Street Smarts: An All-Purpose Tool Kit for Entrepreneurs

279 Pages·2010·1.29 MB·English

by  Norm Brodsky

Table of Contents
PORTFOLIO
Title Page
Copyright Page
Dedication
PREFACE
Introduction
CHAPTER ONE - How to Succeed in Business
CHAPTER TWO - The Right Stuff
CHAPTER THREE - Why Startups Fail
CHAPTER FOUR - Where the Money Is
CHAPTER FIVE - Magic Numbers
CHAPTER SIX - The Art of the Deal
CHAPTER SEVEN - It Begins with a Sale
CHAPTER EIGHT - Good Sales, Bad Sales, and the Ones That Get Away
CHAPTER NINE - Customers for Keeps
CHAPTER TEN - How to Lose Customers
CHAPTER ELEVEN - The Decision to Grow
CHAPTER TWELVE - Becoming the Boss
CHAPTER THIRTEEN - The One Thing You Can’t Delegate
CHAPTER FOURTEEN - Sel ing Is a Team Sport
CHAPTER FIFTEEN - Help! I Need Somebody
CHAPTER SIXTEEN - When the Student Is Ready, the Teacher Appears
CHAPTER SEVENTEEN - Keeping Up with the Stones
Acknowledgements
Index
PORTFOLIO
STREET SMARTS
Norm Brodsky is the founder of CitiStorage and seven previous startups, and a
three-time Inc. 500 honoree. He began writing his monthly Inc.
column (with Bo) in 1995. He lives in Brooklyn, New York.
Bo Burlingham is editor at large for Inc. His previous books include Small
Giants, which was a finalist for the Financial Times/Goldman Sachs Business
Book of the Year Award. He lives in Cambridge, Massachusetts.

PORTFOLIO
Published by the Penguin Group
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Africa Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R ORL,
England
First published in the United States of America as The Knack by Portfolio, a
member of Penguin Group (USA) Inc. 2008
This paperback edition published 2010
Copyright © Norm Brodsky and Bo Burlingham, 2008 All rights reserved
Portions of this book first appeared in issues of Inc. magazine.
Includes index.
eISBN : 978-1-101-19576-5
1. New business enterprises—Management. 2. Success in business. 3.
Entrepreneurship.
I. Burlingham, Bo. II. Title.
HD62.5.B75 2008
658.1’1—dc22 2008024979
Set in Bodoni Book
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http://us.penguingroup.com
To Elaine Jerome Brodsky
and
Lisa Meisel Burlingham
Almost eighty years of marital bliss
and counting
PREFACE
The Ten Commandments of Business
Economies go up and down, but the fundamentals of business don’t change.
That’s one thing we’ve al learned since the hardcover edition of this book
(original y entitled The Knack) first appeared in the fal of 2008. Since the book’s
publication people have asked me and my coauthor, Bo Burlingham, to put
together a list of the most important rules to keep in mind as they build their
companies. Here’s what we’ve come up with: 1. Numbers run a business. If you
don’t know how to read them, you’re flying blind.
When I started out, I thought that CEOs ran businesses with the help of their top
executives. What I didn’t realize is that a business is a living entity with needs of
its own, and unless the leaders pay attention to those needs, the business wil fail.
So how do you know what those needs are? There’s only one way: by looking at
the numbers and understanding the relationships between them. They wil tel you
how good your sales are; whether or not you can afford to hire a new salesperson
or office manager; how much cash you’l need to deal with new business coming
in; how your market is changing, and what impact the changes wil have; and on
and on. You can’t afford to wait until your accountant tel s you these things after
the fact. Nor do you have to become an accountant yourself. You do have to
know enough accounting, however, to figure out which numbers are most
important in your particular business, and then you should develop the habit of
watching them like a hawk.
2. Cash is hard to get and easy to spend. Make it before you spend it.
Most people don’t understand the value of cash when they go into business. If
they did, they wouldn’t waste it by purchasing brand new furniture, paying
designers to produce logos, ordering fancy business cards and stationery, or
spending money on dozens of other things that they don’t need and that deplete
their startup capital without getting the business one inch closer to viability—
that is, the point at which the company can sustain itself on its own internal y
generated cash flow. But it’s not just startup entrepreneurs who waste cash. The
corporate landscape is littered with the corpses of companies whose leaders
thought the good times would last forever and spent money they hadn’t yet made
on luxuries they didn’t need. I made that mistake myself once and paid the
consequences. One of the lessons I learned was: Make the money first. If you’re
smart, you’l put some of it aside for a rainy day. Whatever is left over you can
spend as you please. You can pay big bonuses to your employees. You can make
big donations to charity. You can buy a corporate jet. You can run for president.
Whatever. But first you must earn it.
3. Don’t focus on the top line. Gross margin is the most important number on
the income statement.
In the early days of a business, everybody obsesses about sales. We want to see
them increase constantly—the faster, the better. But focusing exclusively on
sales is dangerous, especial y when you’re working with limited capital. Instead,
you should be tracking your gross margin—that is, the percentage of your money
left over after accounting for the direct cost of whatever it is that you’re sel ing.
(Gross profit is sales minus cost of goods sold. Gross margin is the percentage of
sales that represents.) I believe gross margin is one of the most important
numbers, if not the most important number, in any business. In the startup phase,
it determines whether or not you’l survive long enough to reach viability. (See
chapter one.) Thereafter it continues to have a major impact on your ability to
grow the company. It takes the same amount of time and energy to build a low-
margin business as it does to build a high-margin one, but you’l have more to
show for your efforts if you stay focused on maximizing the gross profit you
earn.
4. A sale isn’t a sale until you collect.
Starting out, most of us tend to believe that when somebody buys something
from us it’s like money in the bank. Sooner or later, we’re going to get paid.
That’s not always true, of course, and just how much sooner or later the payment
arrives can make a big difference, but most people don’t think about that in the
beginning. The term “bad debt” doesn’t enter their vocabulary until they
suddenly find themselves with a receivable they can’t col ect. By the same token,
the concept of col ection time doesn’t become meaningful until they discover
they don’t have enough cash to pay their bil s despite having made a lot of sales.
Remember: When you deliver a product or a service before getting paid, you’re
making a loan to the customer, and you should treat it accordingly. That means
determining whether customers are creditworthy and finding out in advance how