The Most Important Element of Success - Knowledge
The single most important element you need to acquire and maintain as a business owner is knowledge. According to research conducted by Dun & Bradstreet, seven out of 10 small businesses fail, and 90 percent of these failures can be traced back to poor management that results from a lack of knowledge. Knowledge is power.
I was watching a television program where Bill Gates and Warren Buffet were speaking with students and graduates of the Colombia University Graduate School of Business. These are two of the most successful people in business history talking with some of the best and brightest MBA minds in the world, all hanging on every word uttered by their mentors.
While Mr. Gates attributes most of his success to luck and being in the right place at the right time with the right idea, my mentor Mr. Buffet traces his success to knowing more than his competitors. This country boy from Nebraska has been investing since he was 11 years old and still makes it his passion to know more than other investors. His company, Berkshire-Hathaway, was built by finding successful entrepreneurs with great ideas and making those ideas better with structure, discipline, capitalization and good, old-fashioned business fundamentals.
During my career I have seen dozens of good businesses go under because of poor management. In every case, the owner was excellent at their trade or craft, but lacked the general acumen for business. Instead of analyzing their company’s financials, they managed their business by how much money they had in the checking account. If things were going well, the balance increased; if business was off, the balance decreased. This may sound crazy but it is absolutely true. Many highly talented, and in many cases college-educated, entrepreneurs can’t interpret a financial statement, let alone build an accurate pro forma budget and forecast.
Today, the evolution of the economy has raised the stakes for every business in the country, and there is literally no margin for error. Inefficient companies will get weak and may even die out, but efficient ones will grow, capture market share and increase profitability. The difference is paying attention to detail and knowing more about your company, your market and your industry than anyone else. With accurate and up-to-date information, you can and will make the right decisions to lead your company to success, and investors like Warren Buffet seek out and bet on business owners who are doing exactly that.
During the program, Mr. Buffet answered the question, “When do you think the recession will end?” by saying, “I’m not sure … but what I do know is that if we wait around for the robins to show up, it will be too late. Spring is already here.” He described the past 18 months as the best opportunity in his 79-year life for making money. He said that this recession is a once-in-a-lifetime opportunity for smart investors and good business owners.
And I believe he’s right. Imagine looking back five years from now saying, “I remember in 2009 when I could have bought a five-year-old, 2,000-square-foot home in Florida for less than $30,000, but I didn’t.”
Many of those people who are positioned to take advantage of this unique financial opportunity are doing so, and they will ultimately create wealth for themselves. But, the same is true for people who own stable and profitable businesses. The growth for any profitable company today will increase exponentially once the economy turns, as long as the person at the helm keeps their eye on the ball and pays attention to every detail.
We have a client who has managed his dealership well through the recession. His sales volume is down considerably compared to 2007, but his margins are better than they have ever been due to an intense focus on customer service. We have another who dove head-first into buy here pay here last January and is thankful every day for making that decision. It saved his dealership. How well-positioned do you think these dealers will be when the financial sun starts shining again?
On the other hand, we have two new clients—both 20-year veteran business owners who are on the verge of losing their companies. Neither has reviewed their P&L or balance sheet during the past nine months. As a result, they have no idea what’s wrong with their businesses (other than the harsh fact that they are out of cash). Their financials are horrible, they have no business plans and they have nothing to show a banker how the loan will be paid back. They each have a month of hard work and preparation just to be able to go to a bank and ask for a loan.
Ironically, both businesses are excellent at what they do and customers love them, but the owners have waited too long to stop the cash bleeding and have not paid attention to the financial details of their company. Because of poor management, they lack the necessary knowledge to make informed decisions. Because of poor management, they are fighting for the lives of their businesses.
The federal government passed the American Recovery and Reinvestment Act of 2009 and has poured billions of dollars into the economy to stimulate commerce and jump start enterprise. Under this Act, distressed business owners can apply for a special finance-type loan under the America’s Recovery Capital (ARC) Loan Program. An ARC loan is an interest-free, no SBA fee, 12-month deferred payment, 100-percent government-backed loan designed to assist companies just like the two I mentioned. However, to qualify, you need to have accurate financials and a sound business plan with forecasts and budgets that lead your company out of rough waters.
Knowledge is free! Knowledge is power, but you have to pay attention in class to retain it. You have to work harder than the next guy to get it. You have to stay current because it changes, and you have to act on it because, according to Mr. Buffet, that’s how you generate real wealth and successful businesses.