I do not believe that the fundamentals of business have changed for many thousands of years and possibly ever.
I also cannot see that someone being born in 2020 is any different from someone born in 1920, 1820, 1720 and so on back through time. They would have been born into very different worlds. But at the moment of birth how can they have been any different?
The environment in which they grew up, or will grow up, is quite different, but the fundaments of life remain the same. We all need security, so that we are safe from harm. We all need food and appropriate shelter. You could include warmth and a settled lifestyle.
Over time we have become accustomed to living in a peaceful safe environment with better food, housing and other facilities. We no longer need to hunt for food and we are accustomed to all the trappings of modern life. But these are just the fundamentals delivered in a different way. These fundamentals never change. Technology changes and influences how we feed our fundamental needs. The nature of entertainment changes with technology but there was always some form of entertainment. The means of transport have evolved, but it is still transport. A car can travel further and faster that a horse, but at its basic level, it is the same thing, getting from A to B for whatever purpose you need to travel.
I believe that the fundamentals of business are just the same. They have not, and will never, change.
1. You must have something to sell that other people want to buy.
2. You need to make sure people know that it exists and is available.
3. You must get them to put their hands in their pockets to pay you.
4. You must deliver the goods or service
5. You must get enough from the sale to make it economically viable to continue production and be able to offer more of the same for sale.
In other words:
1. R&D to develop the product or service
5 Economics / accounting
For people operating businesses over the years, how could these fundamentals have changed?
The things that have changed include the following:
1 Products and services
As our society has advanced, so have the markets for products and services. There was no market for mobile phones until recently. Technology helps us develop new innovative products and creates the need for related services, and over the years the market for other products and services may have declined.
If you had something to sell, you had to make sure that potential customers knew about it. Now we have the internet. Previously there was more emphasis on newspaper advertising and mailshots, and before that there were other ways relevant to those times.
A sale is a sale. How is that any different? The way your customer pays you will be changing but you still need to agree the sale price and collect your cash. The way people bargain has not fundamentally changed. Some people are good at it and others not. The technology you use to undertake the negotiations has changed, the speed of travel enabling two parties to meet has changed, the products and services being sold may have changed but the basic principles of the horse trade remain unchanged, whether you are selling a jet aircraft or a horse or a business.
If you are selling a product, fulfilment may be as simple as handing it to your customer as they hand you the payment. If you are manufacturing to order, you need to have the wherewithal to fulfil that order.
If you have agreed to deliver a service, you must have the necessary skill within your business to fulfil your customers’ expectations.
In whatever era you were or are trading, if the whole transaction is not profitable then you cannot support yourself or afford to buy the necessary goods or services you need to be able to continue to fulfil your orders. These days we all expect to have the trappings of a modern life such as spacious houses, white goods, holidays etc. This means that we need more profit to pay for all these “essentials”.
So, fundamentally nothing has really changed. So, why do we all struggle to make our way in business? If the principles have all been around for thousands of years, how is it that we don’t all have flourishing profitable businesses? One answer could be that these black arts were well known but only to a relatively few people. These days many more people are self-employed, either through design or necessity. If that is the case then what we are seeing is a dissemination of the black arts to more and more people.
However, I think that one of the big problems is that there is an expectation that you can learn everything about business from a textbook or in a classroom and that is definitely not the case. Some of the most successful business people that I have met were rubbish at school but developed life skills outside of the classroom that would serve them well in business. Resilience, common sense and motivation have been key to their success. I would also say that in most cases, having a strong, supportive and understanding life partner also seems to be a common denominator.
These people learnt their life skills in the playground or after school, perhaps being labelled as delinquent along the way, but you would not level that at them now. People in earlier times would have learnt these fundaments in just the same way. Nothing changes.
So, if you are still on your journey to success in business, remember that until the day you die, every day is a school day! Find a mentor because you don’t yet know what it is you don’t know. You need someone who can open doors so that you can see inside rooms that you currently don’t know exist.
Come and speak to us. If we cannot help you, we probably know someone who can
An Idea is not a business
I remember my father speaking about cat nets. These nets are or were put over a pram to stop cats making a cosy bed on top of the sleeping baby and potentially suffocating them. He frequently derided his lack of action. He invented the idea, or at least that is what he told us. But somebody else beat him to it and he missed his chance.
I have heard many similar stories over the years. “Somebody pinched my idea.”
I think that we have probably all had days when you had an idea and within the space of an hour or two you have imagined the wealth flowing from the business that you instantly created on the back of that idea. How many people have you heard say that if they could only just come up with one good idea, they would be wealthy.
I recall an actor being interviewed and being asked about his overnight success on television, to which he replied that after his previous 25 years in repertory, was he really an overnight success. Business is much the same. It takes a number of years of graft, heartache and sometimes despair, before you have learnt enough about the product, the market and yourself to be a success. I would also say that many business owners only taste that success after many years and a significant number will be past the age when others are dreaming of retirement.
So, let’s put your brilliant idea into context. Your idea came to you over a relatively short time. I am avoiding saying “in a flash”. Let’s just say it took you 3 hours to come up with this ground breaking earth shattering idea. We can ignore the time and cost of development for this exercise, but let’s say it takes 5 years to build the business, which is hugely optimistic. The idea is like the seed of a tree. It is just a fraction of the final manifestation of its potential. 3 hours in the context of 5 years is 0.000183% of the time and effort.
I admit that you must generally start with a seed if you want to grow a tree, but the seed is just a potential tree, it is not the tree. In the same way, your idea is only a potential business. There is a lot more required to turn it into a real business and then to develop and evolve that business into something that resembles successful.
When people come to see me when they are just starting out in business, I generally tell them it will take 5 years to establish a new business and in that time they will make a lot of mistakes. It is not that I believe it will be 5 years. Somebody once said to me “only 5 years?”, and they had been in business much longer than that. I say it to manage the expectations of the new business owner. It will take time to develop a client base, to build up systems, build up a labour force and get cash flow moving. In that time they will make mistakes, which is a powerful way of learning and gaining experience. We just have to hope that none of the mistakes is so great as to kill off the fledgling business before it has started to fly.
The world of business is cold and hard. Everyone is focused upon generating their own profits and building their own business and you can quickly become a casualty, either due to price or product or service delivery. Nobody is going to shed a tear for you if, for one reason or another, you become uncompetitive.
So, this idea of yours. Where does it stand in the greater scheme of things. My father’s grand idea for cat nets was never going to go anywhere. It was not even a seed, it was just a dream.
Now, if you do have an idea for a new business and want to turn your dream into a seed and then into a real business, let’s talk goals and strategies. Let’s put some serious business thinking behind your idea and turn it into reality. We need to examine the 5 fundamental elements of any business. Call us!
Keep looking in the rear view mirror and you will crash
I think I am pretty good at reversing a car with a trailer. I used to reverse a horsebox into some pretty tight spots. I learnt how to reverse just using my rear view mirrors. I had a lot of practice.
Having picked up or dropped off my load, I stopped looking in the rear view mirrors and going forward, watched the road ahead of me. I wanted to see where I was going and I needed to avoid hitting anything or anyone.. I am sure you would do the same. You will occasionally glance in your mirror to check what is happening behind you but most of the time you will be looking in the direction of travel. Could you drive your car forward just looking in your mirrors? I doubt it.
I spend a good part of my professional life looking at the past. When we prepare a set of accounts we are organising historical data into a meaningful format. This enables you to look into the rear view mirror of your business. It tells you where you have been and it gives you an idea of how you performed in the market perhaps as much as two years ago. It tells you the results of decisions you made two or three years ago, completely ignoring how the market or you have moved on.
Should you spend time pouring over your accounts? Given that everything and everyone has moved on, are the accounts even relevant? I would say that they have their place, but too many business decisions are made just using the results shown in the last accounts.
So, what do you need to drive your business forward?
Firstly, you do need to look back to see the effect of decisions you have made or failed to make. Are there any lessons to be learned? An example may be where the accounts show that your gross profit has fallen. Initially you cannot think of any reason. Could this be because you did not or could not increase your prices even though your wages and other direct cost have gone up.
Secondly you need current financial data. Your accounts could be a year or more out of date. You need a good set of accounting records that are up to date and reconciled, so that they are both accurate and relevant. Before you set off on the next part of your journey, you need to know where you are right now. You could just look at your bank balance but that is just one part of the story. Who owes you money and who do you owe money to that need to be made in the foreseeable future.
Third, you need a good assessment of the market in which you are or intend to be operating. Who are your competitors, how are they performing? Have you looked at their accounts at Companies House? What is the potential size of the market and how much of it do you want to capture. Could your products or services be made less competitive by advances in technology, new legislation etc. There is a lot to understand about your market.
Next you need a team because there are not enough hours in the day to do everything yourself. Ultimately you need to be working on your business not in it, but that is generally impossible in the first few years. But you need to get there. You need to be doing only those things that only you can do, and delegate everything else. Then you will have the time to build the business and to establish systems that others can operate.
Finally, where are you going? Have you determined your goals and strategies for achieving them. Having determined your market, you should already have an idea of you target destination, and how you propose to get there. I think that most people have a BHAG – a big hairy audacious goal. I also think that most people do not want to share it in case people, especially their own families, laugh at them. They keep it hidden but periodically they have a sneaky look into the secret, dark recesses of their minds and have a look at their BHAG, when nobody is looking.
So, I think we have shown that if you try to drive your business forward purely looking at you rear facing financial accounts, you will crash. Something that you had not seen will catch you out.
What do you need?
2. Accounting systems
3. Sound business advice
4. Advice on systems
5. Goal setting and business strategies
Give us a call because if we cannot do all these for you, we will know someone who can.
Posterity or Prosperity?
I came across this a short time ago and it really set me thinking. The question raises so many other questions. One has to be whether these two ideas are actually mutually exclusive. Are you trading for the profits or are you trading to establish a legacy that you can leave behind.
What sort of legacy? Is it money or something more concrete and if the latter, is it a legacy to be enjoyed by the world, or part of it, or could it just be a business from which the next generation of your family can benefit.
I have often been asked what is my own motivation in building a business. I think the answer surprises most people. I want to leave a wake behind me so that, just like a boat, I have left a mark showing the course of my journey. I want my grandchildren to be able to say to their children, look what my granddad managed to achieve. Of course by that time I may not be around to hear this so it is not for the praise and glory, just the personal satisfaction of a fight well fought and something of value built up and left behind for somebody else.
Would this be meat and drink to a psychologist? I don’t know and care even less. Everyone must get their motivation from somewhere, and as long as it motivates you positively, the source does not matter. If what you want to achieve is worthwhile, the only thing that matters is that you are motivated to do the grind and complete the tasks to achieve your goals to the best of your ability.
So, what do you want to leave to posterity? There is no-one in our family to whom we can leave the business so it cannot be that. At some point, and that point is a long way off yet, someone else will take over the reins. That is inevitable and is just the way that the world works. When I first went into business on my own account, it was with a partner and we took over a business that had been going for over 25 years. We ran it, modified it and built it over 15 years. Helen and I took the leap and went out on our own, pretty much starting from scratch all over again. Since then we have swallowed up other businesses which themselves could trace their own history back, and in some cases over many decades.
Do we do what we do for prosperity? Now, that’s an interesting question. I have discussed many sets of accounts with business owners over the years and there is one question that I must hear many times every year – “If we have made that much profit, why do I have no money?”. As you would expect, I generally know the answer and understand why it happens. But these business owners, at least in the short term, are chasing profits and prosperity, but having achieved the profit and generated cash, do not feel any more prosperous.
The reason why they are cash poor is because they generally have a shopping list of equipment or other things they want to buy when funds permit. They make profit and so they have funds. They spend the funds on the business and then there is nothing left for them, and sometimes nothing left to pay the tax on those profits either. I caught myself saying the same thing to Helen recently. We buy things or we use the funds to finance the increased working capital required as we grow our business. In the long term, we hope and expect to see the rewards of our efforts, but in the short term, not so much. Many, but not all, business owners will only see the true rewards of their long graft, when they stop growing and possibly not until they sell their business. So, are they grafting for posterity?
Equally I know business owners who will not have a business they can sell and so extract their rewards as they go along. These will be business based upon their personal involvement whether as consultants or however, with no real assets other than perhaps a desk and computer. As a result, they are more focused on prosperity.
There will be other businesses that achieve an element of both prosperity and posterity.
Where are you on the spectrum between prosperity and posterity? Do you want to move more in one direction or the other. If so, does this signal a shift in your goals, either business or personal. In order to make this change you will need to adopt new strategies to take your business in a new direction. After all if you carry on doing what you have always done, you will continue to get the results you have always got.
Let me make a suggestion. Get in touch and we can have a short free discovery call to chat over where you are and where you want to be. Let’s discuss if we can help you implement the changes you want to achieve.
Leave your ego behind
They did the best they could
Are you right or in love / kind
Your middle name is resilient
In my line of work I see many self-employed people. I have come to the conclusion that small business owners are a very special breed and generally they have some very special qualities. Resilience is one of them. That does not mean that you do not feel pain. But it does mean you know you can live through it and come out on the other side.
These are testing times if you run your own business. Some of you might be wondering if you will still have a business after the crisis has passed. Certain sectors have already been hit hard and others might yet follow. We are all going to feel the pinch and then on the back of it we have Brexit. One crisis after another, multiple storms for us to weather.
Why did you become self-employed? It probably was not for this. Everyone has a slightly different tale to tell. I recognised early on in my career that I was never going to be a good employee and so running my own business was always going to be my first choice. I am not sure what brought me to that conclusion because at one time it was my ambition to work in a bank. Looking back, that would never have worked.
For me I think it was my future father in law who lit a small entrepreneurial flame. It generated an ambition but without the knowledge, experience and wherewithal to make it happen. That came later. But just like planting a seed, there are a few seasons when the sapling grows but without much substance. However, eventually that small weak and vulnerable sapling develops into a towering tree able to withstand the toughest gales.
Some people are thrust into running their own business by circumstance. Some like me steer that course from an early age. However you started your journey, once you had your own business, then your lessons began. You made mistakes, you lost sales, customers, you missed opportunities, Every one of these disappointments was a lesson and over the years there will have been so many lessons. But you were growing and the sapling who started off in business, has developed into a tree with strong roots. So, can you withstand the gales now?
Experience instils in all of us a resilience. When everyone around us is panicking we just carry on. Even if you survive the Coronavirus your business may go backwards over the next year or so. It might fail. But you will always carry on. Failures can be painful but they just add to your wealth of experiences. After the bruises heal, you will be made stronger.
Your watch word is “next”. That business might have failed but you will be ready (perhaps not immediately) for the next one. If the business survived you may have lost customers, but you will be ready to replace them. Next!
The sum of all your experiences has made you resilient. It may be dented but you will never lose it.
I came across a fridge magnet a while ago. It read “I am calm, I’m fae Shetland”. I always liked that because I think it says so much about the daily trials that islanders have to face that make them more resilient. It suggests a matter of fact mentality. Carry on carrying on. Panic is not a word in their vocabulary.
Next is Coronavirus. Then there will be something else and after that something else again. These are just storms to weather. Not everyone can do what you do. You run your own business. You will manage.
Sometimes you need someone to talk to who understands and who can provide that calm wise council in the storm when the going gets tough. You can manage but sometimes a little guidance can make the journey easier. We are here for you. Call us.