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A few business principles that will continue to guide my future decisions

Johnny boy

Gold Contributor
Speedway Pass
May 9, 2017
413
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Washington State
This thread will be some different principles that I have learned that have been acquired through either a negative lesson or a positive result. They say lessons are learned with losses, but lessons are learned in success as well.

I see a lot of people making mistakes that throw up giant red flags because I have learned these different principles and can see exactly where a lot of ideas will go wrong. MJ did this himself and made a book out of it. He saw how if you did not control your business, you were doomed. If anyone could do it, there's a problem. If no one needed it, you would fail. If it could not be separated from your time, you would become the bottleneck. If it cannot be scaled and replicated, you would be fighting an uphill battle.

I would like to explore the different things I have seen and applied in my own business that may offer some value to you, since it has already delivered me some value.

These will not be "rules" since I don't believe much in rules. Sometimes going against the most basic rules can bring the greatest rewards. So I won't be hypocritical in saying that these things are always true, or even relevant to your business. They aren't even guidelines oftentimes. Just concepts, ideas, lessons, etc. that will hopefully help you do one of the following.

1. See an opportunity or find a problem that will turn into a business for you
2. Change how you are going about solving a problem within your business
3. Help with different issues such as problem customers, unprofitable work, employees, etc.
4. Seeing things in a new light
5. Filtering out bad ideas or seeing where they are going wrong quickly.

I will include a post now so you get an idea about what I'm going to include here.




Everything is quantifiable. Especially your policies. You don't need to know the exact number, but be aware of approximately how much everything affects your bottom line

If you are a lawn care company, should you get paid upfront or afterwards? Should you take credit cards only and charge them each month or should you also accept cash, or send out invoices for customers to pay at their leisure? Should you only work when you have signed contracts from customers? How can you make that decision?

When you require a customer to sign a contract and submit their credit card information, a portion of them will not like that and not sign up. But, all of your customers that do sign up will be obligated to continue as long as you are holding up your end of the bargain, and all of their payments will be on time assuming the have money in their account for you to take.

If you perform work for customers without a contract and without having control over payment, the expenses are quite high. Are the rewards high enough?

Problems that will come up

1. Customers will change their mind about needing services, creating service gaps in your schedule, causing you to desperately fill those gaps and sometimes lower your rate in order to stay busy. This lowers revenue a little bit.
2. Customers will hold your payment hostage until you do the subjective and arbitrary job of "satisfying" them. This raises costs substantially since you can sometimes spend 30% or more extra time at someone's place. This also causes you to be forced to leave a larger gap of time between jobs as a cushion. This results in a loss of revenue since you can't schedule 6 jobs when you can only schedule 5 and leave time cushions.
3. Opportunity cost. If you have to turn down jobs coming your way, then you are missing out on the portion of customers that would be signing up with more favorable and profitable terms. If opportunity cost actually was put on a profit/loss statement, you would realize you are doing a lot worse than you think.
4. This lack of profitability will force you to hire cheaper employees. Cheaper employees comes with the headache of dealing with poor attendance, training, fixing mistakes, and staying on their a$$ to get better results.
5. Customers may pay invoices late or sometimes not at all.
6. Late payments results in poor and inconsistent cash flow, bottlenecking growth and requiring you to have better cash reserves. This is compounded by the fact no contract means no promise of future revenue, back to point #1.

Benefits of going this route.

1. You will sign up more customers. Maybe an extra customer turns out to be an instagram star who supports your business and makes you go viral...it does happen.
2. You can charge higher prices for the luxury of favorable terms for the customer. This CAN offset revenue hits and cost increases that are outlines in the above points.

How do you decide?

With experience, you will see that this is a constantly changing dynamic of what is overvalued and what is undervalued. I have certain policies within my business. That's because of what is overvalued and undervalued. Right now, favorable terms and having contracts are grossly undervalued. Customers for my business have proven to have relatively inelastic demand when it comes to terms. This means I can put a form in front of them that has "terms and conditions" at the bottom, collect their credit card info, and I will only lose a small number of people that don't want any contract with our business. It is such a massive imbalance that having unfavorable terms not only makes a crew's work day almost 30% longer, it lowers revenue by close to 30% as well when considering problems 1-6 listed above. It makes growth and scaling much harder. When you break down all of the effects of these decisions, it becomes a no brainer.

However, if starting tomorrow I can't sign up 1 person in 10 when I require contracts and credit card info, that will change how the math breaks down. I would be forced to adjust by avoiding problems another way, such as agreeing to unfavorable terms but now being more selective by charging much higher prices and hiring better workers, or changing services, or something else. I don't make a policy just because I want the world to be a certain way. I have policies within my business to successfully navigate the way that the world actually is. If it changes, I change with it. I do that daily, weekly, monthly, yearly.

Sometimes we should make decisions the the gut, others with the calculator.

So...where are the pitfalls of your business? Can you avoid them? What are the costs and what are the benefits? Is there something that you can change based on what the market is overvaluing or undervaluing within your industry?
 

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Johnny boy

Johnny boy

Gold Contributor
Speedway Pass
May 9, 2017
413
1,969
540
22
Washington State
Understand the goals of the customer, the business, and the employee

Today we are going to visit 3 different dreamlands. The dreamland of a customer. The dreamland of a business. And the dreamland of an employee. It is like heaven. For example, the dreamland of a dog would be a place full of T-bone steaks, a full-body scratcher machine, and fire hydrants to pee on everywhere you look.

Customer dreamland

In customer dreamland, customer service is excellent but not needed. There's no need to talk to any salespeople, its all on an easy to use app. They get their product or service quickly. It's made of the highest quality or it's performed by the highest trained people who are courteous and knowledgeable. And the best part? It's all for free. They pay nothing. Maybe they even get paid. That is customer dreamland.

Business dreamland

In business dreamland, you get a hundred billion dollars and do nothing. You don't have to hire anyone. You don't have to do any work. You don't have to do anything. You now have the most profitable and the best business model in the entire world. That is business dreamland.

Employee dreamland

In employee dreamland, it is similar to business dreamland since an employee is just a business that supplies another business with a thing called "labor". Except they can only sell one unit, and only an hour at a time. They also get paid billions for doing nothing. That is employee dreamland.

As you can see, these are all quite unrealistic, but the dream is there. Each is pursuing their own separate interests. Neither can exist in any way even close to what they dream of, but people can always be fairly expected to lean into whichever available option gets them closer to their dreamland scenario.

If you are a business, you need to be aware of this so you are not naive. The more you get paid for doing less, the better. Don't worry, you will not be able to do it to any insanely large extent. It is okay to acknowledge that your dreamland and your own self interests can and should be pursued. Just as you should acknowledge and have empathy for the fact that customers will pursue their own interests, just as employees with pursue their own interests too. Once I realized this, I stopped getting angry or surprised at the actions of my customers and employees. They can be expected to behave selfishly to an extent. Trust me, if you are obeying the law and not lying to people or breaking ethical boundaries, you will not be able to take this too far in a selfish direction. No one will hand you a billion dollars for doing nothing.

This compromise between our different dreams is what makes up the free market. I want money for nothing. Customers want something for no money. And employees want money for nothing as well. Nobody gets what they want, so us businesses have to do stuff, people have to pay money, and employees have to show up to work.

How does this relate to how my business actually operates? Why does this matter at all?

When I started my business I got the same advice from everyone. All of it was customer-centric or employee-centric advice.

"Make sure you do good work"

"You do a good job and charge a fair price, and you'll be successful"

"Maybe you can offer more services and do more things for people"

Why? Did these people run the numbers on the cost-benefit analysis of doing good work vs doing shitty work? Did they measure the sales conversion rates on charging $90/hr vs $50/hr?

What about hiring employees?

"Pay good wages and hire good people. Hold on to good employees and treat them well"

Ah...that's how you build a big great company right?

"lol" - Amazon, Mcdonalds and Walmart

When an existing customer calls me, it is usually to do one or both of two things. 1. Wanting more services for no extra money or 2. Wanting to pay less money (usually by cancelling a contract)

I can't remember ever getting a call saying "Hi, you didn't have to do such nice work. Feel free to not do so much next time" or "Hey, do you guys want more money??"

I also don't expect an employee to say "Hey, no need to pay me so much". (This actually happened with my current employee, which is why I love him so much. But I don't expect it.)

I didn't blindly listen to the advice of people around me. I found it best to limit my services, charge a very high price and have selfish terms, only do recurring and repeatable work that I can have cheap employees do easily, get paid upfront and do a "commercially acceptable" job. We just get the work done. Nothing special. We have great marketing and sales, and our systems are top notch. That advice doesn't roll off the tongue exactly...

But what does it result in for me? The schedule is consistent, so there's few mistakes when it's the same places each week. The jobs can be fit close together since I know how long they will take. We don't get held hostage by customers not paying so we leave when the job is actually done, not whenever they feel like saying we're done like with one time services. The prices are high, so other things can run smooth and it isn't stressful being an employee for me. Hell, we'll finish up at 1:30pm and grab a beer sometimes. If my guy needs a sick day to take care of his 1yr old son, it's no big deal. He's happy. I'm thrilled. Most of the customers are very happy too believe it or not. The ones who think we are too expensive never signed up. Away they went. They can go sign up with Jose's lawn care where they'll save $30 a visit and be mad that the business has to make up for it by sacrificing in other areas and they write bad reviews online.

This is an important thing to understand on a macro level. But it will hurt you if you think "I'm going to charge more money and do bad work and it will help me be more profitable". That is not the case most likely. Anything can be undervalued or overvalued at any given time. Like my above post, everything is quantifiable. I believe that doing work for free can actually sometimes have a massive benefit. For example, I would pay money to cut Dan Bilzarian's grass at his property if he put me on his Instagram story for tens of millions of people to see.

The point is to understand and have empathy for the selfishness that exists, and that the advice and guidance coming from the world is often biased towards a customer or employee-centric dream that will hurt you as a business.

Do not have an ideology. The religion is "what works".

How does this apply to you?

It is easy to spot bad business ideas. If someone can go somewhere else for free and it's easy, they won't pay you. That would violate their selfish desires.

You'll have empathy for the fact that no one cares about you. Why should they? You have to make it worth it for them before they do anything for you. You'll also realize that you will get taken advantage of it you deserve it.

You will not feel guilty for wanting to succeed. Being afraid of greed is like being afraid of going to the gym and getting jacked. It's hard even if it's all you want. Also, don't excuse yourself from being aggressive in business. We are all selfish. You're just selfish and lying to yourself to cover up other insecurities.

Thinking in the most basic of terms will allow you to make hidden truths apparent. It gives you a blueprint for how to think about your business. "find a need for a group of people that they'll pay you handsomely, streamline the process so it's easy and fun for you, build it up, make a fat profit". There's nuances, but not getting confused about why we do this is important.

A big mistake I find is with people who have low self esteem, hoping others will do things for them in return out of the goodness in their heart and then getting disappointed. Or they are making weak business decisions because they are afraid to be selfish. I do better than I've ever done before because I am accepting of selfishness, whether it be my own or from other people.
 

Sizemore

Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Jul 21, 2019
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He saw how if you did not control your business, you were doomed. If anyone could do it, there's a problem. If no one needed it, you would fail. If it could not be separated from your time, you would become the bottleneck. If it cannot be scaled and replicated, you would be fighting an uphill battle.
Sidebar... This quick description of cents is articulated well.
 

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