The Facts of Business Life

by Bill McBean

  Protecting People at Level 3

  As with the earlier levels, it’s important at this level to maintain a balance in the customer–owner–employee relationship, because its impact on the business can be very considerable. For example, when your customers aren’t happy, you can see it immediately because sales slow down, repeat customers come less frequently, and customer complaints increase. This in turn makes employees start to worry about their future as well as question your intelligence and decision-making ability. In a situation like this, you would also probably become frustrated because sales and profits aren’t what you need them to be, and upset with your employees because it looks like they don’t care about the business or the possibility of its going broke. Obviously, this is not a very good situation; unfortunately, it is not a particularly uncommon one, especially at Level 3.

  Conversely, if the business is going well and your customers are coming back time after time, your employees are busy and feel they are part of a winning team. In this kind of situation, you can give out small raises as well as cash bonuses to further motivate your employees and insert some fun and competitiveness into the business. In addition, since you will see the business as a success and be excited about it, your excitement will spread to your staff and in turn be transferred to the customers. As a result, because all of the people assets are satisfied, these assets are being protected.

  But how do you make sure all of this happens? The best way to do it is to rely on the ultimate asset protection weapon—gross profit. It may not seem at first that gross profit has anything to do with people assets, but it does. This is because, since gross profit is a major component in net profit, it gives you options for how to operate your business. And without a strong gross profit, there will in all likelihood be an imbalance in the people equation because there will be too many negative forces at play, such as those in the first example. Fixing this obviously requires both leadership skills and overall ownership talent, but if you can do it, it will give you hope, which can be transferred to your employees through bonuses, better working conditions, and higher salaries, which will improve their attitudes. And their improved attitudes will in turn be transferred to your customers in the form of improved service. And all of this puts the balance back into the customer–owner–employee relationship.

  Level 4: Maintaining Success

  Business owners can essentially operate their businesses any way they want, provided they continue to make a profit. That’s because profit is not only the essence of becoming successful but also of remaining successful. What that means, however, is that even after your business has achieved success, the pressure to deliver acceptable profits year after year never decreases. The reason for this continued pressure is that when your business is viewed as a success, your aggressive competitors will all want to take a shot at you. And it’s not just your customers and the gross profit attached to them they’re after. They’re also after your better employees, your systems, and anything else that will help them improve their businesses at your expense. And what that means is, in order to maintain your success, you have to protect your assets—all your assets—from your competitors.

  Becoming successful—that is, moving up the survival–success spectrum—is primarily a result of your own efforts. Remaining successful, however, requires you to lead the business through your key employees. You can do this by empowering your employees and delegating both responsibility and authority to them. In fact, empowerment and delegation are especially important for asset protection at Level 4 because, at least in some instances, owners have to protect themselves from themselves. There are basically two reasons for this.

  First, asset protection eventually becomes boring for owners, and at times frustrating to manage. Because of this, they tend to put it off and spend their time doing things they find more exciting and interesting, such as creating opportunities and working toward resolving problems. But rather than ignore asset protection, it’s far better for owners to develop processes that others can manage and take responsibility for while they continuing to exercise general oversight. Alternatively, owners can delegate some asset protection responsibilities and continue to maintain control over assets that are vital to the company’s existence—like products or services or customer retention and satisfaction.

  Second, as a business grows, unless its owner empowers its employees, its growth will actually be stunted because by exercising so much control the owner is not maximizing the employee asset. That is, he or she is not enabling employees to do all they can, which conflicts with the overall goal of asset management. One area in which responsibility can be delegated, for example, is in inventory control and ordering. If, as an owner, you put dollar amounts on total inventory based on previous sales, inventory turns, days in inventory, and other factors, it not only frees your employees to make daily decisions and react quickly to trends and opportunities, it also gives them the opportunity to learn from experience, all of which maximizes your company’s assets.

  However, in order for your employees to take responsibility for asset protection, it is necessary that you educate them on the rules of asset protection, that is, teach them how to do it. As with virtually everything else, there are many different ways of accomplishing this. One, for example, is to explain the purpose of asset protection in terms of what could happen if assets aren’t protected and what happens when they are. Another is to ask whichever employee you’re considering giving more responsibility to how he or she thinks the company’s assets can be protected, and see if his or her ideas line up with yours. And a third might be to simply hand over what you have been doing and show the employee, by example, how it works. It’s important to note, however, that passing an important responsibility like asset protection to your employees does not mean you are giving up control of your company. It simply means that while you continue to oversee the entire business, they will have the opportunity to exercise their talents and abilities and, of course, grow their portion of the business as much as they can.

  Perhaps the most important thing to remember at this point is that maintaining success is not the same thing as “resting on your laurels.” You can’t succumb to the myth that once you’ve become successful you can sit back, relax, and spend the rest of your days playing golf and counting your money. That isn’t the way it works. Proactive management, as it applies to asset protection, means continuously challenging the market because, in business, remaining the same means falling behind. Whether you want them to or not, your competitors will change their market tactics, your customers will change their expectations (even if the product remains the same), and your business and employees will change—all of which adds to the challenge of Level Four.

  The Benefits of Protecting Your Assets at Level 4

  Understanding the need to protect your assets enables you to help key employees understand it, which in turn helps develop a team focused on assets and their importance.

  Understanding the need to protect your assets enables you to allow proactive employees to find new ways of maximizing assets, as well as discover which assets are expendable and should be replaced by newer technologies.

  Understanding the need to protect your assets helps you and your employees find new ways to use both tangible and intangible assets, and, if appropriate, restructure the company and its processes to meet the challenges of tomorrow.

  Understanding the need to protect your assets helps you and your employees grow closer together, which in turn positively impacts on the customer–employee–owner dynamic.

  Understanding the need to protect your assets enables you delegate asset protection, which not only provides employees with new challenges but helps eliminate the apathy that success can engender.

  Understanding the need to protect your assets enables you to continue watching over your company while you start to think about the future and the possibility of your eventual exit from the business.

  Protecting Tangible and Intan
gible Assets at Level 4

  The only real change in moving from Level 3 to Level 4 as far as your company’s assets are concerned is that you give up day-to-day control over their protection. In fact, sometimes this delegation and empowerment takes place even before the business reaches Level 4. This is because some departments grow faster or become successful sooner than other departments, usually because they are led by an employee or group of employees who demonstrate leadership and a capacity to achieve results. Your overall goal, however, should be to turn asset protection over to your staff by no later than Level 4.

  While the individuals taking responsibility for asset protection may change, the way assets are protected should remain the same. This is important because when people take over new assignments, they often like to show their authority immediately. As far as asset protection is concerned, however, you can’t let this happen. Whatever is working should be allowed to continue working until everyone has become comfortable with the changes in responsibility, particularly you.

  Imagine, for example, that you’ve given your comptroller the authority to protect the cash transactions in your business and make sure the cash is all deposited into the business’s bank account. However, once she takes on the responsibility, she decides to change the asset protection process of having two separate cash counts and reduces it to just the one office count. On the surface this may sound efficient, but in reality it opens the door for internal theft by someone in the office—including your trusted comptroller, who can easily cook the books. This example brings up another important point in asset protection. The unfortunate reality is that when you empower someone to take on this kind of responsibility you may choose the wrong person to trust. This is one of the reasons you have to continuously make sure for yourself that everything is operating the way it’s supposed to be.

  Whenever the transfer of asset management takes place, you have to make sure those who become responsible for it continue to fulfill the three tasks I mentioned at Level 3:

  Making sure the tangible assets you have are doing what you want them to do, and finding ways to maximize their capacity.

  Confirming that the tangible assets on your balance sheet are worth what the numbers say they are because it’s very hard to manage assets if you don’t have accurate information.

  Ensuring that your intangible assets are meeting the customers’ expectations, not restricting sales or interfering with the business’s internal efficiency, and being used to take advantage of appropriate market opportunities.

  The balance sheet, the income statement, and other financial documents will continue to be great management tools for you in overseeing the business, but other management tools will also have to be created so problems can be easily identified. For example, intangible assets, such as processes, have to be constantly managed for relevancy and accuracy. You can’t just delegate responsibility for them to someone else and simply walk away. This means you have to develop ways to ensure that what you believe to be happening actually is happening. This can be accomplished as easily as by walking around asking questions, talking to your employees and customers, or just watching what takes place. Some businesses record all telephone conversations and use them for training purposes, and some have cameras running wherever cash is handled. There are still others in which the owner conducts management training classes every month, or every quarter, to make sure the right message is getting through to all levels of the company. In other words, there are any number of tools that can be developed for this purpose.

  Your handing over day-to-day responsibility for asset protection also has an additional benefit. That is, it gives you time to develop another aspect of protection—looking for additional opportunities, including some that might be considered outside of normal business. These might include investing in land with an eye toward relocation or speculation, public speaking to draw attention to your business, buying a competitor, or providing financial backing to help some promising individual start his or her own business with you as a partner. You will be able to do this because successful businesses accumulate cash, and this accumulation of cash and added net worth will provide you with the means of pursuing opportunities that were previously unavailable. With this cash you will be able to consider—or reconsider—expansion, new facilities, or new locations, as well as the potential profits and added risks that accompany them.

  The point is that the availability of capital opens up new avenues of possibilities for you, and you should investigate those possibilities that interest you because doing so can lead to even greater asset maximization. In fact, as your exit from the business gets closer, these other capital opportunities can also have a powerful effect on your exit decision because they can start filling up your time and providing you with income that could enable you to stay connected to business and your community even after you leave the company. For example, a home builder who sells his or her business might take the profits and invest them in property management or purchase a construction supply business. You can, of course, simply leave business altogether with a big bank account and no responsibilities and get on with the rest of your life.

  Protecting Products or Services at Level 4

  As I noted earlier, at Level 3, asset protection means concentrating on a segment of the market, staking an ownership claim, and then protecting it at all costs. In other words, protecting earned market share is a major consideration at that level, and any expansion comes through pushing out the boundaries of your turf. Turf protection is still a key component at Level 4, but at this level there are two additional strategies that can be implemented to protect your products or services and increase your gross profit.

  The first of these is reaching out to your customers with items that provide some convenience to them, even if it’s not directly related to your business. Truck stops along interstate and main highways are particularly good examples of this. Drivers stop for fuel, but they stay for the food that’s served by national chains like Subway, Arby’s, Burger King, and McDonald’s. They can also buy caps, T-shirts, sweatshirts, audio books, magazines, sunglasses, coffee mugs, and on and on. In other words, these businesses know their customers. The need for fuel brings them in, and the truck stops take full advantage of that by marketing related and unrelated products that drivers need or want. In effect, these truck stops make conquest impulse sales at the expense of other retailers like Walmart, Target, and the like, because if they didn’t sell convenience items like these to their fuel customers, those customers would in all likelihood go to other retailers when they needed them. There are few rules telling retailers what they can and can’t sell, and depending on your circumstances, there may be some gross profit available if you’re creative. For fuel businesses like Flying J and Love’s, this expansion of their product lines pays a lot of the bills, even though it’s unrelated to fuel.

  Another strategy is developing a competitive advantage. Doing so not only provides you with the ultimate weapon as far as product dominance is concerned, it’s also a great way to protect your business and the products you sell. Price and uniqueness are usually the two main drivers of competitive advantage. For example, if you can find a way to sell a product cheaper because of your lower expense structure, or to make more gross profit than your competitors because you pay less for the product, you will have provided yourself with an advantage. Amazon is a good example of this because it not only sells products for less but also provides conveniences that other sellers cannot. However, the kind of cross-marketing truck stops do doesn’t really provide them with a competitive advantage. This is because while the first business to cross-market does have an advantage, it can maintain it only for a short time before its competitors copy what it does.

  Microsoft had, and to large extent still has, a competitive advantage with its operating system, which they continue to exploit despite the increasing popularity of Apple’s products. Microsoft still powers a large percentage of new computers, and the
great many people who don’t want to bother with learning another operating system continue to use Microsoft. This is true despite the fact that Apple’s system is considered easier to use and less likely to be attacked by computer viruses. Microsoft has a competitive advantage that cannot be duplicated, only challenged, and it has made its owners among the wealthiest people in the world. This is the power of competitive advantage. It’s a goal worthy of achievement in any industry, and the only downside is the time it takes to create it. It is, however, a worthwhile goal for any Level 4 business.

  Protecting People at Level 4

  The customer–employee–owner dynamic is tested time and time again in regard to asset protection at Level 4, but it’s actually the employee–owner dynamic that represents the largest challenge at this point. This is because the business is changing internally as the owner moves away from the company’s day-to-day operations and takes on what is largely an oversight position. The objective at this level is accordingly to make the transition as seamless as possible for customers, and to keep the business operating as it has been through employee skill and commitment. But no matter how you draw it up on paper or how good it sounds in theory, an owner who has a dynamic personality inevitably leaves a void that no employee can fill. As a general rule, employees understand the reason for these changes, but since they have by now learned to trust the owner, at first they are uncomfortable when they see other employees taking on the owner’s responsibility for their general well-being and working conditions.

  Assuming that you have a positive relationship with your employees, maintaining that relationship will depend on how you handle the changes that take place at this level. One of the most important factors is how you deal with delegating authority. Because there are several human emotions at work here, in order to implement this change efficiently and effectively, you have to be sensitive to your employees, including those you promote or move into new positions, as they work through these changes.