It was sometime in the late 1980s, and I was standing in a small hallway underneath the seats at Arrowhead Stadium in Kansas City. At the time, I was a young sports reporter covering a game between the Kansas City Chiefs and San Francisco 49ers.
The 49ers had just easily defeated the Chiefs. San Francisco was one of the dominant teams in professional football, led by legendary coach Bill Walsh. Walsh had developed the famous West Coast offense, an innovative system that used short passes to move the ball methodically down the field. The 49ers were so good that day that one reporter essentially asked Walsh whether his offensive system had become so powerful that it didn’t really matter who played quarterback.
Walsh didn’t particularly like the question.
He made it clear the 49ers weren’t winning because of some magical offensive system. They were winning because they blocked better and tackled better than their opponents.
Those were the fundamentals of football.
I never forgot that answer.
After spending decades covering small businesses and eventually owning one myself, I’ve come to believe that business works much the same way. We spend enormous amounts of time looking for the newest marketing technique, technology, management philosophy or growth strategy. Some of those things are extremely valuable. But they won’t save a company that can’t execute the fundamentals.
In business, the blocking and tackling comes down to a handful of things: knowing where you’re going, understanding your numbers, building profitable sales, finding the right customers and surrounding yourself with good people. They aren’t particularly sexy. They probably won’t generate a million views on social media. But they build companies.
Start With the Future
One of the easiest things for a business owner to do is become completely consumed by today.
Customers have problems. Employees need decisions. Bills arrive. Someone quits. A salesperson needs help closing a deal. Your biggest customer suddenly wants something yesterday.
Before long, months become years and the owner has spent nearly all of his or her time reacting to the business instead of building it.
That’s why one of the most important exercises a business owner can complete is creating a three- to five-year vision.
A vision isn’t simply a revenue goal. It is a picture of the company you want to create. How large is the business? What types of customers are you serving? What products or services are you offering? How many employees work there? What do employees say about working for you? What do customers say when someone asks about your company?
Ari Weinzweig, co-founder of Zingerman’s in Michigan, has described vision as an inspiring and strategically sound picture of your chosen future.
The important word is chosen.
Nobody can perfectly predict what will happen three or five years from now. That isn’t the objective. The objective is to decide what you want to happen and begin intentionally moving the organization in that direction.
Once you’ve written the vision, pull out five to seven major initiatives required to make it happen. Give each initiative a timeline and assign someone to own it. Then review the vision quarterly. (See side story for help.)
Otherwise, the urgent will always defeat the important.
Learn the Language of Your Business
There was a time when I believed that as long as we created a great product and sold enough of it, the accounting side would somehow take care of itself. I had an accountant. Why did I need to understand everything happening on an income statement?
I eventually learned that was a dangerous way to run a company.
You don’t need to become an accountant. But you need to understand the basic language of your business: revenue, cost of goods sold, gross profit, expenses and profit before tax.
More importantly, begin looking at many of those numbers as percentages of revenue rather than simply dollars.
Here’s why.
One business owner grew her company from approximately $2 million in sales to $3 million in a single year. Sounds like a fantastic year.
It wasn’t.
Her pretax profit fell from about $200,000 to $60,000.
Revenue was exploding while profitability was disappearing.
She eventually placed percentages next to the major items on five years of income statements. Salaries remained relatively consistent as a percentage of revenue. Then she reached cost of goods sold. It had historically hovered in the low 20% range before suddenly jumping to approximately 34.5%.
There was the problem.
The company had hired rapidly to accommodate the growth, training had suffered, products were being completed incorrectly and employees were generating too much scrap.
The owner couldn’t easily see the problem by looking at dollar amounts because everything had become larger.
Percentages exposed it.
Never Confuse Sales With Success
Business owners love talking about revenue.
We’ve become a $1 million company.
We’re going to hit $5 million.
We’re trying to break $10 million.
Those are legitimate accomplishments, but revenue by itself doesn’t build a healthy company.
Profit does.
Greg Crabtree, CPA and author of the book, “Simple Numbers, Straight Talk, Big Profits,” has argued that owners should pay close attention to pretax profitability. In his work with entrepreneurial businesses, he found that companies living around a 5% pretax margin had very little room for error, while businesses operating around 10% or better had much greater ability to withstand setbacks.
Whether the exact target for your industry is 6%, 10%, 15% or something different isn’t the main point.
The point is that growth needs to be profitable.
Think of your business as a funnel.
Revenue goes into the top. After you pay the costs required to produce your products or services and run the company, profit falls out the bottom.
At a 5% profit margin, every dollar of sales ultimately produces only about five cents of pretax profit.
That makes waste incredibly expensive.
If an employee finds a way to eliminate $5,000 in unnecessary expense, most of those savings can move directly to the bottom line. For a company operating at a 5% margin, generating the same $5,000 in additional profit through sales could require about $100,000 in additional revenue.
Suddenly the employee who saves money can be just as important to profitability as the salesperson who lands a new account.
Find the Number That Defines Winning
Owners have no shortage of problems.
That’s part of the job.
The mistake is trying to solve them all at once.
Business coach Bill Collier has discussed the importance of identifying what he calls a company’s “critical number.” The critical number is the metric that most clearly defines winning for your organization at this particular point in time.
It could be gross margin. It could be customer retention. It could be billable hours, cash flow, rework, sales conversion or accounts receivable.
Without a focal point, companies can easily bounce from problem to problem and metric to metric, wasting enormous amounts of time, money and energy.
That description sounds familiar to almost every business owner.
Look at your financial trends. Compare yourself with industry benchmarks. Ask employees what they see as the biggest challenges. Then determine the one or two problems that deserve your attention right now.
Once you’ve selected the number, don’t simply announce it.
Ask employees what behaviors will change it.
If cost of goods sold needs to decrease, the drivers are better training, reduced waste, improved purchasing or fewer mistakes.
Measure those behaviors each week.
A number tells you where you want to go.
Behavior gets you there.
Stop Marketing to Everyone
Another fundamental sounds obvious until you look at how many companies actually operate: Know who you want as a customer.
Businesses waste tremendous time and money marketing to people who were never good prospects in the first place.
You can’t sell to everyone.
And you probably shouldn’t want to.
Allen Minster, a sales and business advisor, suggests examining ideal customers through three factors: margin, volume, and emotional cost.
That last one is important.
A customer can generate tremendous revenue and still be a terrible customer if your margins are low, employees dread dealing with the account and every transaction becomes an emergency.
Look at your best customers.
Why are they good customers? What industries are they in? What size are they? Where are they located? What do they buy? Why did they originally choose you? Why have they stayed?
Once you recognize the thread connecting your best customers, finding new prospects becomes considerably easier.
Instead of asking, “Who could buy from us?” begin asking, “Who looks like the customers where we’ve already proven we create tremendous value?”
That’s a much better sales question.
Remember the People Who Already Said Yes
One of the strangest things I see businesses do is spend tremendous amounts of money chasing strangers while barely communicating with their existing customers.
Those customers already know you.
They’ve already experienced your product or service.
Most importantly, they once thought enough of your company to give you money.
That’s a very qualified prospect.
Consider a mortgage company that spends considerable time and money sending loan officers into the marketplace looking for new customers. Meanwhile, the company has an enormous database of existing and former customers who may someday refinance or buy another home.
Where should the company’s sales strategy begin?
Probably with the people who already trust it.
The same applies to almost every business.
Stay close to your customers. Learn what’s changing inside their companies. Look for new ways to help them. Ask them for introductions.
Your next great customer may come from someone already in your database.
Build Your Bench Before You Need It
My parents taught me an interesting hiring lesson without realizing it.
They were always trying to watch their weight, and they had one rule when grocery shopping: Don’t go to the grocery store hungry.
They would actually eat dinner before shopping.
Why?
Because when you’re hungry, everything looks good.
Hiring is the same.
When an employee unexpectedly quits and you’re desperate to fill the seat, suddenly every résumé starts looking considerably better.
That’s why businesses should continually build a bench.
Pay attention to talented people. Ask customers and peers for referrals. Keep relationships with individuals you might someday want inside the organization.
You don’t have to hire them today.
You don’t want to begin the search from zero when you’re desperate.
And when you do hire, evaluate more than skills.
Several successful business owners have emphasized the importance of culture fit. The right hiring process should actually focus on cultural fit before conducting the detailed skills interview.
His reasoning is simple: Plenty of people may have the technical abilities required to do the work, but not all of them belong in your organization.
The old saying still applies: Hire slow.
Desperation is one of the worst hiring managers you’ll ever have.
Give Good People a Reason to Stay
Finding talented people is difficult.
Replacing experienced, talented people is even harder.
I once had a large wooden fence in my backyard that regularly needed repairs. The first time my father-in-law showed me how to replace a rotted fence post, the job took me roughly three hours.
Years later, after doing it again and again, I could replace several posts in a fraction of the time.
I hadn’t suddenly become more intelligent.
I had accumulated experience.
Employees do the same thing.
They learn the customers, systems, shortcuts, products and personalities inside your business. An experienced employee can sometimes accomplish in two hours what a new employee may need half a day to complete.
That’s why retention is about far more than avoiding recruiting costs.
You’re protecting institutional knowledge.
Employees ultimately want two fundamental things from an employer: They want to know they matter, and they want to know they’re making a difference.
Show people how their job contributes to the larger company. Give clear expectations. Provide feedback. Recognize achievements. Help employees develop. Listen.
And perhaps most importantly, move from being simply a boss toward being a coach.
Great leaders help remove roadblocks. They focus discussions on solutions. They celebrate wins. They show people where the company is going and how they fit into that journey.
Good employees have choices.
Give them a reason to choose you.
Back to the Fundamentals
Technology has changed dramatically since I stood in that hallway at Arrowhead Stadium listening to Bill Walsh.
Business has changed too.
We have artificial intelligence, social media, sophisticated CRMs, instant analytics and marketing tools that would have seemed like science fiction to business owners a generation ago.
Use them.
But don’t mistake the tools for the fundamentals.
Know where your company is headed. Understand your numbers. Protect your profit. Focus on the metric that matters most. Know your best customers. Take care of the customers you already have. Hire great people. Give those people a reason to stay.
Then remain focused and disciplined enough to keep doing those things when the next shiny opportunity comes along.
The winning businesses aren’t necessarily the companies with the most complicated strategies.
Sometimes they’re simply the companies that block and tackle better than everyone else.
Editor’s note: This article was adapted from ideas, interviews and stories originally included in Ron Ameln’s book, BURST: Your Roadmap for Growing Your Small Business
Your Vision: Get Started Today
So you’re ready to start. The good news: It’s simple. The bad news: It is difficult. Here are some definitions, steps, tips and questions paraphrased and excerpted from Ari Weinzweig’s “A Lapsed Anarchist’s Approach to Building a Great Business.”
A vision needs to be:
Inspiring
People want to be a part of something that is meaningful.
Strategically sound
It cannot be a fantasy. There have to be measureable components to the vision to assess success.
Documented
Putting the vision in writing gives it enormous power since it now has a great clarity and commitment.
Communicated
A great vision that no one else knows about isn’t gonna be effective. You have to sell your vision to your team. Get excited about it. Display it. Promote it. Show your staff what’s in it for them. Also, make sure your vision is something that can be explained.
Techniques to writing your first draft:
Go for something great – Go for greatness right out of the gate. It is harder to go back and sprinkle it on later.
Write from the heart – Great visions come from the inside out. Go with your gut.
Get in the future – Write as if you are already sitting in the future and pick a specific time in the future.
Go quickly – Don’t worry as much about the content at this stage. Just write. Shut off your inner critic.
Use the “hot pen” technique – Once you start writing, don’t stop. Just keep writing for 15 to 30 minutes. Don’t self-edit.
Get personal – It has to be single and holistic. You have one life, so feel free to blend your personal and professional goals.
A long (incomplete) list of questions to get you started:
Look out three to five
years (pick a date) into the future. Give your best shot at describing how things would look.
1. How big is your business? Sales volume? Locations?
2. How will you measure success? Rank in industry? Contribution to community? Quality?
3. What standards of excellence are set by your organization?
4. What are the most important product lines or services you sell?
5. What types of products or services are sold in your industry that you won’t offer?
6. How do you sell? Describe the shopping experience. What makes it unique?
7. What special products or services are you offering the market?
8. What sort of customers shop there?
9. Where do they come from?
10. If your customers were asked to list three noteworthy things about your business, what would they be?
11. How many staff members work in your business?
12. How would you describe your business’ management style?
13. What types of people are you hiring as managers?
14. How do people in the business relate to those around them? What sort of relationship do you have to your staff? What does the staff say about their job?