What to Tell Your Lender, and When

Nobody really likes to share bad news. And when that news pertains to problems with your business, you may think the last person you should share that with is your lender. Maybe you are thinking you can turn things around before your lender has to find out. You wouldn’t want them to worry, would you?

Wrong. When your business encounters difficulties, you need to be in touch with your lender even more often. Lenders hate surprises. The key to maintaining a good relationship with your lender is to keep him informed every step of the way when you are handling a financial crisis. You can never give your lender too much information.

Open communication is the best way for your lender to be an advocate for your business and help you through the situation. Remember, your banker wants you to succeed and will do what he can to help you. But he can only do that if you keep him informed.

In my book, “How Not to Hire a Guy Like Me: Lessons Learned From CEOs’ Mistakes,” I talk about the 10 C’s of Bank Relationships for CEOs. Communication is one of those C’s, and in fact, almost every one of the other C’s hinges on it. (To learn the other nine, you can buy my book!)

I worked with a company I’ll call Giant Manufacturing, which had been a booming business for decades prior to 2007. But some unprofitable long-term contracts, coupled with the broader economic decline in the United States, resulted in severe declines in cash flow.

The company did not inform the bank until it was in dire straits. As you can imagine, the bank was not happy. Because it was so surprised and caught off guard by the situation, it cut back on availability of funds for Giant Manufacturing, which gave the company even less money to operate.

Had the CEO been proactive and called the bank immediately and continued to keep them informed, he could have potentially kept the bank on his team as he worked to get the company back to profitability. But because he kept them in the dark, they no longer trusted his ability and shut down access to much-needed operating capital.

After I took over, one of my main challenges was to obtain funding. Most sources had already declined to fund the company. But after 16 months, we were able to turn around Giant Manufacturing to having a positive cash flow position and a new lender was more receptive because of the speed of the turnaround. He could trust that the company was operating in a fiscally responsible way.

But an important part of obtaining that credit was educating the new bank. Yes, we shared our successes with the turnaround, but also the challenges we faced and the ones that had led to severe decline in revenues.

Giant Manufacturing learned its lesson and maintains a healthy relationship with its bank. And like any healthy relationship, it depends on ongoing and honest communication.

Mark Twain said, “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”  With respect to Mr. Twain, I’d alter that quote just a bit. The banker is quite happy for you to hang onto that umbrella, just as long as you keep him informed of any storms you are encountering and allow him to work as a team member to help your business weather them.


8 Tips for the Entrepreneur in Us All

Who said running your own business or managing your own team would be easy? Most people I interact with, whether CEOs or managers, function in at least one role as an entrepreneur.

I compiled the top actions to which they credit their success, so that I can share them with you. You’ll notice that they are all actions because moving forward is the most important element of running a successful operation.

1. Take smart risks

Don’t be reckless, but you must make bold moves sometimes. Caution is important, but beware of too much circumspection. Any growing business will require risks on its path forward – make sure you choose the risks with the most potential for reward to cost ratio.

2. Hire wisely and accept that you won’t be able to do everything yourself

One of the biggest challenges leaders face is letting go of certain tasks they should no longer be doing. But tying your time up with things that others could do will only hold you back. Learn to delegate, choose the right people for the right positions and make it your personal challenge to train them well at the tasks you pass along.

3. Spend money on healthy business growth

Penny pinching seems to be a wide-spread attitude as well as a reality in the years since The Great Recession. It’s an admirable change in many ways, and I encourage you to be cautious financially and eliminate unnecessary costs. However, don’t be afraid of spending money on development. It takes money to make money – trite but true.

4. Learn from mistakes and don’t let them devastate you 

Mistakes are a part of life and business, and you will inevitably make them. What matters is less the mistake and more that you learn from it. In addition, you have to learn to move on from your mistakes. Dwelling on the mistake will not make you a better businessman – dwelling on the lesson will.

5. Make ambitious goals

Some days you may want to conquer the market in your field, while other days you may feel burdened just maintaining the status quo. Set ambitious goals, share them with your team and use them to motivate yourself and to hold yourself accountable. You started a business to grow it – not to maintain it. Ambition does not mean outrageous. Make them possible, but make them ambitious.

6. Don’t box yourself (or others) into one role

When people find something they are good at (especially if others notice it and praise them for it) they tend to keep returning to the same activity. This is great for becoming a specialist in one specific area, but being an entrepreneur and business leader means doing much more than specializing. By the same token, let people try new things and experiment with new roles – you never know what hidden talents you’ll uncover.

7. Challenge your business model and operational plan routinely 

Can you name a single business that was successful throughout the centuries without changing the way it operated? I can’t. Look at your business plan and the way you operate – find one thing that exposes you to a lot of risk and find one thing that may leave you behind if you don’t change it now. Brainstorm ways to improve these areas and see if any of the improvements are viable. Consider potential mistakes that could take a huge toll or technological advances of which you have not yet taken advantage.

8. Don’t be greedy

When business leaders taste the sweetness of success, they want more and more and more. This natural ambition is a fantastic catalyst for growth, so don’t lose it! But you must ask yourself if the actions you are taking now may only benefit you in the short term while proving detrimental in the long term. Don’t let the desire for instant gratification and visible success cloud your judgement.

What are some points you would add to these tips to help your fellow entrepreneurs run an even more successful business?

4 Tips to Start Your Own Business

In my line of work I encounter many entrepreneurs, a lot of whom are serial entrepreneurs. I’ll share a few of my key findings based on their experiences starting businesses. As you read these tips, consider the actions you can take to positively impact your own business.

1. Start now

I hear business contacts and friends say things like this all the time:

“I want to start my own business.”

“I have a great idea, I should start a company.”

“I could do this job so much better than my boss, and I don’t like working for others anyway.”

Well, your time is now. People delay taking risks, and they find a dozen reasons to do so. But the main reason is this: they are uncomfortable with uncertainty. They are scared of the unknown. They sometimes are too cautious or lack self-confidence. If you truly have a great idea, bet on yourself. I won’t tell you that you won’t regret it, but I can almost guarantee that not taking a smart risk will be worse. If you want to start your own business, take the first step this week: come up with the company name, register your LLC or take any other concrete step.

2. Have a plan and a contingency plan

Acting on your business idea does not mean that you should act on it without careful consideration of the risks involved, preferably before you get too far along. Find business partners, identify your widget or service exactly, have brainstorming sessions with friends or family members and outline a preliminary business plan. Be prepared for roadblocks and, if you have the time and energy, create a contingency plan. What’s your exit plan if this goes up in smoke? A contingency plan can help if your initial plans face a significant challenge and you are unsure where to turn.

3. Set your timeframe

I see many people get scared in the early stages of a business plan and retreat to jobs at which they feel safe and comfortable, though perhaps less happy. Others are so determined to actualize their ideas that they are unable to objectively evaluate when it is time to stop trying and call the endeavor a good, but failed, learning experience.

Set a time frame – for example, twelve months – for how long you will try your business idea. Make sure to identify specific times (preferably specific dates rather than “every 3 months”) when you will evaluate the time investment and if you’re where you need to be in your business plan. If you give yourself one year, that is not set in stone. If things start picking up in the 11th month, you should probably keep working on the venture for a while and reevaluate the timeline.

4. Create a solid foundation before you focus on growth

Entrepreneurs are ambitious! They also want to show themselves and the world that their business is successful in just a few months. Set your pride aside (also known as checking your ego at the door) and focus on creating a solid foundation on which long-term growth is possible. The wider and better quality the foundation, the more it will be able to hold as you grow vertically.

Are you ready to start your business? Outline three concrete steps that will get you started and try to complete those steps (or set them in motion) in the next seven days.

Do you already own or run a business? Please share your own thoughts and advice.

The People You Want in Your Business

There are all kinds of people you don’t want working for your business. If I did a list post of those kinds of people it would be a mile long – a 100-part series.

But there’s one kind of person you do want: you want the kind of person who is internally driven.

This is a rare person indeed.

If you started your own business you would be described as an entrepreneur. That means that you are, 10 to 1, internally motivated. Perhaps money, fame or success is a driving force, too, but one way or another, the drive to take the actions that lead to those things is intrinsic.

Finding similar people is not easy.

I recently had the pleasure of working with a company where nearly everyone I spoke to was motivated internally (this was not a turnaround – the CEO was just experiencing an interesting situation and needed some advice).

As I spent a little time at this company, I had the opportunity to speak with a number of employees. Every single employee (who are called team members, not employees) I spoke with declared his or her intent to stay with this company for the long run. Employment at this company was “a career” and “not just some job.” It didn’t matter what their pay was or what their titles were. Each and every person I spoke with said that the kind of person who never fit in at this company was “a lazy person.” Every person here wanted to succeed because this was a culture of big moves, success and hard work. And they loved every minute of it. Multiple people said that this was the first place that they didn’t feel like they were going to work. They were finally doing what came naturally.

And as I tried to figure out what kind of company I was surveying, I realized that it was one where the employees were very carefully chosen. They were not just hired to do some job. They were brought in to be a part of a team where everyone was driven to succeed – and not for external reasons but for internal ones.

I encourage you to seek out those kinds of team members who are internally motivated to succeed and to do a great job. They’re hard to come by, but I assure you your company will benefit as a result.

What Ocean Pacific Can Teach us about Growing a Business with the Right Management Team

It’s a fool’s errand to grow a business without a competent or sufficient management team. I’ve seen it tried a thousand times and fail just as many.

The most common example of this is the entrepreneur who’s been successful to a point but grows a business past his capacity to manage.  Growing a business that large is a wonderful accomplishment, don’t get me wrong, but it’s every good entrepreneur’s job to know when he needs to bring in professional management to oversee key aspects of his business.

My case in point for this rule of thumb is Ocean Pacific.

I’m sure many of you recall OP. It was a pretty popular brand back in the day, and it still has a name for itself. Yet Ocean Pacific’s desires repeatedly seemed to outshine the capabilities and strengths of its management team. This is demonstrated by the fact that I’ve had to run Ocean Pacific twice.

The first time I was brought in to change the company because it was in the manufacturing business and expanding overseas without the proper personnel who understood sourcing and distribution in international markets. Though they lost a lot of money before we could reign in the problem, we ultimately got them refocused and left them to it. Had they had the kind of management team in place that understood the nuances of international expansion and management, I don’t think I ever would have gotten involved.

The second time I was brought into Ocean Pacific it was to convert them from a manufacturer to a licensing only company. They had a fantastic design department, but that was about it. They did not have the kinds of managers who could oversee manufacturing, and even though the international issue had been more or less overcome, manufacturing was ultimately not a sustainable model.

But again, the problem was that they lacked the right folks, in this case to manage the brand quality of the licensee’s goods. They just couldn’t deal with worldwide licensing. Once again, this transition sent millions of dollars down the tube, so we were brought back in to properly restructure them and carry out their plan.

So what did we learn. Well, plans are great, but plans only work until you start implementing them. At that point, reality gets in the way. One way to make plans work a bit longer – or at least come out the other side – is to have the right management team in place. You cannot grow or morph a business without a sufficient management team.

Have you ever tried to carry out a large scale plan without the right people in place to help you do it? What were the results?