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A CPA/Planner Tip on How to Survive in the New Business Economy

I worked with a plumber, Dan, when I was 15 years old. I learned some plumbing, but mostly I ran to his truck for tools and dug ditches…lots of ditches. Dan told me that I was good, but I wasn’t as good as “Speedy” from Big Springs, Texas. Speedy earned this ditch-digging title over all of the other plumber helpers.

One day, the boss bought a mechanical trencher. A trencher required one operator to walk behind it and guide it. Everybody wagered bets. Some on Speedy and the others on the trencher. Speedy was amazing digging a ditch along side the machine who worked at a steady pace. Speedy actually pulled a little ahead, until he had reached about twenty feet. Speedy started to lose steam, and slowly dropped farther and farther behind until the machine had reached the forty foot finish line, first.

This story parallels many situations in our new business economy. Of course, as a CPA/Planner I have seen this scenario in the world of business and in history, e.g., the steam locomotive, blacksmith, and prop-driven passenger aircraft. However, today’s new business economy has injected this phenonemon with steroids. Not only do you have to be ahead of your competition, you have to be ahead of your industry and any verticle industry that may steal your market share.

Take Apple for example. Twenty years ago when they were pushing the Macintosh, who would have guessed that they would now dominate not only the personal computer world with their ipad, but the music delivery system, itunes?

John Mariotti’s article, What’s Your Impossible Dream? tries to inspire business people to think big in whatever they do. He encourages people to do what they are good at, and what they love to do.

CPA/Planners take issue with motivational speakers. They seem to push people downhill but really give no guidance to where they are to go, and how they are to get there. That just won’t work in the new business economy because jobs are increasingly driven overseas, the wealth has been sucked into the top 5% of our population, and governments are being increasingly squeezed and cannot create jobs.

Looking at it from a planning perspective, I recommend Jim Collin’s books, Good to Great and Built to Last. Jim speaks of the three circles: Passion, economic denominator, and best in the world. In other words, do what you are passionate about, do something that can make money, and do something that you can be the best in the world at. The intersection of these circles should be your BHAG (“Big Hairy Audacious Goal”). In addition, keep your plan simple. Jim called it the “hedge hog” concept because the hedgehog was the best of doing just one thing to outsmart a fox.

Of course, as a CPA, I would suggest you quatify the economic aspect of this application.

The new business economy will require you to choose your path very carefully, but with all the elements above. To take the safe road may reduce you to the masses and risk whatever potential you have.

“Far better to date mighty things, to win glorious triumps, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows not victory, not defeat. –Theodore Roosevelt, 1899

Financial Independence: Does That Define Your Small Business?

I grew up in a family of small business people. It started with my grandparents who opened an Italian restaurant in 1949 with their four high school children. At that point, my grandfather would arrive at the restaurant at 4 am and make the pizza dough that would raise by 9 AM. However, at 6 AM he was at Terminal Island in Los Angeles building navy ships as an electrician. Several years later, he achieved financial independence in which he could retire from shipbuilding and work full time at the restaurant. The restaurant supported, in part, five more of his children, and a couple of dozen grandchildren who worked such jobs as pizza makers, waitresses, dishwashers, and parking lot attendants.

This memory of small business financial independence came to me when I read Nell Merlino’s article, Building a plan to achieve financial independence with your small business. Nell lists three good points: Recognize your worth, get a mentor or coach, and don’t fear math. But even with these, you will not achieve the small business financial independence if you are unable to delegate to others. The end result is that you will end up working 80 hours a week in a business that you cannot sell and dies when you die.

The book, The E Myth Revisited by Michael E Gerber will help you understand your “worth” by leveraging your talents in supervising others. Most small businesses cannot achieve financial independence if the owners perform all of the main functions themselves. It is very hard to grow your business in a predictable and productive way, if you are so concerned with the nuts and bolts of the operation. You must step back and train others. He states that you must transform your thinking from a technician’s perspective to an entrepreneurial perspective. For example, Michael distinguishes these views as, “The entrepreneurial perspective asks the question: ‘How must the business work?’ The technician’s perspective asks: ‘What work has to be done?'”

In most cases, if you choose a technician’s perspective, you will not achieve financial independence because you will have to solve every problem yourself. In addition, you will not be able to enjoy (or even go on) a vacation because you will be on the phone every day putting out fires from your vacation spot.

The most important goal this year should be your financial independence. Identify where you are in your business, where you want to be, and how will you get there.

Is Music and Small Business Creativity Leaving Us?

Have you heard? We’re still in a major recession. Well, not according to our government.

However, according to Paul Resnikoff’s article, What is the Economy Doing to Creativity , our current economic disaster may quiet musicians because of their prolonged economic struggle.

I think Paul is on the wrong side of history. Artistic and business creators could not have a better feeding ground than our current economic condition:

Slave Music:Prior to 1865, slaves obviously were in a hopeless situation. Yet, while coping in their economic, social, and political dungeons, they created some of the timeless music. Starting with their African spirituals, they created Gospel music which is still popular 150 years later.
Jazz:Moving to the early 1900s, struggling musicians were blending art in New Orleans. Folk, blues, marching band, spiritual, and ragtime were just some of the music that fused into jazz. The micro-economic environment of jazz musicians percolated creativity from some of the most legendary composers of the last 100 years.
Rhythm and Blues: Toward the end of the Great Depression and during World War II, music creativity morphed again into R&B. Though many were just coming off of food lines and battlegrounds, creativity shined through the smoke. R& B moved into rockabilly and rock and roll.
1960-70s Counter Culture Music:This was the era where I learned to be a musician. In spite of the Cold and Vietnam wars, the musicians came out in droves spreading their music and lyrics into the halls of our government. Dylan claimed that he did not create the movement, but just reflected it.

The stars shine the brightest in the darkest part of the night. If artists were to stop creating, it would not be because of lack of finances, but because they lack the desire to create.

This can be translated into business, also. Small business owners become more creative when their backs are against the wall. They question assumptions, rehash markets, and listen more to their customers.

Today is the time to stroke your creativity. Small businesses and musicians, like never before, can reach thousands of people with little investment via the Internet. A small business that sings the same song has a much bigger chance of failure than one who creatively changes (or leads) the industry.

So, how do you it? I have written a number of articles, here, that sets out different strategies on achieving business success in this environment. But, one thing I cannot teach is creativity. That must come from your passion, or the passion of a person that you partner with.

Pareto’s 80/20 Principle: Business Playing the Odds

Amazing, just amazing. No more than amazing, it was magic. That was my first reaction to the 80/20 rule when I reached into my pocket and saw that 20 % of the coins equaled 80% or more of the value. So, I read the book The 80/20 Principle, The Secret to Success by Achieving More with Less by Richard Koch.

That was a few years ago. Since then I have applied the concept of the book (and the 1906 Italian economist Vilfredo Pareto who created the principle) in many business situations. Here’s a few conclusions:

80% of your income is earned from 20% of your customers: This is a danger signal to businesses. If your income is lopsided like this, you must change the way you are marketing. For example: If you are a brick and mortaur business, you may want to hire an SEO/social networking consultant to broaden your reach on the Internet. Conversely, if you are a local business with a lot of internet, non-recurring customers, you may want to canvas the local neighborhoods. Look at your marketing plan using the 80/20 Principle.
20% of your Products bring in 80% of your Income: So, why keep the other 80% of your products if they don’t sell? This is why cost accounting is so important. You must know what your gross profit margins are per product and why they are that way. Oh, sure, you may have a 75% gross profit margin on Product A, but if you only sell 3 a month, you have to ask about the effort it takes to market it. Cut the stale products using the 80/20 principle.
20% of your Employees are Producing 80% of your Company Value: Now, before you start handing out pink slips, look at your employees with multiple dimensions. Are they underperforming because they are lazy? Unmotivated? Poorly trained? Or, maybe they have a specialty that you have not looked at which could set them apart. People are not simple and must be observed from multiple points of veiws. Test these views and make adjustments using the 80/20 prinicple.
As an owner or C-level management, are you spending 80% of your time performing tasks that others can peform, and 20% of your time bring in business? Delegate to someone’s highest level of competance. Don’t try to be a one person shop but build a company network of talented individuals that interact for a common, and ultimately great goal. Manage your time using the 80/20 Principle.

The secret to analyzing hidden business pitfalls is to not be bogged down in the minutia. As a business owner, you should manage your business and depend on others to build the wealth through their labor. Use the 80/20 Principle as a looking glass to focus on the right things in your business.

CPA Economic Depression Thinking: Buy Your House and Pay it off…Good Idea? Maybe.

As a CPA, I have categorized home-owner’s financial strategy into two categories over the last 32 years: One, the Depression Victim, and Two, the Leverage Junkie. The Depression Victim’s financial strategy is a person who has lived or heard about people living during the Great Depression of the 1930s. My mother is like that. The philosophy goes like this. You buy a house, and you pay it off, period…Sure, you can buy rental real estate, but don’t use your house as a piggy bank.

The other financial strategy extreme is the leverage junkie. Looking at them through my CPA glasses, I see that a person who holds that philosophy will buy a house, and then when it goes up in value, borrow against it to buy an other.

As you probably guessed, many people that lived by the second philosophy felt our latest economic downturn. Conversely, those that stuck by the first philosophy fared better.

But what if you take a middle road? You refinance a current mortgage? Jilian Mincer’s article, When Refinancing Doesn’t Make Sense looks at this financial strategy. CPA’s normally look at these topics from a very narrow point of view, but I act more as a financial strategist than a CPA to my clients, at times. For example, the authors state that to refinance at a low rate and accelerate your payments may be wrong, because you can earn 7% with the same money that you are saving 4.5% in mortgage payments. Really? In today’s volatile economy where States are going broke and the feds can’t control income, where are you going to find a stable 7% return with very little risk? My CPA clients that have this financial strategy mindset will not risk their money to that extent.

Now there is an exception to this point of view. I always suggest that my CPA clients save a few of months of liquid assets. It could be in savings, bonds, even precious metals, but something that you can tap into in an emergency. Why is this important? If you contact a serious illness, suffer an injury, or get laid off, you have a cushion to make a few months of rent or mortgage payments while you decide your next move.

I find that my position as a CPA gives me a very good view point at business and personal finances. The best advice I can give is to balance your thinking and prepare for economic downturns.

DeBabbitting the Business Strategy Process: Can Creative People Be Developed?

My grandfather left quite a legacy. He came from Italy as a boy to start a new life. He acted in and scripted silent movies, fought in WWI, tightrope walked between two eight story buildings (without a net) over a busy Chicago street, helped build navy ships as an electrician during WWII, and founded a successful restaurant with his wife and nine kids.

His success in the variety of endevours is grounded in one quality: creativity. Creativity is a right-brain function, natural to some and alien to others. Should all brain-storming teams have a business strategist who has this trait?

Coyne and Coyne’s article, Seven Steps to Better Brainstorming, tries to quantify this concept with a set of rules that can build business strategists within a group. Their article states that brain-storming sessions should proceed in seven steps:

Know your organization’s decision-making criteria
Ask the right questions
Choose the right people
Divide and conquer
On your mark, get set, and go!
Wrap it up
Follow up quickly

At first, I thought that maybe step 3 would meet the need for a creative strategist. But, to my disappointment, they only categorized the “right” person as one who knows answers to questions that are asked about the operations.

Still, any strategy that quantifies brainstorming raises an eyebrow. You cannot quantify creativity, and thus create a business strategist. However, the article intriged me because it referred to another article, Sparking creativity in teams: An executive guide. Ahh, I said, here is a place where the authors are referencing the important creative person, maybe the business strategist. Then I read the first sentence:

“Although creativity is often considered a trait of the privileged few, any individual or team can become more creative—better able to generate the breakthroughs that stimulate growth and performance.”

This opening sentence conjured up a new term in my head, Debabbitting. Debabbitting is any company process that aims to enhance creativity by forcing people into uncomfortable situations. But, in a business strategy session, people are most comfortable with what they know, and their usual approach to problems. In the classic Sinclair Lewis’s book Babbitt, George F. Babbitt, a mid-level company man, grew very uncomfortable when he tried to change his mundane outlook and style of life.

Now, don’t get me wrong, everyone has their special gifts. Most people are creative in certain circumstances. But, not anyone is creative in all circumstances. Take for example, a friend of mine who is a mechanical engineer. His forte is finding solutions to problems. He regularly uses creativity to find solutions to fix the problems. Yet, if you were to ask him to brainstorm outside of his element, he would struggle.

Les McKeown, author of Predictable Success, hit this point in his presentation at an Association for Strategic Planning–Los Angeles event. He spoke of his forth coming book, The Strategist–Leading Your Team to Predictable Success. At the meeting, Les described the different personalities in a business: The Operationalist (“O”), The Visionary (“V”), and the Processor (“P”). “O” is the person who solves problems, “P” does not solve problems, but will write a manual about it, and “V” is our creative person who doesn’t solve problems, and many times creates them. Though all of these roles are necessary, they conflict with each other. Therefore, Les introduced the “S”, the Synergist. The Synergist is the glue that brings all of the others together to arrive at solutions. I have find Les’s book more plausible then trying to conjeur people’s creativity. In fact, I would venture to rename the “S” as the Strategist, (the Business Strategist) because that person must strategize on how to bring all of the players together.

At first glance, you may argue that the business strategist is Les’s “visionary.” However, when you work in complimenting (and conflicting teams), you are creating a business strategist’s network, not individual. I believe Les said the roles are not cut and dry, but it seems to me that once you identify the gifts and each person’s own brand of creativity, the brainstorming session can evolve naturally.

So, how do you resist the temptation to Debabbit? First of all, you have to know your players, and their abilities. And second, you must use each person in such a way in which the process maximizes each person’s strengths. And finally, you must lead from the front by example to show the team how it can (and will) work towards a common goal.

Bad Strategic Plans: How Not to Build a Flying Carpet

When I was five years old my cousin Bill and I created a strategic plan to build a flying carpet. We wanted something that hovered over the ground about three feet (so not to be too dangerous). We also needed a steering wheel and a motor.

We had our passionate vision (I still get goosebumps), and all we needed were the materials to build it. Bill’s father was a carpenter and worked on cars. He had a garage full of parts that we chose from. So, we set out to collect the parts, or the tactics of our overall “strategy.”

We started with a piece of plywood. That was our “carpet.” Using manual saws, we cut a square out of another piece of plywood and mounted it on the larger piece with a 2×4. That was our steering wheel. Lastly, the motor. My cousin found a used automobile oil pump, it looked like a motor. We strapped it on.

We were finished and sat on it waiting for it to lift off the ground powered only by our imagination.

Richard Rumelt’s article, The Perils of Bad Strategy reminded me of that experience, and also so many prospects who call me to prepare a business or strategic plan.

Before, you consider a business plan, or a strategic plan, let’s look at some his points that are common to bad strategic plans.

Failure to face the problem: “A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. And, if you cannot assess that, you cannot reject a bad strategy or improve a good one.”

A common idea for a potential business plan which comes across my door, is the creation of a record company by some musician that wants to publish, record, and write for other bands, or artists. The problem that they never address is that the current record company business model is broken. So I ask them what are they planning to do that is different? They usually don’t hire me when I ask that question, and I never hear of them again.

Mistaking goals for strategy: “A leader may justly ask for ‘one last push,’ but the leader’s job is more than that. The job of the leader—the strategist—is also to create the conditions that will make the push effective, to have a strategy worthy of the effort called upon.”

This is why motivational speakers (or life coaches) are not strategists. They work up passions to get people to give it that one last push, but don’t have the business skills to set the condition, or roadmap for them to do so. What good would it have been if my cousin pushed me down a sand dune on the wooden carpet if he did not lay out the strategic plan of how he was going to get it to fly?

Bad strategic objectives: “Another sign of bad strategy is fuzzy strategic objectives. One form this problem can take is a scrambled mess of things to accomplish—a dog’s dinner of goals. A long list of things to do, often mislabeled as strategies or objectives, is not a strategy. It is just a list of things to do.”

When you are driving cross country, the mileage markers (Los Angeles 200 miles) are metrics that measure how far you have gone, and how far you have to go to reach your destination. A list of business metrics for the sake of metrics will not help you if they are not in line with your strategic plan.

Fluff: “A final hallmark of mediocrity and bad strategy is superficial abstraction—a flurry of fluff—designed to mask the absence of thought. Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise.”

If you don’t understand this, try moving to Los Angeles and prepare a business plan/strategic plan for an entertaiment company. This city if full of this vibe. I see part of my job is to cut into this and get to the core issues of the business. I have to ask the hard questions and ground whatever assumptions the client is making.

The most important ingredient in a strategic plan is honesty. Entrepeneurs have to be honest with themselves and their potential investors. If they are not, the carpet won’t fly.

Did You Hear About the Guy Who Tried to Swindle IRS Agents?

There is a fine line between guts and stupidity. Stupidity is much more entertaining.

Thanh Viet Jeremy Cao of Rancho Santa Margarita, Calif. pleaded guilty of filing 22 false claims against a number of harmless people. Among these harmless victims were: SEC attorneys, U.S. District Court Judges, U.S. District Court Magistrate Judges, the U.S. Attorney for the Southern District of California, Assistant U.S. Attorneys, U.S. Secret Service special agents and special agents of the IRS. Each lien alleged that the lien victims were “debtors” of Cao for hundreds of millions of dollars.

Why didn’t he just file some against professional assassins? He would have gotten more attention.

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Antiquing: How My Wife Convinced Me, and The Impact on Business Strategy

It started with Chumlee. I walked through the living room to my computer and stopped to watch Rick and Chumlee on Pawn Stars discuss the historical significance of something like a musket rifle. This intrigued me, but what really got me interested in their antiques was “value.” No, I don’t mean some 1920 decorative egg, I mean something that won’t break down within two years like my microwave.

Eight years ago, we purchased moderately expensive sconces. We didn’t realized that they would only last about five years. They developed an electrical short, and succumbed to the outside elements.

Inspired by the Pawn Star’s antiques, I bought four 1929 sconces at an estate sale that I will recondition. I believe these will be a better value than going to a lamp store to pay $200 per sconce. These antiques have lasted over 80 years, and are pretty cool to look at. I believe they will be a good value.

Then I came across a Strategy+Business Magazine article, Power of the Post-Recession Consumer by Gerzema and D’ Antonio. The article stated that we are part of a post recession trend of people looking for more than purchases that show status. [People are into]” a lifestyle more focused on community, connection, quality, and creativity.” In other words, when a consumer is deciding what to purchase, that consumer is considering which vendor using these four pillars. These exact points have been the foundation for some of my prior postings:

Community: Community Business Strategy: Love Your Neighbor as Yourself, and Maybe Even Turn a Profit

Connectivity: Mobile Payment Strategy: Is Your Small Business Developing One?

Creativity: Making a Living as a Musician: Do You Have the Right Frame of Mind to Break New Ground?

Quality (in tactics): Starbucks: The Moby Dick of Beans, and this article.

Of course, if this is the current reality, what are you the business owner, doing to capitalize on the trend? Are you changing your strategy to meet the consumer movement, or are you just doing business as usual? Businesses, small, medium, and large are moving at “warp speed.”

Business Strategy and Tactics: What We Can Learn From How We Raise our Kids

Our kids hate us…when we don’t give them money. Oh sure, we pay of their schooling, sports, and other school-related activities, but we are determined to require them to work for their recreation money. All three of my boys have worked for me from time to time.

So, when I came across Barbara Haislip’s article, How to Raise en Entrepreneur, it rang true with lessons with business strategy and tactics:

Encourage your kid to start a home spun business: For those of us that are fed up working for some else, why not think about starting a new business? Go through the steps and take a calculated risk. You may never be happy if you don’t try. Develop your business strategy, and then the tactics that you will need to achieve your goals. See https://www.ricknorriscpa.com/blog/business-finances/buiness-plans-and-strategy-living-on-a-hope-and-a-dream/
Don’t let kids get too comfortable: As a business person, if you are not growing, you are dying. Without a business strategy, you are going nowhere real fast. Likewise, without business tactics, you may know where you want to go, but may be “doing donuts” instead of getting there.
Help kid’s recognize the world is full of buisness opportunities: In your business, think creatively about your industry. Opportunities show themselves at some of the mots unusual places. The most basic business strategy has a SWOT analysis. Opportunities is the “O.”
Teach your kids in their sports to be a leader and team player: As an business leader, you must learn how to lead and encourage without intimidation. Good to Great by Jim Collins shows us that a screaming ego maniac CEO may create a successful company, but it does not usually survives the CEO’s departure because underlings are abused into acting. In your business strategy, you must share the vision. In your business tactics, you must adjust your course and measure your success in acheiving you objectives.

My message is obvious, your business strategy and tactics tools are things you may have learned since you were a kid. Tap into them and allow your creativity to