Old School Business – Not Sexy, But It Makes Money

I am an old-school entrepreneur in a lot of ways. I have mentioned before that most of my ventures are brick-and-mortar type enterprises (retail, restaurants, franchises, etc.) that you can feel and touch. I am better at operating a business that I can understand and I find that these types of businesses are easy for me to relate to since I have been frequenting them as a customer for many years. I also have some good professional experience in these type of businesses, so I think it is understandable that one might be more attracted to things that you have some reasonable competence in.

Anyhow, back to the point. I am a traditionalist in many ways when it comes to entrepreneurship. I don’t believe in a lot of the new-age buzzwords that people use to describe basic business practices. I read a lot and try hard to stay current. I am an early adopter of new technology for both personal and business use. I am not a fuddy-duddy dinosaur that doesn’t embrace change – far from it, I am always looking for ways to improve my business. I use new technology, new ideas and new methods all the time, but they all have to show me improvement or they are OUT. Improvement to me is easily quantified, it means more profits. Period. This is where my old-schoolishness (is that a word?) is apparent. I don’t spend a lot of time thinking of things that aren’t directly related to the profitability of my business.

Namely:

1 – Labor Costs
2 – Cost of Goods Sold
3 – Fixed Costs
4 – Sales
5 – Net Income

Notice that I listed three expense categories first. This is not an accident. There are a lot of very profitable businesses out there that don’t have seven-figure sales figures driving them. I think it is a lost art to make a small business highly profitable. It is easy to make a big business profitable (although I know several local companies that can’t seem to make money no matter how high their sales get – but that is another blog). I really respect the small business owner that can make a decent living for their family without having operations in multiple states, without large product lines or big payrolls. It takes ingenuity, hard work, intelligence and guts. I have made a living by stringing together multiple businesses that fall into these categories. Together they make for a rather sizeable company, but alone, they are your neighborhood gas station, dry cleaner or pizza shop. I enjoy the economies and negotiating power that a chain of these businesses can achieve, but I watch the expenses like a hawk – as if each business were it’s only location.

I deal with many large vendors that have contracts with a lot of businesses that compete directly and indirectly with mine. I enjoy sharing some basic numbers about our companies with these vendors because it is rewarding to learn that we are squeezing more profit out of a dollar then many of their other clients. No matter how many units I build, I will always be focused on the simple, old school business principles that I would use running one store…or one-hundred stores.

On the flip side of these basic business principles are the fad based, buzzword tactics that I don’t spend much time thinking about at all. I hear about them a lot, and I know they work for some people. However, I think these concepts take a back seat when it comes to the overall profitability of a brick-and-mortar business (I can’t comment on how they effect other industries like software or service-based businesses – just the industries I know):

1 – Image
2 – Public Relations
3 – Highly Leveraged Growth
4 – Sales Without Profits

I am really kind of tired of hearing about businesses that are so this or that and yet they can’t seem to make a buck. I deal with two such companies once in awhile and it is always the same story – the bigger and better they become in the eyes of the public, the better they will get at making money, right? Wrong! I have heard and read so many articles about this company or that company opening 400 stores by this time next year. I seriously just read about a local restaurant company that said, with a straight face I bet, that they planned to have 3,000 locations by 2011. Seriously, they look like idiots to anyone that knows the business, but to them – it is all about the image of being a big dawg baby! Public relations fall into a similar distaste for me. Why send out press releases all the time about what you are doing? If you are kicking butt, people will hear about you and the press coverage will come. Some companies should spend less time trying to get people to write about them and more time working on the profitability of their company so people will WANT to write about them.

Another concern I have is the amount of debt and leveraging that a lot of brick-and-mortar businesses take on early in the game. It is a killer to work 100 hour weeks, borrow every dime the bank will give you, and then after you service the debt each month there is very little left for you to live on. Most businesses in my industry fail because people give up before they go under. They walk away exhausted. Too many people are so excited to get a business going that they don’t consider the downside. They will take on the money they need in any way they can because their business is going to be wildly profitable! What if it isn’t? Grow as organically as you can, take on minimal debt, and leverage your businesses success in a manner that won’t sink the ship if you hit a wave or two. In other words, finance the business slow and steady, it wins the race most of the time (non amazon.com style of course).

Finally, my biggest pet peeve of the new-school entrepreneur is focusing on sales regardless of how much money they lose along the way. I have a sweet deal for you – I am going to give you $10 million dollars and you give me back $11 million. That is basically what these guys are doing when they tell everyone they did $30 million in sales but they managed to lose $2 million dollars along the way. Again, I am referring to my industries only (retail, franchise, restaurant, brick-and-mortar). I realize that many technology companies lose huge amounts of money while the land-grab is on for market share in emerging industries. I have said it before and I will say it again, if you are reading my blog this probably isn’t the type of company you are interested in starting.

Overall I want to stress the importance of keeping your focus on the things that are proven to work. Making money (along with building relationships and learning a tremendous amount) is your primary objective as a small and growing business. You aren’t doing anyone any favors if you don’t focus on this basic business need. Think of profits like oxygen – you have to have them or you will die. Don’t be afraid to try new things but have a measure for them. If they don’t affect profitability in a positive manner, look into something else. A small, simple company cannot get sucked into the sexy business lingo you read on the cover of a magazine. There is nothing wrong at all with emulating other successful companies, but don’t try their strategies instead of your core concepts but in addition to. If you get too caught up in the sexy buzzword of the day you will be stuck with a struggling business for awhile and perhaps even until it is too late. But dang, you will look cool!

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