Embracing and Accepting Change May Make or Break Your Business

I drive a 2007 Subaru Outback.  Currently, the car is in the shop for some repairs and routine maintenance.  While in the shop, the dealer provided me with a brand new loaner Subaru Forester.  While using the cruise control, I noticed some very interesting additions to the features it provides.  It detected when I changed lanes.  And, the cruise control adjusted the speed of the car automatically according to cars in front of me.  As advertised, it can even stop the car before a collision happens.

Subaru Eyesight Technology

I have been reading for a few years that kids born today may not drive ever.  Sometimes these predictions seem like science fiction.  We are so focused on preserving the present that we often ignore potential future change.  Look at what happened to companies like Kodak, who held on to the idea that people would always print photos.  Cable companies are another good example.  What happens to cable when consumers get all their content online?  It is highly possible that the only thing keeping cable companies alive is HBO and ESPN.  Without cable, what happens to flat screen TVs?  Other industries, like taxies, are dealing with major competitors like Uber, which have huge competitive advantages by having no infrastructure.  All too often we put our head in the sand and say that these changes are not going to happen that fast.

As for the car industry, they are a perfect example of an industry that is unwilling to accept the future.  One article I read talked about the next consumer electronic being the car.  You may ask how a car can become a consumer electronic.  To answer the question, think about what will you be doing in your car when you are no longer driving it?  You will be watching movies or TV shows, checking Facebook, shopping, talking to friends, among other things.  It is highly unlikely that you will just sit there and enjoy the view.

Google Driverless Car

Over the past several years, Apple and Google have been investing heavily in autonomous car technologies.  Google has driven over 1 million miles with its autonomous cars without any major crashes.  What happens when Apple or Google start selling cars?  You may think that legislation will stop this from happening, but driving autonomously is legal right now as long as someone is sitting in the driver’s seat.  That is how Google has driven 1 million miles with their autonomous cars.

Now, let’s shift back to my loaner car.  The system that enables its fancy cruise control is called EyeSight Driver Assist Technology.  It turns out that it was introduced in Subaru’s 2015 models.  Now, it may seem somewhat simple for this system to adjust the speed of the car, but the extent to which this system performed was amazing to me.  I drove several dozens of miles, including traversing the downtown connector in Atlanta traffic, with the cruise control set at 78 miles an hour without touching the gas pedal or the brake.  The car would slow down and almost stop for traffic, if necessary, then resume speed when cars had cleared the lane.  During one trip, I drove from I-20 W onto I-75 / I-85 N, then exited at Northside Drive without touching the break.  I was even able to get off at the exit without touching the break.  At the very end of the exit ramp, I reengaged the car.

Driving with Cruise Control: From I-20W to Northside Drive in Atlanta

What is simply amazing about this feature is that it is available on a Subaru Forester for just under $30,000.  Now, changing lanes and managing stop lights and stop signs may seem like a far stretch from adjusting the speed of a car when cars are in front of you.  But, is it really that far of a leap?  If Subaru can create a feature like this for under $30K in a fully loaded automobile, are we really that far off from autonomous cars?

Whether it is autonomous cars or the end of cable, we often avoid accepting change as reality.  As entrepreneurs, this could make or break our businesses.  Although, it is just as bad as an entrepreneur to count on changes you cannot control before they happen, it very important to accept that change does happen.  Some industries may move slower than others, but we are in a time of exponential change.  Keeping aware of these changes and adjusting your future business model accordingly may make or break your business.

What changes are coming in the future of your business?  Are you prepared to address them if they happen? 

Bad Customer Management – The Best Way to Grow Your Competition

As I stepped on my Delta airline flight today, I felt aware and alert.  Through 20 years of flying the airline, I have learned to watch my wallet at every turn.  This trip was no exception.  But, before I begin, I want to tell you why I am going to elaborate on my experiences with the airline.  Building lasting relationships with customers requires that you care.  Of course, we as businesses are here to make money.  However, the best path to making money over time is a loyal set of customers.  Loyal customers will suffer through pain and frustration if they believe they are a part of your team.  One of Delta’s main competitors in the United States is a good example.  Airtran, now Southwest, was loyal to me for many years.   Their rates were far and the service was good.  Most of all, I felt they wanted my business.  For that reason, I would often choose to fly them, even if I had to pay a few extra dollars.

Delta used to care.  As a young traveler, I used to enjoy flying them.  I built my way up to Silver Medallion for several years back in the late 1990’s.  One year, I even made Gold status.  As I flew for business and personal, I felt I was getting the benefit of many painful miles.  Then, back in the early 2000’s Delta got greedy.  They stopped caring about anyone but the most elite travelers.  It started with changes in their loyalty and rewards program.  One day they decided that all tickets were not equal.  If you paid less for your ticket, you got fewer miles.  This may have seemed like a great idea at a high level, however, it felt awful to me as a traveler.  I have and continue to fly a lot.  One year I made elite on Airtran and Silver Medallion on Delta.  As an entrepreneur, however, I am very price conscious.  I am very unlikely to pay more just to get more miles.  And, I am going to enforce the same for my employees.  Given that all passengers suffered through the same number of hours in an iron tube in the air, Delta’s changes seemed wrong to me.  Further, it convinced me that I would not win at Delta’s new game.

Delta did a few other things to make me feel on guard as a customer.  They made you pay more to get the benefits of any elite status.  For example, you had to pay more to have the opportunity to upgrade.  Further, they were giving out tons of free miles through credit card rewards with the promise of free flights.  By contrast, they made it twice as hard to find free seats on flight.  As I accrued benefits on Delta, I was denied the ability to use them every time I tried.  Miles tickets were either not available or cost twice to three times the points.  Transferring points was cost prohibitive making combining points with my wife impossible.  The advertised benefits I worked so hard to accrue melted into a useless pile of empty promises.

By contrast, Aitran made it simple and easy for me to both get credits towards flights as well as use those credits.  For a long time, I was accruing about one flight every few months.  I used these free flight regularly to fly to visit friends or to fly my family in to visit.  The process was painless and easy.  Further, free flights were available on most routes.  Overall, I felt Airtran was fair and reasonable with their free flights.

Other examples of the ease of using Airtran were their standby policy.  They allowed for standby within the same day.  Delta, by contrast, required a $100 fee to go standby (now $50).  Further, there web policies are all about maximizing the money they can take from me.  I have found that they raised the rates they present to me just because I search a particular flight multiple times.  Another thing I noticed about 5 years ago was that the width of the seats were smaller.  When I sit in a Delta coach seat, I feel more cramped than on other airlines like Southwest.  Overall, I feel Delta cares only about collecting as much money from me as possible at every opportunity.  My relationship with Delta has been adversarial and hostile for about fifteen years now.  Engaging with Delta raises my blood pressure.  It makes flying with them stressful.

Now, Delta is in my home town.  I live in Atlanta.  My neighbor is a Delta pilot.  Many of my friends have worked for Delta at one time or another.  Because of Delta, I can get just about anywhere in the world without a layover.  For many reasons I should be wanting Delta to thrive and survive.  However, their unwillingness to see my relationship with them as anything more than a revenue stream makes me frustrated and angry at their existence.  The bottom line is that I use Delta because I have to, not because I want to.

Even today, I had yet another annoying experience with Delta.  I carry on luggage 99% of the time I fly.  I like to spend as little time as possible in airports.  Waiting for baggage at baggage claim is frustrating for me.  Today I was instructed to gate check my bag as I boarded the plane.  To my major annoyance, several of the baggage bins where empty when I got on the plane.  Once again, Delta has made my life more painful than it has to be with no proper explanation for why.  More than likely, they had some revenue generating reason for me to check my bag, and a complete lack of concern for my discomfort.

As entrepreneurs, what can we take from my experience with Delta?

1)      If you can understand pain, you can find opportunity.

Airtran and Southwest realized that average customers wanted to feel accepted and appreciated.  They viewed all customers equally and treated them fairly.  They were honest about what they were going to deliver and their rates where fair and transparent.  They accepted all customers with open arms.  Over time, their fleets and services were comparable to the major airlines.  They built trust and understanding with their customers by properly managing customer expectations.  They treated their customers as partners, not just revenue streams.

2)      Partnering with your customers creates loyalty that may allow you to overcome well-funded, larger competitors.

As you look at your customers and prospective customers, always keep in mind the need to create loyal followers.  Your customers, if properly incentivized and directed, can become your army against your competition.  They can help you overtake the eight hundred pound gorilla in your industry.  Show them you care about their needs, and they will care about your success.  See your customers as allies.  There are many times I will pay a bit more to fly Southwest (who now owns Airtran) because I can trust they care about my needs.  By contrast, Delta has taught me time and time again that I must buy their trust.

3)      Loyal customers will suffer through challenges if you show them respect and loyalty in return.

Airtran and Southwest are by no means perfect.  From time to time, I have had experiences on these airlines that were less than optimal.  However, given that they are flexible with me on rates and benefits such as free flights and standby privileges, I am willing to work with them when they falter.  Honestly, most of the experiences that have frustrated me with Airtran and Southwest are long gone in my memory because I feel they want my business.  Many of times, I have been able to book a flight on these airlines within days of a trip and the rates presented where tolerable and fair.  The seats I usually get on these last minutes purchases are business class allowing me extra benefits and perks.  On Delta, I am often paying two times the price to get a coach class seat where I may not even get to store my carryon luggage due to my lack of status.

As a final note, I thought I would add my thoughts on what Delta could do better.  I realize that I may not be Delta’s target customer due to the fact that I don’t pay full price, and that I do not travel a 100,000 miles a year.  However, Delta could at least show me that they care in the form of some flexibility.  Tricks like changing fairs based on how many times I search Delta for pricing on the same flight make the customer feel distrustful.  Delta could be honest about their pricing and their benefits program.  Tricking me into thinking that my Skymiles are valuable, then making it impossible for me to use them just makes me angry as a customer.  Just the act of traveling is exhausting.  Knowing that I not only have to build up the energy to make my trip, but also knowing that I have to be prepared to battle my airline at every turn makes traveling a miserable experience.

When I was a rower at Cornell, I was in the top boat all four years.  I was a leader on the team.  I realized early on that every person on the team helped make me stronger and faster.  I would spend time talking to the slowest rowers on the team.  I would tell them that they mattered.  I emphasized that every time they got faster it pushed the top guys to get faster as well.  I made sure they knew that I cared.  As a whole we ended up with some pretty amazing results over the years.  I also created some very loyal friendships in the process.  You would be surprised at how little it can take sometimes to show people you care.

Cashflow – Part 2

Hopefully, you are now using and managing a cashflow.  Given Part 1 of this blog, my goal was to get you to at least think about tracking your money on a regular basis.  If all you did was make some wild guesses about your spending and track the actuals on the template I provided, you are miles ahead of where you where before you started using the cash flow.  My goal with Part 2 is to get into more detail about how you can manage cash and make better decisions with your cashflow.

Let me give some more examples of why a cashflow matters.  A friend of mine has been growing a consulting practice for some time.  Her practice is primarily herself.  Over the years she has done very well, and her income has grown.  Recently, she was telling me about how much money she had in her bank account.  I asked her what her cashflow looked like in six months.  She doesn’t have one, so she doesn’t know.  I told her that she hadn’t really accrued anything until she understood how her spending versus cash coming in looked in six months.  The problem is that current cash on hand can be deceptive.  Most of the cashflows I have reviewed or managed over the years turn out to be very lumpy.  Yearly or bi-yearly expenses often cause your current cash to dwindle faster than you think.  Given that you have lots of cash in the bank, you may decide to buy something you wanted or give yourself a raise.  Six months from now, however, you may be borrowing money to catch up.  Without a plan for how you are going to manage your money over the coming year, you are at a loss as to what the money in your bank account means.  You really need to project out expenses versus income to get an idea of what you can do with the money currently available to you.

Now, let’s assume you took my advice in part 1 and that you have a cashflow spreadsheet.  How do you get better about using it to your advantage.  The first thing to think about is prioritization.  What expenses do you have to pay no matter what?  What expenses are going to be very hard to pay if you delay paying them?  If your phone gets turned off, how does that affect your business?  What vendors will work with you, and what vendors are inflexible on payments?  For example, can you negotiate 45 or 60 day terms with some of your vendors in order to allow you more time to accrue revenue against those expenses?

Negotiating better terms can make a huge difference in your cash flow.  In one of my past businesses, I had to spend a lot of money in order to acquire product.  We were producing a printed product, and we would spend about $20,000 to print our product when we performed a run.  A print run of this size might last us anywhere from 2 to 4 months before we had to print more product.  Early on in this relationship, I negotiated 60 day terms with the company that printed my product.  This was critical, because it allowed me more time to accrue sales, and collect the money to pay these bills.  Since I knew my cashflow, I was able to pay off this vendor consistently.  That helped me build trust with them that I would pay when I said I would.  The 60 day terms also allowed me to make sure I had the cash to pay more urgent bills, like payroll, phone and utilities.

Personally, I have a few key rules.  I pay my employees as soon as cash comes in.  Without employees, a business can be very hard to operate.  Also, they are providing a service with likely no upside other than their salaries.  Delaying payment to them is putting them in a bad position.  Not paying them in a reasonable amount of time can also decrease productivity and moral.  Further, employees are often a large part of any businesses expenses.  Catching up on missed payroll can be very complicated.  Overall, it is good to prioritize payroll.

I also pay my subcontractors right away, especially when they are a large portion of my expenses for a customer.  For many of my contracts, subcontract expenses can be significant.  Delaying payment of subcontracts, especially when that requires you to pay subcontractors out of revenue from future customers, can put you in a place where you may never catch up.  When you create this situation, you may not even realize that you are borrowing from future revenue.  The more you do this, the more likely you are to be running negative on your profit.  It can be very important to pay subcontractors as soon as you get your clients payment, because you may never catch up otherwise.

Paying phone, utilities and other small bills on time can be very important as well.  These services can get cut off and really hurt your ability to continue your business.  In tough times, you may delay paying them for 15 or 20 days once or twice, but stretching it much further can cause complications.

When you pay your employees can be important, too.  Depending on how regular your income is, you may want to pay them monthly versus every week or every other week.  Again, this may allow you to accrue the money you need over the course of the month to pay them.

If you do get behind, or you anticipate being behind, it can be important to negotiate this up front.  For example, some of my businesses have had large patent cost in a given year.   The expenses accrued faster than I could pay them.  Patent cost are often a long ways away from bringing you revenue to balance them out.  They can also accrue very quickly.  In this case, I negotiated a 6 month “catch up” period.  During this period, I took the total I currently owed plus any future maintenance cost over six months and divided by six.  I put this monthly payment into the cashflow and I stuck to the payment plan.  This helped me catch up at a reasonable rate.

Cashflow can be very different from profit.  Sometimes a business may make a good profit, but it doesn’t throw off extra cash.  That could be because the business had to pay back loans or buy equipment.  In both of these cases, the cash you pay may not end up as an expense.  Instead it may end up as a liability or asset.  Another example could be that you, as an accrual business, have delayed payment on receivables for a major client.  I have had my business show strong profit or lose in a given year while showing practically break even cashflow.

If your business is throwing off cash, then move the money off of the cashflow.  You could do this by having a savings “expense”.  Every time you put money towards this expense, you can move it to a savings account.  This will allow you to keep your cashflow close to breakeven while accruing cash.  Exercising this practive in your cashflow will force you to make sharper clearer decisions about your expenses.  Having a cash flow that shows a large amount of money accumulating does not lead to good decision making.  It is human nature to get a little sloppy by not thinking through the impact of each expense.  I highly recommend moving money off the cashflow if you can.  It will force you to get good at managing your money, even when things are going great.

Your cashflow will allow you insight into how everything you pay effects your future cash.  It can also allow you to comfortably save money or pay out bonuses without the concern of how that will impact your future cash.  I highly recommend that any one running a business set up a cashflow.  Without it, you will find yourself time and again stressed about paying your bills.  With a cashflow, you will have the tools to breath a little easier, even in very tough times.  You will also gain a level of comfort and confidence in your decision making regarding who to pay and when.