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franchise in my hometown.
Okay, so you’re not in position (yet!) to make those sorts of deals, but the same principle applies to any sort of business. Want to know an easy rule to make certain you always have adequate cash on hand? Never put your lifestyle ahead of the growth of your business.
I’ve always kept the majority of my money in my company. I bitch to everyone that I never have money because I keep it all in the business!
But that’s why I’ve gone from $4 million to $4 billion in thirty years—I didn’t go out and buy $100 million Picassos like some people. I didn’t buy a house in Malibu. I used that money to buy more companies and to build buildings.
This comes back to something I say a lot, but it bears repeating: when things are good, we tend to forget that things can get bad. One of the biggest mistakes an entrepreneur can make is to assume the good times will always last. I’ve been through three major economic downturns, and being prepared is the only way to weather these storms. During the 2008 recession, my company wasn’t caught off guard. Our income dropped 10 percent. Fortunately, we survived by being ready in advance. We always have cash or credit capacity set aside, ready for the next downturn. And so should you.
Next, address the issue of bank financing. The first step is simple: get it before you need it. I cannot stress this enough.
Don’t just go into the bank and tell them you need money. Walk in there like you know how to borrow money and have a thorough business plan with you.
Working capital is the lifeblood of any business. • Loans and lines of credit are two excellent sources of ready cash. • Borrow money when times are good, even if you don’t need it. • Draw up a worst-case scenario that you can keep to yourself. If everything goes wrong, you want to be certain you can stay in business.
Make certain you understand how to get out of a lease early, including buyout provisions, subleasing, and other options.
Work with an attorney experienced in commercial real estate to help negotiate the best possible lease package.
nothing bothers me more than an entrepreneur who doesn’t know his or her numbers. It bothers me a hell of a lot. By numbers, I mean everything to do with your business. Cost of supplies. Cost of production. Labor costs. Costs of sales. Margins. I won’t bother going into any explanation regarding them. You should know exactly what I’m talking about. And if you don’t, you’d better find out.
Knowing how your business is performing from a financial standpoint on a daily basis is equally important as selling your product.
You can and should do the same. Know what your lease payment is for the month, what your salaries are, cost of sales, and other known operating expenses, and track all of those expenses regularly, along with your revenue. To the extent that your revenue is greater than your expenses, then you know if you’re making money and if you’re on budget or not. Simple, but a key part of my success.
Numbers are just as vital when your business is struggling. Lacking specific knowledge, you may be unable to identify the problems holding back your business. Worse, you may decide that one particular area of your business is the culprit, only to discover later that your lack of knowledge about your numbers led you to something that wasn’t the problem at all.
Knowing your numbers is the most essential part of being able to take your business to the next level. • Make daily flash reports and budgets a priority. • A complete knowledge of numbers is also critical to any sort of successful sales pitch. • If you don’t or can’t master your numbers, partner with or hire someone who can.
Most moderately successful businesses are good at about 95 percent of what they do. It’s the remaining 5 percent that can determine whether the business excels or not.
The 5 percent is the real difference driver, the tipping point that, when addressed properly and consistently, moves our restaurants past that 95-percent level. Unfortunately, that critical 5 percent can suffer in all sorts of ways:
A server brings a drink without a napkin. (This drives me nuts every single time I see it.) • A four-person table has one chair that doesn’t match the other three. • A perfectly prepared meal is served on the wrong type of plate. • Overhead fans turn at different rates of speed. • Trash and cigarette butts litter the parking lot. But the 5 percent doesn’t always have to be a negative: • It can mean knowing the names of repeat customers. • It can mean knowing where a particular customer prefers to sit. • It
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Those and other things are what I mean by that 5 percent, those elements that, when executed well, can set your business apart and help propel it to the next level—or, at the same time, hinder your growth if they’re not done right or ignored altogether.
there are issues beyond the obvious. Stories have been written about me saying that I can see a burned-out light bulb forty thousand feet in the sky. Why is that? Because when I go into my businesses, I pay attention and look for what’s wrong. I’ve trained myself to see little things that matter. It drives some of my colleagues crazy, but I take their complaints as compliments. Little things truly matter in taking a business from good to extraordinary.
Sometimes the 5 percent stems from complacency—an attitude that 95 percent is good enough. Well, it may be good enough, but that 5 percent you choose to ignore can mean the difference between business as usual and a business that truly excels—a business that blossoms into a regional or national player versus one that’s small and bound to remain that way.
I park my car, and I’m walking into a restaurant. I see a smashed Coke can or a broken beer bottle. As I near the entrance, I notice some dead plants with cigarette butts and candy wrappers nearby. I reach for the front door. The glass has smudges on it because the hostess isn’t wiping it down constantly. Those observations take a minute or two at the most. But I know what that restaurant experience will be like before I even walk in the front door. I can tell you right then and there whether I am going to have sharp service, sharp food, sharp everything. And I’m barely through the front door.
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what truly matters when it comes to separating yourself from everyone else—it’s the 5 percent. You’re always watching for the 5 percent, and they should be as well.
Have them proactively work at the 5 percent. If you run a restaurant, tell your servers to keep an eye on their customers’ plates. If somebody hasn’t eaten their food, notify a manager, who can visit the table and ask, “I noticed you didn’t eat your food—is everything okay?” That’s because dissatisfied customers often won’t say anything. It’s up to you to take the first step to check to see if there’s an issue that needs to be resolved.
The same goes for any business. If a customer buys an expensive product, follow up by phone. Ask questions like, “Is everything okay? Is the product everything you wanted it to be?” There may or may not be a problem. But a little effort on your part shows that their business matters to you, and you’re ready to address any issues that may arise.
Listen to your partner, customers, suppliers, and anyone else with an opinion about your business. Ask them, “If you could change one thing about what my business does, what might that one thing be?” Also, pay attention to online reviews and feedback.
Never become complacent. No matter if your business is soaring or struggling, never take a break from looking at that all-important 5 percent. Because when it comes to working to achieve that breakout every business wants, the 95 percent that’s working just fine tends to take care of itself. The 5 percent that isn’t working might end up taking care of you, and not in the way anyone wants.
The 95:5 rule—95 percent of your business may be operating fine, but seek out the 5 percent that’s wrong. • Don’t get complacent: always look for the 5 percent.
We should all work to improve the things we’re not good at. For me, that would be a very long list, and yours probably would be too. But don’t forget to leverage your strengths at the same time.
I like to say we all know what we know and what we don’t know. We may not want to admit it, but the truth about ourselves is usually clear. Deep down, we recognize what our strengths are, in addition to those skills that don’t match up with our abilities. That kind of honesty is important if you’re an entrepreneur—or anyone else, for that matter.
In fact, one of the biggest mistakes people make is being unable to admit...
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That’s why I urge every entrepreneur to be brutally honest with himself or herself. It’s critical to know what skills you bring to the table and those you lack.
Sometimes, a strength may not even be a particular business skill. For example, one thing I urge every entrepreneur to do is to never give up. Don’t admit defeat until they come and padlock your front door. Call that stubbornness, call it confidence, but it’s certainly a strength. If you can ignore the naysayers, everyone around you who says you can’t possibly make it, that’s a strength to rely on.
“Never become partners with someone who has the same skill set as you.”
If you’re skilled at one particular job but know that your team lacks talent in a particular area, don’t be shy about bringing someone new on board who can address those holes.
I did that several years ago when I partnered with the people behind Catch, a fantastic
smart they were.
When I was in my late twenties, about the time I was experiencing some business success, there were hundreds of banks across Houston. In many ways, it was a buyer’s market for companies in need of financing. With so many institutions competing against one another for business, it was a great time for entrepreneurs to look for funding and other means of financial assistance to start or grow a company. Banks and lenders were fighting tooth and nail for every bit of business they could land.
From 1980 to 1989, 425 Texas commercial banks failed. That included nine of the ten biggest ones. In 1988 alone, 175 Texas banks went under—representing $47.3 billion, about 25 percent of the entire state’s banking assets. You had banks collapsing across the board. Every savings and loan failed. Every Tuesday the FDIC would come in and close three or four more banks in town. You could almost set your watch to it. This went on for two years. It was horrific to watch, and it also resulted in an enormous shift in the banking industry, which was boiled down and consolidated. That’s why you have
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In my case, I had loans at eight to nine different banks, totaling about $2 million.
They had bigger issues to worry about.
and scary because leveraging that opportunity involved a whole new playing field.
It was interest-free money for five years.
But this story is also a great illustration of recognizing opportunity and making the most of it. Since the financial world was going to hell, it would’ve been understandable to panic, assume that finances would never be the same as they once were, and throw in the towel. You could see evidence of that everywhere. Apartment buildings were being left only partially built. Office buildings remained vacant. Residential projects had roads put in, but no houses constructed. It was scary and depressing, and it
would have been simple to give up—especially if you wanted to grow like I wanted to. But there were hardly any banks to approach. I didn’t throw in the towel. One reason was a truth that I had come to learn and that I’ve never forgotten.
When things are bad, we often tend to forget that they’re going to be good again. Further, when things are good, we forget that they’re going to be bad again. You need to prepare for both types of situations, because they’re both headed your way, sooner or later.
Again, having cash-flow businesses where customers pay on the spot—order a meal, pay for it—helped me when the economy struggled. In fact, every time there was a hiccup in the economy, I grew because I had the cash on hand to capitalize when my competitors didn’t. If yours is a cash-flow operation, you can do the same—just make certain to accumulate as much cash as possible when conditions are good.
If yours isn’t a cash-flow operation, you may not find out things are bad until thirty, sixty, or ninety days after you sent your last invoice, so you need to make even more of an effort to accumulate cash or have a revolving line of credit in place to access cash during the bad times. Then, when all
of your competitors don’t have the cash to fill a big order that could save their business, you’ll have access to cash to capitalize and either take that business or buy out your competitor. Like I said in an earlier chapter, when things a...
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The experience with the banks also taught me another valuable lesson regarding opportunity, which I also discussed earlier, in the context of having enough working capital.
