Business Problems are Leadership Problems

I met a gentleman many years ago that I quickly came to know and trust. He taught me several great lessons. One of them came rushing back to me recently as a result of a situation that will take far too long to discuss in this forum.
If you are in a leadership position…take a seat. This one might make your BP go up. “All business problems are leadership problems.”
Not sure if he coined the phrase, but it has proven true throughout my career. I look at it in two directions: 1. If a business has problems (they all do), it’s because the leader has failed in some way (yep, that includes me). 2. Leaders are responsible to ensure that problems get solved.
OK, Leaders, if you are part of the problem are you ready to fix yourself and fix the problem?

7 Ways to Create Value

I ran across this article in Pro Painter Magazine and, while it’s about running a painting business, it applies to any small service business…..
You’ll never earn a profit as a painting business owner unless you bring real value to the table. Here are seven essential ways to make that happen:

SELL WELL: Selling jobs at profitable prices is a completely different skill than painting, and most painters don’t like to find new jobs and clinch deals. Selling well is key to any business, and if you don’t like selling you shouldn’t try starting a painting company. And selling effectively these days always involves some kind of online presence. It’s certainly not the only part of selling, but it is the new normal for any painting business owner who expects to thrive. If the internet scares you, don’t try starting a painting business.

ORGANIZE BIG JOBS: The larger the painting job, the greater the role for you to coordinate painters, supplies, timelines and financials. Solo painters simply can’t do this on their own, so it’s a natural role for you as leader. Many successful painting companies find a profitable niche doing jobs that are too big for anything other than an organization to handle.

STREAMLINE THE FINANCIALS: Invoicing and collecting payments will always take too much time and too much effort if you don’t design a streamlined financial system intentionally from the start. The slickest I’ve seen painting business owners use is on-the-job digital payment systems at the end of each project. Swipe the clients credit card through a reader on a cell phone and you’re done. You get instant payment and there’s no need to follow up with paperwork. Painting business owners I know who use on-the-job payment also find that clients are less likely to call back for touchups and repainting when they’ve paid immediately, too.

PROTECT YOUR PAINTERS: Part of running a successful painting business involves finding and keeping skilled and loyal employees or contractors. And a big part of loyalty comes down to creating a hassle-free zone for your painters to work within. You need to protect them from the conflict caused by angry customers and the hassles involved in gathering paints and painting tools. Eliminating everything beyond the work of painting is one way you can bring value to your work as a painting business owner. Painters will want to work for you because it’s a simple, hassle-free experience for them.

PAY LIKE CLOCKWORK: This is huge. One of your main roles as a business owner is to cushion your employees against all financial shocks. Making payroll late is a recipe for disaster because your painters will jump ship. It doesn’t matter if a client pays late or stiffs you for an invoice. Your job is to take the hit and make it up another day. If you don’t have enough cash on hand to make at least three months of payroll with no revenues, don’t start a painting business. You’ll fail.

RESEARCH & DEVELOPMENT: As the painting world advances, it’s your job to stay on top of technical advances, try them out, then introduce the good ones to your crew and clients. Don’t neglect this role or your business will slowly lose vitality and profitability as the painting world advances.

GATHER AND ANALYZE NUMBERS: Bidding profitably on jobs is the single most important skill you need as a business owner, but it’s a skill that requires informed practice. And the only way to get that practice is by monitoring the numbers to see if they lead to profit or loss. Keep close tabs on what your crew actually costs you in time, wages and benefits, then compare these costs to the offsetting revenues from your bids. While you’re at it, monitor the productivity of individual employees and contractors. You need to know who’s actually delivering more value than you’re paying them for. Some employees will contribute much more to your bottom line than others.

Being “Solo” Only Works For a While

Are you a solo business practice owner (physician, dentist, chiropractor, attorney, accountant, auto technician, etc.)?

If so, you may have Solo Professional Syndrome. No, of course that’s not a real name for an illness. It’s just how I refer to the situation where you are doing all the work yourself and can’t grow the business or find time to work On the business instead of In the business.

You’ve done everything possible to streamline operations, maximize revenue and increase margins. You may have even outsourced marketing, accounting and payroll to give yourself a few precious extra hours every month. You have proven that you can be successful going it alone. However, you find yourself wondering, “Isn’t there a better way?”

Think about it. You are responsible for every dollar of revenue generated by your business. If you are absent, no revenue comes in. If you are disabled or worse, your practice likely will shut down and you will lose all the value that you have created over your years in the business. Why? Because you have no successor in place.

What if I told you that there is a way to increase your current income without doing all the work yourself? And, at the same time, you would then have time to step back and work On the business instead of In it, reduce your financial risk when you are absent, protect the value that you have created in your practice and provide yourself with a succession plan. Would that interest you?

You may be thinking right now, “Why don’t I just add an associate? That’s what Suzy did on the other side of the city.” That can work….but there are pitfalls that need to be headed off before doing that.

Where will he/she work? Where will I find clients/patients for him/her? I don’t want to eat their salary until their book fills up. How can I be sure he/she won’ t leave after getting all trained up and end up being my competitor? Ugh…I think I will just stick to the problems I already have.

That is an understandable conclusion. But it would be wrong. Let’s get a little creative and figure out how to do it right and provide those benefits mentioned above.

You are right to be concerned about having enough patients/clients to keep the changes from costing you a lot of money. It’s really not reasonable to expect the associate to fill their own book of business. You are hiring them to produce revenue, not make sales calls.

So, to combat those issues, the method I am suggesting is to acquire another solo practice. Preferably, it would be one that is geographically nearby so you can fold it into your existing practice. This will give you a very good chance of keeping that new associate busy.

If this has your interest piqued, let’s discuss where to start.

First and most importantly, you need to make sure that you, personally, are ready to lead another professional. How are your supervisory skills? Do you explain things in a manner that someone else can easily pick them up? Perhaps you need some training. Go and get it!

Second, assess your financial situation. How much cash do you have on-hand? How much can you afford to spend on another business? Talk to your banker about loans, if necessary. Check with your accountant with respect to tax issues. Talk to your attorney about the employment document that codifies a compensation plan that we will cover in just a moment.

Third, start looking for acquisition targets. This may take some time. There aren’t always businesses for sale. Take your time and get it right. This is the beginning of your exit strategy and intended to give you more near-term freedom and strategic thinking time (working On the business).

OK, so getting the acquisition done will take care of the near-term revenue growth and work/life/time balance issues. It does not, however, address how to extract the value you have created in your practice when you decide to retire.

If you hire the right associate, he/she will also be a part of that solution. A really good associate will, most likely, want to own their own business one day. You should make sure it is your business that they acquire to make that dream a reality. Build a compensation plan for them that rewards performance with equity in the business.

As part of that compensation program, you make it clear that there is a specific process for him/her to succeed you when you decide to retire. In fact, it should be documented that they must succeed you and buy the practice. Failure to actually purchase the business from you at the agreed upon time will cause them to forfeit the performance rewards. That is how you will extract the value you have created. It is virtually guaranteed.

It will take some extra work up front and test your coping skills during the early months after the transition. But if you hire the right person and set your business and compensation plan up the right way, you will reap the benefits.

Marketing Today

I have been in business for a long time.  Over the years, marketing has changed quite a bit.  From TV and radio ads to Yellow Page ads, direct mail, variable data direct mail and now the various forms of internet and social media marketing, it has been difficult to stay on top of what works best.

Having spent over 20 years in the printing industry (and not being in the industry any more), I can tell you that print ads just don’t produce like they used to.  Personalized variable data mailings provided a huge leap in response %.  However, they are so common now that most of us just throw them away too, don’t we?  To be honest, I would not recommend spending much, if any, on print marketing other than business cards (apologies to my friends still in the industry).

Where to spend your ad budgets?  It’s all about the web, my friends.  SEO (search engine optimization) is important but don’t blow your entire budget on that.  There are a lot of simple free, or nearly-free, things that you can do for that.  The key is to make sure, if you own a small business, that you are on the 1st search page when a smart phone searches you nearby.  Don’t worry if you aren’t on the 1st page of a search in LA for your Wisconsin business.  They won’t be a customer anytime soon.

Where you really want to focus is on Facebook.  70% of Facebook users log in every day.  Couple that with all the demographic data that Facebook collects (themselves or via business partners) and you can target your marketing very specifically at reasonable prices.  I have just begun to learn about this and the potential is amazing (if a not a bit scary with respect to the data Facebook has on each of us).  I paid for a service to help me do it the right way.  It was under $500 to learn how to do it.  There are email marketing subscriptions that I will need to purchase, but they are not terribly expensive, either.  Time will tell just how effective this will be, but it seems to make good sense to me to skip paying for ink-on-paper and target my “ideal customers” using all that demographic data.  I expect it to minimize my cost per new client.   Once I work out the kinks on my more established business, I will set out to work on my newer business.  It’s going to be interesting.

A New Tax System

OK, I know this blog is about business.  But the issue of income taxes and the behavior our friends at the IRS impacts your business, my business and the business of our personal lives.  So, here are my thoughts…..

One evening recently, I was about to fall asleep when I awoke instantly wide awake with a new federal income tax structure.  As you read this, please bear in mind that it’s a framework.  The details of which I will leave to more talented bean counters than me.

What was rattling around in my head was something that I truly believe can make a huge impact on our government, our freedoms and our economy.   I propose a TRUE flat tax (not a FAIR tax as some are proposing.  I will let you research the differences).  Before you run away screaming, walk along with me for a bit as I summarize the framework.

Individual Income Taxes – We would all pay a certain % of our gross income.  No deductions (why should the g0vernment tell us that home ownership is better than renting, for example.  The renters get screwed).  We could eliminate the individual tax division of the IRS (or whatever it is called) and replace it with a much smaller,  computer-driven group that verifies our income as reported on our 1/2 page tax return.  The only reason for a return, at all, is to pay taxes on our passive income (our employers will withhold and pay taxes on our earned income).  Now, there is a place for debating an income floor for the truly poor.  However, even if someone can only pay $10 because of low income, they should.

This model would keep the rich from sheltering income and have the low income individuals pay at least a little.  Plus, the government would save $billions with the smaller IRS (yes, the current employees would have to look for jobs, but a lot of us have survived that in our lives, including me).

Organization Net Income Taxes – You will note here, that I used the term “organization” instead of “business.”  I will explain in a moment.  Each organization will pay a certain % on the net income of the entity (similar to today).  The difference is that there will be no such thing as a tax-exempt entity.  They have to pay taxes on their NET, too.  Before all the charities have a fit, take a breath and read on.  Charities are supposed to give away their funds (after operating costs), right?  So give it away like you are supposed to.  If your expenses and “giveaways” equal your income (donations), you pay no taxes.  If, as some supposed-charities do, you hoard funds, you pay income taxes on the remaining “net income.”  This includes churches, synagogues and mosques,  too.  As a man of faith, I struggled with this, but I want my church to be missional (which we very much are) and spend on community outreach.  We give offerings to our church to be spent, not kept.  Here is the incentive to do so (in case one is needed)!

This set-up will also obviate the division of the IRS that is causing all the wailing and gnashing of teeth.  There will be no reason for any group to need tax-exempt status, so there won’t be any politically motivated abuse of those applying for it.  How much $$ will that save tax payers?

To monitor this type of entity, the IRS business division would be replaced by the department of organization taxation (or something of that nature).  Admittedly, this division might be larger than  the current similar IRS division because of the broader base.  However, I am hoping that the flat-tax environment will be simpler to enforce and make it no larger, at a minimum.

Naturally, the status quo in congress and all the tax attorneys will scoff (they will need new jobs as a result).  “You can’t do this and we have to be able to deduct that.” ….Open your minds, you fossils!   Will someone likely pay more taxes than they do now?  Of course.   But, we have to make some serious changes in this country.  We are in debt, as a nation, way over our heads and the economy is still fragile.  The tax code seems like the logical place to start (with more restructuring to follow).

What I propose is simpler, which is pretty much always better and cheaper.  It puts the rich and  poor under the same rules (special interests have no footing without deductions), which creates a more cohesive country as opposed to our currently polarized country.     We are the UNITED States of America.  Let’s set up the tax rules to encourage that.

Improve or Die

You’ve either worked for, read about or know someone who worked at a company that made a ton of money for a long time doing the same things they’d always done. Then, all of the sudden, the market/industry changed. Now, efficiency and higher levels of customer service and speed are what it takes to compete. Unfortunately, the company didn’t have some or all of those attributes. This was mostly because they spent years or even decades without any quantum changes in their processes. Now what?

It’s time to get on the process improvement band wagon. You know; the stuff you’ve been reading about for years. It doesn’t matter what set of tools you use. My personal preference is to embrace Lean Enterprise because of its common sense thought process regarding waste elimination. I’ve found that every person in the organization can grasp its concepts. There’s also Six Sigma, TQM and a number of hi-bred programs. Get to learning and get improving. Not doing so will seal the fate of your organization.

More to come on this topic.