Links to resources:
The question of the Day:
Are you following all four of these characteristics?
Are they ingrained and part of your business?
And if not, which one do you need to work on?
Which one do you need to add the skills yourself or hire in the people that have those skills that can advise you?
Pamela: Hey everybody this is Pamela.
Tracy: And this is Tracy.
Pamela: And we are here to discuss how business really works.
Tracy: Today our topic is characteristics of a successful business. Now over the last couple of weeks, we’ve been talking about the characteristics of a successful business owner, but there’s a little bit of a difference between what you need for a successful business and what a successful owner has to have because you can hire in a lot of these skills.
One of them, being the first item on our list of traits for success business, is financial intelligence. So Pam, how important do you think financial intelligence is to a business?
Pamela: Well it’s crucial, and you know I was just thinking that I read a lot of articles and books about how to grow your business, how to have a successful business, and I feel like this is one of the most overlooked or under talked about traits that there is.
It’s so important to understand that a successful business will understand profits, they’ll understand what taxable income is, they’ll understand cash flow and that these are all different things. They will also make decisions based on all the understanding of those definitions. So successful businesses cannot do without a brand of financial intelligence that I think really needs to be explored much more if we are going to hope to succeed as businesses.
Tracy: I think one reason it’s under talked about is the fact that most people don’t want to do it. They don’t want to thinks about it. But a really successful business understands that there actually is a huge difference between true profits, taxable income, and cash flow. And I tell people all the time, cash flow, cash flow, cash flow. You can be quote, unquote, turning a profit and you can go broke and incapable of continuing in operations because there is no cash flow.
Pamela: Right. Yes, I definitely have experienced that first hand and I wish I had a better understanding of it when I left corporate. And you know, I think when a lot of people start their businesses they have this romantic vision in their mind of what the business is going to be like and they don’t really understand that… It can be that way, certainly, I’m not trying to, you know, take away from anyone’s visions of what they want their business to be, especially if they want it to provide a certain lifestyle. But there are practical, tactical things that you need to know and that you need to work on and that you need to put into practice at all times. And these are not glamorous things. There things like cash flow and income and profits and knowing the difference and knowing what you have to do to survive and to get your business going. And to help their business survive too.
Tracy: Yeah, I think one of the things that really hangs a lot of especially newer business owners up, but I’ve seen business owners that; I’ve worked with people that have been in business for you know, ten years and they’ll make a decision, they’ll do something, they’ll spend money and then they don’t understand; they haven’t thought through the decision I make, how I structure this purchase or this contract or whatever. There’s going to be taxable implication come the end of the year, that if I don’t understand tax law, or I don’t have the staff that can look into these things, I don’t have a group of advisors that are advising me from that standpoint. I can do something that seems totally normal right now that ends up killing my cash flow because of a massive tax bill come the end of the year because I didn’t structure things just right. Whereas, some minor change in the way you chose to structure that contract can really reduce your tax bill.
[Time – 4:00]
So I tell people all the time; no you as a business owner do not have to know tax law, but if you’re not going to know tax law then you have to have that advisor and you have to work with them constantly. Going to your CPA at the end of the year to get your taxes done, that doesn’t work. That’s how you get that big surprise tax bill that you that you had no idea you owed this much. You have to work with them on a regular basis. They have to be in the loop. They have to know what you getting ready to do, how you’re structuring it. You know you need to use your advisors in that capacity.
Pamela: So can you give an example. You mentioned if you don’t structure a contract correctly then you could be hit with a tax liability that you don’t want. So, do you have an example that you can think of?
Tracy: Well, the most, the time that you want to look at this the most often has to do when it comes to a major capital expenditure. Because one, most of them can’t just be expensed, they have to be depreciated over a number of years. In some cases, you can qualify for some advanced depreciation. You have to know how the tax effects are going to happen at the end of the year to make the best decision for your tax flow; I mean your cash flow and your taxes.
So, just, you know, let’s say you’re a manufacturing company and you need to buy a big piece of equipment. The question is do you lease, do you finance, do you purchase outright and each of these options, how is it going to affect the taxes. What’s the tax bill involved going to be? How big of a deduction or little of a deduction am I going to get and how’s this going to affect my cash flow as a result.
We know how it’s going to affect my cash flow today because I make the purchase. But how’s it going to affect my cash flow come next spring when I own taxes. Am I all of a sudden like going to be shelling out massive amounts of tax, I mean cash to pay those taxes and all of a sudden I’ve kind of like bound my hands. Because I’ve cut into my cash flow to strong.
That’s one of the most common areas. I mean it doesn’t have to be manufacturing. I just bring that up because, you know, they buy very expensive equipment. But really, in anything. A lot of time contracts, whether you do, like a virtual employee, a contractor versus whether you actually hire an employee. There’s huge differences in tax implication there.
Pamela: That’s true, yep.
Tracy: So you know have a good knowledge of this or hire in, have a group of advisors that helps you in this regard. It will save you a lot of headaches in the future because the decisions you make today have implication six, nine, twelve months from now.
Tracy: And use those tax laws to your advantage. That’s what a smart business does.
Pamela: Right exactly. Okay, so what are some other characters of a success business?
The Business Success Rule
[Time – 7:13]
Tracy: Well, feeding off of the financial thing, I thing all successful business follow The Business Success Rule that we did an episode on a month or so ago. Basically, they implement, they measure, they adjust and they repeat. That’s The Business Success Rule. Successful businesses do this in every aspect, whether it comes to production, marketing, whatever. They don’t just do things. They do things with an expected result. They measure the results they got against the expectations. They determine how to adjust to achieve expectations and then they repeat.
Tracy: Don’t go all in a hundred percent until they’ve tested.
Pamela: Right, yeah.
Tracy: They know they’re going to get the return that they expect to get.
Tracy: So I think that is the second one and it feeds off of your financial one. Do you as the business owner have to know how measure and do all these things? No, you have to have a team that knows how to do that.
Pamela: Exactly, exactly. And I think that’s important to implement in other areas of your business as well. In the types of content, you put out even. I mean, you and I have talked about this and I pay attention to this on my other channel, where what kind of response is certain content getting and therefore I steer my business in that direction. In the direction of the most, best response. So, yeah, anything that you are undertaking in your business, your business will be successful because you have a team that is measuring these results and you are acting on those results as well.
Tracy: Yep, well that just like, take, for example, your example right there, that you’re creating content for your channel and let’s say you decide on a subject matter and you’re going to do a whole series on that subject matter. Do you go out and film the entire series at once?
Tracy: No, you film one or two. See how the audience responds. Know what your expected response rate is. You see if you attain that. If you don’t you figure out how to shoot the additional episodes in a way that is going to get you your response rate or you decide to scrap it.
Pamela: So if I’m a content creator or anything else. Just in any endeavor in my business and I’m just starting this out, how am I going to know what an expected response rate it?
Tracy: Well that’s it. When you’re just starting out you don’t.
Pamela: So you just have to test the waters, maybe study other content creators who do similar?
Tracy: You can but you have to be very cautious of that because you can’t compare you starting out, to someone who’s been in business for several years.
Pamela: Right, exactly.
Tracy: So, you know, it’s like I’ve said in previous episodes: Ask. You know, contact these content creators and ask them, you know, at what rate they grew. How were things when they first go started? That can give you a bit of a benchmark, but just popping up a successful YouTube channel and seeing how many views they’ve got. That’s meaningless.
Pamela: Right, no I agree. I agree. It’s not going to tell you how they grew. It would be fabulous I think if we could see the stats that a lot of channels had in their early days versus now. Of course, that’s not available to us but I think it would be really fascinating to learn and to see what worked for their videos. But at least you can do that with your own. And see how as you go, how the content you created is working.
Put People First
[Time – 11:00]
Tracy: Okay, so the next characteristics of a very successful business would be that they put people first. Now, how many people can actually think of a business that truly does that? You know, when we’re talking about people, we’re not just talking about customers. We’re talking about vendors, contractors, suppliers, employees. We’re talking about everyone that has a touch point in the business. How do we treat them? I think you said in a previous episode something along the lines of “A business is a group of people.”
Pamela: That was in a recent episode. So why would you treat these people badly? And I think I gave an example from my own history of when it hasn’t worked so well, but I actually have an example of a company that is supposed to do this real well.
I’ve not worked there myself; however, I’m doing a gig there. It’s a gig unrelated to this channel. It’s something else that I’m doing for a week and I’m at Costco. And from everything I’ve heard, Costco is supposed to treat their employees very well. They pay very well. They give really good benefits. There very.. I mean you obviously, you know, have to show up and do your job and do it well. But in return, they will treat you well. Treat you with respect. Respect the fact that if you have a family or something else going on outside of work, that work is not going to be your entire life.
And so I’ve talked to employees of Costco as I’ve been doing this gig there and they are all really happy to be there. And I’m like where have you guys been all my life. Like, you know, I’ve never heard of a company, or very seldom I should say, have I heard of a company that really, truly does all this and their employees aren’t grumbling. You know they’re happy to be there. They’re happy to have the work. They get paid well for the type of position that it is. It’s above market rate. So I’m like, I don’t really know how they can make money doing this, but they do obviously. Costco is doing well as a business and they treat their people well which is probably why they are doing well as a business.
And they treat their customers well too. One thing that has been repeated to me many times since I’ve been on this gig is that the customer there are; It’s not a customer’s always right thing like kissing a customer’s butt if they are being abusive or something like that. It’s not the kind of fake “The customer’s always right” even when they’re not. It’s really; They want to treat their customers well. They want them to feel welcome when they come in the store. They want them to be able to find things easily, feel taken care of.
So Costco’s approach towards its people, its customers, its employees, everyone who makes up the company is apparently a very positive one from what people have said to me when I’ve been working this gig. And I’m just astounded. I’m like sigh me up. Where do I… Do you have an opening for me because it sounds great?
[Time – 14:08]
Tracy: Well actually, I have a few Costco stories too, just to tell you how well they do treat people.
Tracy: I did a consulting job with a manufacturer several years ago that was trying to get into Costco. And I was working with them trying to get into Costco when in a meeting I had with a buyer from Costco they told me that they would never do business with anyone; no matter how much they wanted to carry the product. They would never do business with anyone if their business exceeded twenty-five percent of that company’s total revenues.
Tracy: And the reason being, it’s like, instead of an exclusive to where no one else can get this anywhere but Costco, they are more interested in seeing that that business that they are doing business with succeeds even if they have to end their relationship with that business. Now that is really putting people first.
Pamela: Yeah that’s very interesting, huh. Well, I hope they continue doing this because I’m always concerned you know that the almighty dollar will get in the way at some point. At some point in the future maybe when the company changes hands or new officers are put in place in the future, that they will decide that’s not the way they’re going to do business. So I really hope they retain these policies that have obviously worked very well for them.
Tracy: Well, you know, it was kind of like bad new because that meant that this company I was working with had to get their sales up elsewhere before they could get the Costco contract.
Pamela: Right, but that’s good for them.
Tracy: In the same regard you had to admire Costco for not going after that like exclusive or anything of that nature. They put their vendor’s wellbeing first before their own profits. You have to admire that.
Pamela: Yeah, absolutely. So anyway, let’s move on. What are some other characteristic?
[Time – 16:09]
Tracy: Alright, well I came up with just the four which are financial intelligence, following the business success rule, and putting people first. And the fourth one is: successful businesses are creative.
Now, what does that mean? Well, basically it means that they don’t do things the way everybody else does because that’s the way it’s done. They constantly innovate. They try to improve. Now does that mean they are coming out with like the coolest product and that sort of thing? No, it means they are constantly trying to improve whether it’s in marketing, whether it’s in productions, whether it’s in procurement. They are constantly trying to improve on themselves and they find creative ways to do it.
Pamela: Yeah and they also pay attention to emerging market niches. And I’ve been astounded. I’ve heard of companies lately that; A makeup company that I know of who did not want to; their products are cruelty-free pretty much, but they did not want to take the time to actually label or market themselves that way even though that is a niche that is exploding.
I mean, I couldn’t understand when I heard that. I’m like, what? I mean, this just on a numbers basis, let’s forget the animals if you are concerned about animal testing or whatever, but a lot of people are now that’s kind of the point, is so many more people are conscious about these things. That it only just makes good business sense to add that. You know you don’t have to have a whole marketing campaign around it but add that as one of your differentiators. Add that to your bottle as labeling. I mean that to me doesn’t seem like a lot of extra work. And I was just when I heard this I was like “okay, I don’t understand that. It’s not a good business decision, but okay”.
Tracy: Yeah, so in other words, they weren’t paying attention to the trends.
Tracy: And being an industry; positioning themselves as an industry leader in that trend. They just want to keep doing things the way they’ve always done it.
Pamela: Right, which makes no sense to me. You know if I understand it as we’ve said businesses are run by people. You know kind of full stop, that’s it. And people have their own biases and their own priorities. And I know this was not a priority for the owner, but I think the owner was conflating their priorities with the company’s priorities. I don’t know that for sure. It just seems that way. So anyway.
Tracy: Well that makes it sound like there isn’t a strong team there that’s also watching trends and niches and providing that information.
Pamela: That’s right.
Tracy: I mean you weren’t inside you don’t know what discussion happened. If it was just like oh, well we feel lazy and just using the same label we’ve always used. Or if they honestly felt this is a trend that one, either they weren’t aware of it, or two, wasn’t important enough to go for it.
Pamela: Yeah, exactly, exactly. So that’s just one example again from my own personal talking to other business owners and employees. So yeah a successful business, one of their traits is that they pay attention to these trends. They know that “cruelty-free cosmetics” is not just a new fad. This has been an ongoing upward trend for years and now it is starting to become very explosive. So businesses that are going to be successful are going to pay attention to trends like this and other trends that come along the pike and they are going to capitalize on those because it makes good business sense.
Tracy: Yeah I mean that’s a simple improvement. If the products are already there cruelty-free and all you have to do is redo the label and a little bit of marketing?
Pamela: Exactly, exactly, yeah that’s why I was so astounded. Like okay I know these products are: Anyway sometimes things confuse me and I can’t understand them.
Tracy: So you know those are just some of the examples. Honestly, I could go on for days about companies that totally muck this up. You know are we saying that you have to have all four of these? Actually yeah I am. Now there are businesses out there that seem successful that do maybe three out of the four.
[Time – 20:48]
Take Uber, for example, we would think that Uber is a highly successful business right? Their growth has been astounding. They’ve disrupted a market. They put their customer’s first, but the problem first against their employees. Of course, it’s technically not employees, its contractors. But you know here in Sarasota I have not talked to an Uber driver yet that is happy. They all feel like they are being ripped off. They all feel like there being cheated. You know Uber is not responding or listening to any of their input. When they explain to me how they actually get paid, I’m like why in the world are you doing this?
Pamela: Yeah, right, that’s too bad.
Tracy: And then now the latest news about their corporate climate there. You know here we have a company that appeared highly successful but they didn’t put people first and now it’s affecting their marketing, it’s affecting their market share, its affecting their public perception. You know this company is currently on a fail projectory and the question is how are they going to turn it around?
Pamela: Right that brings up a really good point. Again we hear all about disruptive. Be disruptive. It’s not enough to just think of a better widget. Think of a widget that changes everything. And first of all, that’s now always going to be possible. Disruptions, true disruptions, they are disruptive in part because they are so different and therefore they are more rare, so not everything is going to be disruptive. But I think my point was that companies tend to make the mistake that if they are disruptive then they don’t have to pay attention to everything else because they’re disrupting everything. Of course, that works in the short term but as we’re seeing with Uber now, if they’re not putting these other practices into place as a business, putting their people first, using business intelligence, etc. It’s not a good long term strategy.
Tracy: No and unfortunately that’s what we see in almost all big businesses in the United States is they’ll do two or three of these really well and they’ll suck at the other two.
Tracy: You know people that are very financially focused and they’re , you know, margin, margin, margin at the expense of creativity, people, happiness, customer satisfaction, employee satisfaction. It doesn’t last. Look what it’s done to Wal-Mart. Look at what it’s done to JCPenney. I mean, you’ve all these department stores that basically you can’t distinguish one from the other and they’re all failing. The only ones that are succeeding are the ones that did it differently. You know Nordstrom, Saks, the people like that. It’s, you know honestly, it takes all four of these.
Yes, there’s probably a dozen more I could list but then you start getting somewhat industry specific or you start getting geographically specific. And I wanted this to be about what are the characteristics every successful business needs no matter where they’re located, no matter what their size is, no matter what their industry. It’s kind of the same view point we took when it came to the characteristics of a successful business owner. We wanted to make sure there were no variable in there. We only listed thing that are true to any and all business.
Pamela: Exactly and you know if you don’t practice all four of these then someone is going to come along that will. And they will knock you out of your perceived top spot or high spot in your market or whatever.
I mean honestly when I heard that about the makeup company I thought why don’t I do that? Of course, I’m ready to establish a makeup company right now but as I go through my own business and growing my own audience around my lifestyle channel it has crossed my mind to start a makeup brand.
And I’m like well I could you know start my makeup brand on, based upon all the principles this other company does plus I’m going to market then as cruelty-fee explicitly. You know that would be part of the whole package. So I would have all of the good things they have plus this other great thing and build my reputation that way. So it was just a thought.
But obviously I’m not in that business currently, but there could be another successful business that is that’s going to knock them right out of their spot. So you have to be cognizant of that when you’re running your business and you put your team in place. You know, fail in one of these areas and sooner or later someone is going to come along and dethrone you.
Join The Discussion
[Time – 25:36]
Tracy: I agree totally. Alright, so that wraps up our episode on characteristics of a successful business. Our question for you today is: Are you following all four of these characteristics? Are they ingrained and part of your business? And if not, which one do you need to work on? Which one do you need to add the skills yourself or hire in the people that have those skills that can advise you?
The other thing that we would like to know is: What do you think of this format? I’ve been traveling a lot lately and it’s gotten kind of difficult for Pam and I to get together. So were only doing one or two of these before we get back together next time and we just want your input. Love it, hate it, whatever. Give us some feedback. If you’re watching the video you can leave a comment below and if you’re listening on the podcast head on over to how business really works dot com and leave us a comment there. You can leave it on this episode or there are plenty of other places on the website for you to get in contact with us.
Pamela: And don’t forget to like this video and share this video especially if you think it’s been helpful for you. And if you’re listening on iTunes to the podcast, please leave us a review. We’d really, really appreciate it. Tell us what you think, stay in touch. If you leave us a review on iTunes it will really help us get found so that we can help people like you have successful businesses. So thanks for joining us and we will see you next time. Bye.