CHAPTER ONE I HAVE STARTED A BUSINESS. WHAT DO I DO NOW?

Starting a business is a lot like starting a family: some of us plan for it and others do not. There is a rush of excitement when you realize that you’re expecting a child. Then you become aware of all that needs to be done. Perhaps the mother starts to experience some pain and nausea. You weather the changes and the challenges and the day arrives. The baby is here. The smiling face makes every parent realize it was worth it. Joy! Happiness! I remember the first day of my business. I put a new desk in the corner of our garage, plugged in the new adding machine and reclined back in my new office chair and said, “Let the business begin and let the money roll in!”

But then at some point comes the serious challenge and reality: raising the child. Every parent has been there. It may come when the child is a toddler or when the child is a teenager, but at some point it happens: the parents come to the agonizing realization that they don’t know what to do next and they don’t even know what caused them to get in the awkward situation they are in. I started out wanting five kids, because I grew up with three sisters and one brother. After our first child was born, I rethought my position and reduced the desired number of kids down to two total!

Every business owner has a similar experience. You start the business. It’s exciting. You are excited about the freedom and flexibility that will come with being your own boss. You dream of making the big bucks, working just enough hours to train someone and then let them do the stuff you don’t want to do while you do the fun stuff. You might even dream about getting the first business up and running without you and then start franchising, making even more money and having more time off.

Then comes the reality of what it really takes to start a business. You go out and sell some work, then produce the work and then get the paperwork done so as to get paid. Then you realize you are out of work and the cycle starts again. What a shock when you find out you are working sixty-hour weeks. Seventy-hour weeks. Eighty-hour weeks. Bills. Going without a paycheck because there isn’t enough cash to cover what goes out with what comes in.

Not exactly the captivating original vision you had when you started the company. But just like every parent needs to know that every other parent has been there, every business owner needs to know that every business owner has been there. Every business owner has been scared and didn’t know what to do. Everyone has missed a payroll. Everyone has gone without a paycheck or paychecks.

Somewhere in the business cycle every owner has the experience: I don’t have the answers I need. Where am I going to get them?

When I started my first business, I had the same experience. What drove me the craziest was getting opportunities to grow the business, then doing more volume, but always being painfully short of cash. I started my construction business with no money and the goal was to put all of the profits back into the company. It took the painful realization that not every job would make the desired profit that had been bid. Having majored in chemistry in college, I was very slow in the finance department. I had based my entry into the business world on being told “do good work and everything will be OK.” I soon found out that that was a lie. In fact, a lot of people had gone broke operating on that very premise! I started looking around for help, reading books and trade magazines and talking to people. As the business grew, it required even more money to make it work and the more urgent the desire for help became. After joining my first trade association, entering their job competition and winning “National Contractor of the Year,” I thought I was pretty hot stuff. I started going to trade shows and asking questions. Typically, people gave answers quite freely. After a while I realized that some people didn’t know that they didn’t know the answers and others didn’t know but would not admit it.

I came to the following dilemma: how do I know what to do when they are lying to me and lying to themselves?

Several people asked me to teach seminars. Even though I was a teacher, I kept asking questions. I finally realized that no one I knew had all the answers. I decided to start calling people that I had read about in magazines and ask them questions. A few of them impressed me as having some knowledge that I needed. I then asked them to come to my office and look at my accounting books. The goal of the first meeting was to create a safe place to talk and generate a trust relationship. I later came to realize how critical safety and trust are to owners. Most employers ask their employees to give them open and honest feedback. The irony is that employees are afraid that if they did that, they would be fired. Another issue is that they don’t have any skin in the game like an owner does. As a result, most of them just want a job, a regular paycheck and no away-from-work responsibility. They do not give the employer any helpful feedback.

At the end of the first meeting I proposed that we meet regularly together and compare each other’s financials and talk through the difficulties of our businesses. They agreed to try the idea out. One of our hot discussion points involved who had the better accounting system. After two years of “my accounting is better than yours,” we created a comparison list with definitions. Everyone took their numbers and put them in certain categories so we could compare. Additionally, everyone had to provide the others with their last two years of financials and their current partial year. If we didn’t understand something we could go straight to the financials and understand. We developed a noncompete, non-disclosure (NDA) agreement with very large legal teeth that everyone had to sign. Period. No sign, no play.

From there we started to learn what it really took to grow a business profitably. I began to experience the power of peer networks. I went on to run a business (Business Networks) that utilized this unique framework to help other businesses grow. Over the past three decades, I’ve worked with a diverse set of companies, from big to small and in various industries. From $30,000-a-year to $120-million-a-year companies, the problems are most always the same.

“In Business Networks, you get to compare yourself to others and look at yourself in the mirror. You learn that you don’t always have to reinvent the wheel. We can follow the ideas of others and they can learn from us as well.” —Rich Piltch

This book will walk you through the fundamentals of operating a business successfully and profitably. Some of it seems like common sense when you step back and look, but after working with thousands of companies, I’ve come to realize it really is hard for the company managers and owners to see what is going on when they’re in the thick of it. It really is hard to see the forest. All the trees get in the way.

Year after year, clients tell me that they could not believe they didn’t see what they were doing in the business. A couple of years after their revelations they tend to be sheepish. But there’s nothing to be ashamed about. Everyone’s been there.

Running a business is tough stuff. It takes hard work. There’s a lot of nonsense out there these days saying you can run a business on four hours a week or whatever. Not true. Everyone is dreaming of starting a company and having someone else run it for them. Not going to happen. It’s going to take hours upon hours of serious, difficult and challenging work. But if you follow the fundamental steps included in this book, you will make it and the effort will be worth it.

Small business runs the American economy and most economies of the world. But who cares about the rest of the businesses? It’s your business that you have to run successfully and your economy that you have to care about. Your business has to be profitable. There is one way you judge whether or not your business is a success: were you on time and on budget on each and every one of your jobs? That mantra should never go away.

Through the years, we at Business Networks have developed various ways to ensure you’re profitable. Even if you have no intention to sell your company in the near future, you should constantly gauge its valuation. One client assigns a share value to his company and each month adjusts that share value. If it’s going up, good. If it’s going down, what’s going on? We do the same with EBITDA (earnings before interest, tax, depreciation, and amortization). Up, winning. Down, losing. That’s a metric for whoever owns or buys it.

When you get married you have a lot of liquidity, but you lose your liquidity as you acquire assets. The same thing happens in a business. The cash flow covers up whether or not the business is profitable. It’s like fishing after the rain. With no rain you can see the fish at the bottom, but with rain it’s totally different. People confuse cash flow with profitability.

Just because you get a lot of work does not mean that you are profitable. Factors within each project including the size of the job will tell whether you actually make a profit. Most owners will be hit with the truth when it is time to look at their monthly statement. That’s to say they have systems set up to analyze their monthly earnings.

Without a monthly statement and a work in progress report (WIP) you don’t know where you are. At tax time, people wonder where the money went. They look at the amount they made at tax time, but they should be looking at it every month, eleven times before that.

Many, if not most, small business entrepreneurs don’t really know where they are financially.

This is in large part because these entrepreneurs are cowboys and cowgirls. They have just worked for themselves and they don’t know what boundaries are proper. They don’t set up accountability systems for themselves, which is what they need. I call them porcupines because many of them would, within 60 seconds in the corporate world, tell their boss in corporate to eff off and think they did the right thing. As a result most are incapable of working in corporate.

Ego is massive with entrepreneurs. There’s nothing inherently wrong with that. Its existence just needs to be acknowledged and dealt with. The two things that run a company are ego and a desire for money. These can work for or against any entrepreneur.

Regarding ego, an owner will run a business better than any hired gun. If an owner were president of a Fortune 500, he or she would do a better job and make more money than the CEO because the owner is there to run a business. The Fortune 500 CEO has so many assistants, advisers, etc. An owner owns it, unlike other corporate execs.

Owners have a higher sense of self-worth and they will defend it and will get back up when they get knocked down. They have the ability to not take “No” for an answer more than the average person. They typically have a tenacity that can’t be beat. I had one client who wanted to learn to scuba dive. He got into a turf war with his instructor. They were bickering and on a dive. They went to the seafloor. My client ripped off his mask, and the instructor did the same. Then he pulled out his diving regulator (breathing tube). The instructor followed suit. He then proceeded to take off his tank and sit there. First one to go up would lose. The entrepreneur won.

This ego gets them moving but it can also be their end. Unwilling to be held accountable and hold the business accountable provides the downfall to many entrepreneurs whose swashbuckling style finally catches up to them. But when they recognize the value of effective accountability, they crave it, almost like an addiction, and realize they can’t function without it.

Regarding money, the possibility of having more is what gets the entrepreneur up in the morning and out the door. There’s nothing wrong with that. If everyone was spoon-fed, we’d all be lazy and luckily the world doesn’t work that way. Being hungry gets us to work.

The best salespeople on the planet are little kids who want something. They will continue to ask for it until they forget what they are asking for or fall asleep. An entrepreneur who wants to make money can become the same way. It can be annoying yet successful at the same time.

When my young grandson is focused on something he wants, he asks for what he wants in all sorts of different ways. He will approach what he wants from all different angles. My answering no to a question will only result in his question being asked from a different direction as to why he can’t have what he’s asking for.

Most entrepreneurs do not know how much money they want to earn or how much money is enough. Few people can answer the question, “What is enough?” My answer is this: $1million in debt-free assets and earnings of $100K a year. Knowing this provides clarity and focus and helps me make decisions about what I’m willing to do and the risks I’m willing to take.

Also, the drive for money sometimes makes entrepreneurs detrimentally paranoid about it. For example, most owners don’t want employees to know how much money they earn for fear that they will think the owner is making too much money. But the normal response is actually the exact opposite. The employees tend to think, “I’d never do all you do with all that risk for that little money.” Being honest and transparent can actually create buy in from employees more than anything else.

The entrepreneurial life is a crazy one. Many entrepreneurs are both an arsonist and a fireman. First, they set the fire then they come running back to save you from the fire. It’s a kind of sport.

The entrepreneur’s future depends largely upon the entrepreneur. They need a contract with themselves. Most entrepreneurs hold others accountable and not themselves. Client upon client has said no one is holding them accountable. They keep coming to our meetings because they need someone to call them out. When they are called out, they can recognize what is happening.

Some will beg employees to tell them how they really feel. But most employees think, “If I did that you’d fire me because I don’t really like you.” One of the key aspects of our work at Business Networks is to create the trust room, generate accountability and take each other to task for not completing what was promised. Pam Karpenko, owner of Clean Tech and longtime member of Business Networks shares her voice on this trust room atmosphere:

The special and unique environment of Business Networks encourages honest and difficult conversations, holds us accountable for our goals and outcomes, measures our financial performance, offers us industry benchmarks by which we can assess our own business position enabling us to make corrections when we need to, and engage with our colleagues to help solve challenges. He has helped me strengthen my leadership skills and developed my confidence that I really can do this!

We require clients to furnish us with goals to which their peers approve and then hold them accountable. One client said his goals were done, yet three of the four were only 98% done. When he was called on it, he got defensive and angry and went into denial in front of the group. The next day he apologized to everyone saying, “I got angry because you called me out. When I realized you were right, I got even more angry.”

Accountability can be painful, but it’s worth it. We’re not playing games here. This is real life and it really matters. When you add spouses and kids to the mix, the pain factor is even higher.

For this reason business owners really need safe havens to learn from one another. The owners/entrepreneurs have no one to talk to. Most employees can’t stand the heat and their resulting nervousness would impede their performance or send them out looking to work for someone else.

Home is also not a safe space to discuss business matters. Most spouses would get nervous if they understood where things really stood. One client said to me, “My spouse would be scared spitless if she were to understand how it really is.” Couples get caught in a negative feedback cycle. The wife begins asking questions, his ADD and lack of patience kick in, so within five minutes or less, he starts to get angry with her, and then it spirals downwards.

The story goes on.

This book aspires to be a safe place for you as an owner/ entrepreneur to realize that your challenges are not unique to you, but are something that all successful entrepreneurs have had to overcome.

If you learn to be honest with yourself, you will rise to the challenge and you will achieve your dreams.