1001 Business principles and pieces of advice

How to get a new business or project started

Finding reasons not to get started is so easy. What are you waiting for? There will never be a perfect time, you will never have all the information, all the skills, all the right people, a perfect plan or enough money. Here are some words of wisdom that I recommend if you are procrastinating:

Start where you are, use what you’ve got, do what you can.

Arthur Ashe

The longest journey starts with a single step

Lao Tzu

You’re never too old, never too bad, never too late and never too sick to start from the scratch once again

Bikram Choudhury

The key message in these famous quotes is that if you want to do something, just take the first step. What’s the worst that can happen? If you fail, great, you’ve learnt something, so don’t waste it, start again. Which reminds me of another quote, “Fall down 7 times, stand up 8”. It’s also true that many successful business leaders have had their share of difficulties and set backs. What separates these successful businesses is that they didn’t give up.

Measure what is important

Getting started with data collection

There is an old business saying, ‘if you can’t measure it, you can’t manage it’. This is still true to day. Any process, be it cars washed per day, apples harvested, number of phone calls made, or orders shipped, is being left to chance if you don’t measure it and track it.

Once you have decided what the measure, you can then monitor it and start to manage it. For example, how many calls made today, compare this with yesterday, last week, last month, same day last year etc? Then decide if you need to take some action.

As a manager you can start proactively measuring what’s Important in very simple ways. One business owner I know in the early 1990’s simply made a note each day in his diary of the total order value each day and the top 10 customers in his diary. Year on year he’d compare each day and get on the phone to those customers who had not placed a repeat order to ‘see how he could help’.

These days instead of a diary I’d recommend just keeping a simple spreadsheet of key figures, one row per date and items to measure going across the sheet. With the data in Excel it’s much more easily graphed and automatically compared with prior year.

Below is a simple example of how a small online store selling children’s toys might track some measurements:

DateUnits Ordered by customersTotal value of ordersPage views on website
May 5th 202050£7,50020,121
May 6th49£8,00019,789
May 7th69£12,00033,567
Simple daily Measurement Tracker

This is a very simple example to make the point, but as a manager you can fit this to your purpose. Using this example we can see that the sales were higher than the previous days on May 7th. This prompts the question:

Why were the sales better?

What can we learn?

Is there an action we can take to apply this learning to increase future sales?

But also imagine now that you as a manager are looking at these figures again a year or two years later and comparing them with the same day.

Tip: If you attend a regular meeting, for example a daily stand-up or a weekly sales meeting where numbers are shared, keep your own notes of what key numbers are being reported. It can be immensely useful to have some key figures at your finger tips.

A Single Version of the truth

Often as a business grows the numbers being reported or discussed become more confusing. It’s not unusual to have 3 or 4 areas reporting what appear to be different figures for the same thing. This needs to be understood quickly and a common measure agreed on. Let’s take Sales Value as an example. The Sales Manager, is reporting that last month his team made sales of £500,000. Meanwhile the Operations manager is reporting sales of £600,000 and the Finance Manager is reporting sales of £400,000. On investigation they are all right, in their own way, in their own context.

The Sales Manager, literally took orders worth £500,000 from customers. Think of this as new sales.

The Operations Manager, Invoiced out sales of £600,000. This being £500K from this week and £100K of backorders from the prior week.

The Finance Manager, is showing £400,000 of sales in the management accounts, because they had to issue credits to come customers for faulty goods and anyway the numbers in accounts are nett rather than gross.

So, all three of them are correct, but from a managers perspective this can be confusing and worse still it’s confusing when trying to communicate this to more junior staff. The solution is to agree clear and concise terms for each of these. For example

Sales Manager: £500,000 of “New Orders Inclusive of VAT”. This is a useful figure as it shows how hard the sales team have worked brining in new business.

Operations Manager: £600,000 of “Invoiced sales”, or better still £100K of invoiced backorders and £500K of new business invoiced. This is important as it shows how much work the Operations team have had to do. It also gives content to labour costs in this area, packaging and carriage costs.

Finance Manager: £400,000 “nett invoiced sales”, but better still to break this down and report it as £500K net invoiced sales, £100K net credits, making weekly nett sales £400K.

Agree which of these figures you are using for various purposes and don’t mix them up.

Moving to a data driven business / data driven decision making

How a business makes decisions is a measure of it maturity and agility. The best businesses now try to measure almost everything. With IoT (Internet of things), it is much more reasonable and cost effective to measure everything which matters. Even details like the weather are important to capture as they affect performance. Data collection, capture and storage needs to be automatic. This is a big topic, and mentioned here so that you are aware of it. The value you can get from all this data is immense but it all starts with data collection, capture and storage. Cloud platforms such as AWS (Amazon Web Services) and Microsoft Azure have IoT (Internet of Things) gateways and pay-as-you-go databases to store the results. Data collection can be as simple as deploying Raspberry Pi’s or similar with sensors or input devices for staff, which communicate the measurements back over wifi to be stored.

The 80/20 Principle

Perfection is the enemy of progress.

Winston Churchill

Minimise inventory – Stock doesn’t generally get more valuable the longer you keep it.

Avoid wherever possible tying up resources in stock. Keep stock as low as you can without impacting on the operation of your business and service to customers. This isn’t easy and while there is a science to it there is also an element of art involved in some businesses.

When considering a new business venture, I would always ask if it involves buying and holding stock. If it does how is this going to be funded and managed?

Rule: One – Don’t hold stock if you can engineer it out of your process

You may have heard abut Just In Time (JIT) Supply Chains. The concept is simple, you take an order and promise for example 14 day delivery. The moment the order is taken you schedule production and place orders with component suppliers to cover the parts required, which are then booked to arrive a few hours before they are due to be assembled. This happens and production build the product, despatch and invoice it before the the parts are even due for payment from your suppliers. This needs tight supply chain management (SCM) and water tight SLA’s (Service Level Agreements) with suppliers.

This tends to be the model run by most large successful factories and supermarkets these days. With few of these businesses carry more than a few days stock.

For many online businesses you may not need to hold stock at all. Retailers can often take orders and then arrangement fulfilment directly by the manufacturer to the consumer. For example, many websites sell things like t-shirts with custom designs. When you order from these sites their custom designs (see IPR) are sent through to the t-shirt printer along with the customers details. The printer then does the work and sends the product directly to the customer and invoices for retailer for the t-shirt and carriage.

Rule Two – If you have to buy and hold stock, you need to understand cashflow

I will discus cashflow in more detail shortly, but for now you just need to understand that stock has to be paid for and you need to know that you will have the cash to pay for it. I’ve seen many businesses with 30 day terms with their suppliers and customers who pay on 90 day terms. So for example you may be paying your supplier for stock in January, but assuming you sell it through, you may not get cash from your customer until April. Lack of cash, kills successful businesses. There are many solutions, the simplest being you retain enough operating cash in the business to cover these costs until you are paid.

Understand the Pareto principle, it can be applied to most problems

Keep things looking fresh

Communicate like your life depends on it.

Own your digital landscape

You don’t need to be unique to be successful

The person who fails the most, wins

Don’t be afraid of making mistakes

Minimise labour: keep the number of people on your payroll as low as possible

This isn’t to to say should not have people helping you with your business. The secret is to outsource and buy-in services where it makes sense to do so.

Automate low value work and anything which could sensibly be automated.

Fixed versus variable costs

Generally it is best to minimise your fixed costs in a business. These are the costs you will have to pay, even if you don’t make a single sale. For example rent, insurance, deprecation on fixed assets, wages for full-time staff. This contrasts with variable costs which only increase inline with the amount of business you do. For example, a baker will use more flour if she sells more cakes. With variable costs, you should have money coming in from the sales to cover these and generate profit. With Fixed Costs, you have to fund them from profit made on sales or cash which has been injected (invested) into the business by the owners.

Another example was a business who bought in bulk and sold products through Amazon and eBay. They could have bought or rented their own warehouse and then filled it with staff to receive, store and despatch the products. Instead they found 3PL (third-party logistic providers) who could do this on their behalf. When they had done this once, they were able to replicate the model in the UK, USA, Netherlands etc.

Knowing when to convert a variable cost to a fixed cost

You have to keep an eye on this and spot when to convert a cost from variable to fixed. For example, a catering company were hiring plates, cups and glasses each time they did the catering for an event. They looked at their costs and identified that with what they were spending on hiring coffee cups each year they could buy their own. Once bought these coffee cups could be expected to last for two or three years. In reality, although they had to replace some of the cups over time, most actually lasted for well over five years. This is an example of converting a variable cost to a fixed cost and then sweating an asset (cups in this case) to generate more profit.

Create IPR (Intellectual Property Rights)

This is fundamental in many businesses. It was recently summed up by Jeff Bezos when he said “Create more than you consume”. For example although Amazon started life as a simple online bookstore, along the way they need an IT platform to host their bookstore and growing eCommerce business. They could have outsourced this to any number of IT providers but instead they built their own hosting platform called Amazon Web Services (AWS). They used this for Amazon’s own business and then started selling the technology to everyone else.

Another business person built up a lot of knowledge about investing in stocks and shares. He wrote this up and sold his own Guide to Investing. This creates a modest income which continues to this day and which has fuelled other business ventures.

What can you create? What can you sell to others?

Focus: Don’t spread yourself or your business too thinly.

There is an old expression, “If you want to dig for water, dig one deep hole, not lots of little shallow holes”. Often people have a recurring pattern of giving up when things don’t work fast enough for them. They move on and try something else. It is a fact, that the difference between success and failure in many businesses is they didn’t give up. When things got difficult, they gave it another day, and that was the day which changed everything for them. Do balance this with, knowing when to walk away. It can be sad to see people stuck, sinking ever more resource into something which will never work.

Try using the ICE principle when you need to prioritise a list of developments / projects / changes in your business

ICE stands for Impact, Confidence and Ease and these are the 3 metrics on which projects are scored. This simple tool helps you identify those high return projects, which are highly likely to be successful and which can be easily carried out.

Understand Cashflow

You know more than you think

Expect to fail

Doubt is good but learn to turn down the volume

Use your disadvantages to your advantage

Life and business are like the waves on the ocean

For every down there is an up. When you are in a down be glad that good times are ahead. Don’t take good times for granted as they will inevitably peak and eventually crash.

There is much to learn from this simple observation of nature.

Root cause analysis and the five whys

Listen to understand rather than to reply. Stop resisting what is happening

Focus on what you can control

Nail daily habits

Use routines

Stay connected

Know your core values, adapt on everything else

Respond not react

Show up, get through, make meaning on other side

Mistakes are all in the past.

By their very nature mistakes are all in the past. You can’t change the past. Think about how you should best respond to a mistake rather than just react. What response will have the best outcome for everyone.

All great products start with necessity