Ads that actually captures your attention and makes you look into yourself.
2) An action for the viewer to take that is actually worth the effort of powering up the PC and checking it out.
3) Connecting the realization of your life's dreams and goals to having an American Express card without ramming it in your face.

It, not surprisingly, covers the 3 things every business should do: Make money, have fun and do good.

So my challenge to you is this: How do you articulate your purpose so it inspires your customers to join you on the journey? How easy do you make it for them to take that all important first step?

United Airlines launched a campaign of TV commercials during the Olympics that were absolutely stunning. But what caught my attention more than the visuals is that familiar, and almost forgotten, United Airlines signature theme song. That theme song immediately took me back...

Only 10 years ago I was a very loyal United fan. I told everyone how much I enjoyed flying them, my frequent flier points often bumped me to business class and I generally felt that I was part of a club when flying United vs anyone else. Most importantly, I would not fly with anyone else regardless of price (as long as United was flying there). By treating me as a valued guest they created a raving fan.

Oh how times have changed. I now avoid flying United at all costs. My latest attempt to try to use up old miles bought me a first class seat to LA that had me enter the gate across a dirty red mat (Calling it a carpet would be insulting to red carpets), sitting in a seat that was falling apart, a choice of food that was not actually available on the plane and a portable DVD player that had me tangled up in wires across both sides of my seat. Not the experience First Class SHOULD be.

Growing up I used to always get dressed up when I would fly. If people stopped to think about what it took to "jump" from New York to Los Angeles perhaps they would realize the remarkable treat it is. What if the airlines did a better job helping you understand that story? What if they could bring back the glamor of air travel?

Now more than ever, we long for simpler times. Don't get me wrong, the live TV is great, but the romance that delivered such a memorable experience has been lost along the way. An airline that can capture that would set it itself apart. Simple elegance in flight,etc...

Those United commercials reminded me of when that was true. Airlines have to find a way to deliver that experience and romance again if they want the loyalty and word of mouth that will sustain them through these tough times. A big and fun challenge for an Airline ready to think beyond checked bag fees. The kind of thing an entire company can rally around.

I was honored to be asked to be a "Cool Friend" by TomPeters.com. Really happy with how the interview turned out. Hope you enjoy the read.

Howard Mann - "Cool Friend" Interview - TomPeters.com

Watching the venerable Lehman Brothers breathe its last gasp of business independence (and the reminders of Bear Stearns similar fate) shatters any illusion that any business is ever "out of the woods" when it comes sustained profitability. Despite what the Government is trying to do, the idea that something is "too big to fail" is flawed logic. Companies fail for a reason and, good or bad, that is how it should be.

But what strikes me the most is how quickly the reputation of the CEO's of these firms go from geniuses to incompetent fools. By the time an Executive gets to the top job at any of these firms they have accomplished quite a lot. But they are only geniuses as long as they perform. True? The truth, like most things, lies somewhere in between.

There is a saying in Golf that a reliable golf swing is only borrowed. Even the great players get in a "groove" for weeks and months and then their swing falls apart. The same is true for the financial genius CEO's. But being a financial genius does not make you a genius CEO.

It's human nature that there will be peaks and valleys and so it is also true for businesses all run by humans. Even ones that are 100+ years old.

What I think is most important is how well the CEO works to minimize the depth of those valleys. The CEO of Bear Stearns and Lehman Brothers are each entrusted with the deep history of these firms and the people it employs. If that is part of the mission, then neither would have bet that history on any one vehicle. Nobody could have guessed that the housing market would fall so far and so fast. Perhaps. But if you are sitting on enough of anything that it could cause the bankruptcy of your firm, regardless of its size, then you are not protecting the history that was entrusted to you.

I probably have bought something at a Barnes & Noble bookstore 50-60 times in the past year. EVERY time I come up to the register the cashier immediately asks "Are you a member of our frequent readers club?"

I always answer no. To my continued amazement, they then simply ring up the sale without further comment.

I wonder what would happen to the growth of their "club membership" (and all the good customer interaction that could grow from it) if instead of telling their cashiers what to do they told them why they were doing it?