Thank you to everyone who commented on Part 1 of this series (which you can access HERE).
Here are the next 3 big lessons I’ve learned on my business journey so far:
4) Trust No One Fully
I know this one sounds very pessimistic. I prefer to call it realistic.
It’s a fact of life that most people are capable of and will cut corners if the right conditions are present.
Over the years I’ve learned to never trust anyone fully in business. Some I’ll trust 80%. Others, even as much as 95%.
But I’ll never trust anyone fully.
Most times when you hear about entrepreneurs getting taken advantage of by others, it’s their own damn fault.
They trusted someone to keep their idea secret. They trusted someone to manage their cashflow. They trusted someone to pay them in full after they’d done the work.
Of course you’re going to have to work with other people to build a business – no one gets to the top on their own.
So how do you protect yourself from getting taken advantage of?
One of my business mentors give me this advice repeatedly:
“If you want to keep honest people honest, have a check and a balance.”
Even the most ‘honest’ people you know are capable of cutting corners; better to have a process in place to occasionally check they’re continuing to be honest, than to let any temptation sneak in.
This lesson especially applies to your finance division and anyone in your company who handles the money.
In this area you want one person spot checking the work of another.
Ideally, these two people should not work under the same roof. And it’s a real bonus if the two of them don’t like each other (less chance of collusion).
Any time money leaves the business, two people are involved. Never have one person in charge of setting up payments, and also approving payments.
In my company one person in Accounts Payable has restricted access to our online bank accounts. They’re able to create payments for the vendors.
Another person (the Accounts Payable manager) also has restricted access. They can’t create payments, but, they can approve payments.
This way one checks the work of the other, and no one except me has complete freedom to create and send payments.
This whole lesson of not fully trusting anyone extends far wider than just managing your finances though.
It also extends to who you confide in, and share confidential information with.
Again I know this sounds really pessimistic (and even paranoid) – but your best best friends / colleagues / staff of today, could end up working for a ruthless competitor this time next year.
They could even become some of your worst enemies.
I have friends who’ve made millions of dollars, and ought to know better tell me names and locations of their offshore bank accounts.
Nothing wrong with having an offshore bank account, but when it’s for the sole purpose of not having to pay tax, then that’s probably not the kind of information you want to make public.
I tell these same people not to tell me this stuff, or anyone for that matter.
But they just can’t help themselves. They’ll learn the hard way soon enough when they tell the wrong person.
This lesson also applies especially to going into business partnerships where you share equity.
I have always avoided these kind of partnerships, because the vast majority of them (probably over 90% of the ones I know about) end badly.
It’s inevitable that somewhere along the business’s growth there’s going to be significant disagreement about the direction it’s going in.
If both people get an equal or near equal sale, someone needs to compromise. Entrepreneurs as a breed are usually lousy at compromising.
If you absolutely insist on going into this kind of partnership, get to know the other person extremely well first.
If you rush into a partnership after knowing your potential business partner for just a few months (or worse a few weeks!) then you deserve to fail.
Seriously, how well can you really know someone in such a short amount of time?
You’ve got to give this decision the same amount of weight as you’re give to deciding who you’re going to marry.
Ironically we all know how many marriages end in divorce!
The most revealing moments in getting to know someone are during the really stressful situations. That’s where you get to see their true colors.
You’re guaranteed to have a LOT of stressful moments in a start-up.
So if that person can’t handle some stress and strain, that’s a clear warning sign.
I’ve known a lot of people who were very cool and level-headed when things were running smoothly. But as soon as their was some inevitable catastrophe, they cracked like an egg hitting the floor.
The other reason I stay away from equity partnerships is because I know I’ll drive most of these people crazy.
When working with them, I’ll think my way of doing things is better than their way of doing things (as most entrepreneurs tend to think). Then we’ll have a disagreement. After too many of these disagreements, I’ll start to resent that person (or they’ll resent me). That’s not healthy for either of us.
So it’s best I work alone and have the final say on everything.
Just remember even the most honest, loyal, well intentioned people you know are capable of cutting corners under the right circumstances.
This doesn’t make them bad people. It just makes them human.
5) Always Focus On Marketing
The great danger in scaling your company and moving from the entrepreneurial stage to a more bureaucratic stage (which all business’s must do at some point), is that marketing and sales can take a back seat.
When you first start your business, it’s just you.
You’re everything; the accountant, sales manager, tech support, customer support, marketing manager, etc.
Although you’re much stronger in some areas than others, you’re at least competent enough to do a bit of everything.
Mostly you’re focused on sales and marketing, and this is what gets those first few critical customers and starts bringing in the cash.
Now you have resources to go and hire other people to fill in some of those other areas (eg. customer support, tech) that you’re not so good at.
And your time is freed up to focus on the sales, marketing, and strategic direction.
But at a point you have to start delegating even these parts of the business too.
You hire sales staff to replace you, and you manage them.
Once you get big enough, you hire your first sales manager.
You do the same thing with marketing.
The further away you get from being in the trenches, the easier it is to lose touch with your customers and understanding what makes them buy.
As your business moves more into that bureaucracy stage with 100+ staff, you can start to take a more ‘hands off’ approach to the sales and marketing. Your focus can turn more to procedures, systems and paperwork.
You can be lulled into a false sense of comfort that everything is running smoothly with the sales and marketing divisions, when in reality it’s not.
I’ve learned this the hard way over the last 4 years: rarely will you find sales and marketing managers that have that same hungry drive you had when you were doing those roles.
I’m not saying it’s impossible, especially if their compensation is tied heavily to performance.
But personally I still have not found any who have the same level of drive as I do.
So my advice to you is this: no matter who you hire to help with sales and marketing, keep a very close eye on those parts of the business.
On each media buy you should know which offers are being promoted, how much cash is going out, and you should be getting daily updates on the results.
At the end of every media buy you should get proper ROI reports.
Do not fully delegate your marketing budget to anyone. You can have people make suggestions on where your marketing dollars should be spent, but ultimately you make those decisions and you do it based on the numbers.
You should never be too important to review the main marketing metrics in the company.
When it comes to scaling to higher revenue numbers, you’ll need to invest in your marketing more aggressively over time.
My company spends hundreds of thousands of dollars every single month on paid ads, such as direct mail, radio ads, online marketing.
In a few cases, we’ve spent close to $1 million on ads in a month.
I admit with regret there have been times over the last 3 years when I was not watching the marketing metrics closely enough, or, I was trusting the numbers a marketing manager gave me without having them checked (in hindsight they were beyond inaccurate).
From this I easily lost a few million dollars. That’s what you call the ‘ignorance tax.’
These days I watch my marketing campaigns much more closely. I get reports, and I’m constantly checking the numbers.
You need to do the same.
Also for your sales division too.
If you have a sales manager in place, keep a close eye on what they’re doing.
How are they dividing up the leads to the sales reps? Are they allocating the best leads to the strongest closers?
Are leads being followed up closely by all reps with the minimum number of calls or touch points?
Are they training the sales reps, helping them to constantly improve, and encouraging them to break their personal records?
You can get reports on all of this, but from time to time check for yourself and make sure those reports are accurate.
As far as writing ad copy for your marketing pieces; by all means, outsource a lot of your sales copy as you scale.
But in most cases you’ll still want to put the finishing touches on the copy yourself, and definitely review it.
You know your market far more intimately than the majority of copywriters ever will.
Remember, a focus on marketing and sales is what launched your business.
In order to do your first 10, 20, and even 100 million in revenue you’ll need to stay focused on it.
6) Get Daily Updates On Your Cashflow,
And Watch It Like A Hawk
Some of the best advice I can give you: micromanage the f%$@ out of your cashflow.
When you hire finance managers and CFO’s, give them the expectation from day one that you’re going to want daily updates on the cash.
If they have a problem with that, find someone else.
You need to know exactly how much cash is coming in and flowing out of your business every single day.
You need to know what the biggest transactions for each of these two categories are (for me, I ask for the top 5 biggest transactions).
Till this day, I still get daily updates on these 2 cash metrics sent to me every 24 hours.
I get them both on Skype (with a Google doc link showing all the transactions that make up the numbers) as well as a message sent to me on Watsapp, so that even when I’m traveling the updates are there on my phone.
Several years back after hiring my first CFO, I got lazy with checking my cash numbers.
Up until that point, I’d been logging into the few online bank accounts I had almost daily just to see the balance, and to watch the movements. I had a good sense of where my money was going.
But once this CFO came on board, I started to check less often.
When I started requesting reports on the cash, she had a lot of issues with doing them as frequently as I’d like. Her reasoning was that most big company’s including ones she’d worked at didn’t operate that way. Doing so many reports added too much ‘unnecessary work’ to her already very busy day).
What’s more important than having a handle on the business’s cashflow?
To her, I was ‘micromanaging’ by wanting to see all of these details each day.
Well, this person almost destroyed my entire company.
Because the cash wasn’t being watched closely, no one noticed that our main merchant account was not settling cash into our bank account every few days like normal.
In fact, the merchant account had some concerns about our sudden increase in volume (we’d gone from running around 100k / month through this account to running over 1m / month). This was the result of having another merchant account shut down (which was due to the chargeback ratios not being watched closely enough by finance).
Anyway, the merchant account had sent several emails to an email address that was meant to be regularly monitored, but no one was checking it.
After over a month of not settling funds to our bank account and not hearing back from us, they suspended the account.
This included freezing the merchant account so it could no longer process, and holding close to $1,000,000 USD in our cash for period of 18 months (which legally they could do).
To suddenly have a million dollars of cash you were counting on to help pay vendors, staff, affiliate commissions, and other overheads locked up can put a real strain on your business.
All of this could have been avoided, if the cash flow was getting checked daily.
It would have been noticed early on that funds were not settling into our bank account, which would have triggered some phone calls to our manager at the merchant account to see what was wrong.
By the way, who’s fault was all of this?
Back then I blamed the CFO.
But in reality is it was my fault. I hired this person, I chose not to hold them to a higher standard and enforce getting those daily reports done.
As the founder, the buck must stop with you.
If something is not getting done and you allow it to continue, then it’s your mistake.
So again I stress to you, micromanage your cashflow.
Whatever product you sell, or whatever service you provide is not the business you’re in.
You’re in one business only, and that’s the money business.
If you’re not tracking how well you’re doing on the cash side of things, then you won’t spot the warning sides early on.
And remember: no one will ever care for your money as much as you do. You can delegate a lot of functions in finance to other people, but make sure you keep a close eye on the cashflow.
Leave me a comment if you got some good lessons from today’s post. Stay tuned for Part 3 – I’ll post it on this blog soon.
Thanks for reading,