How to be a Street Smart Entrepreneur

Co-authors Bo Burlingham and Norm Brodsky first teamed up in 1995 to collaborate for the Inc. magazine column Street Smarts. Success of that monthly column led to the duo writing their book The Knack: How Street Smart Entrepreneurs Learn to Handle Whatever Comes Up. Burlingham and Brodsky joined me to talk about their tips for entrepreneurs and how they can weather the current recession.

CH: One of the things I appreciate in the book, that you really seem to focus on, is that having a sales mentality is important for all small companies, but on the other hand it really helps to have salespeople that understand the business model and how the business actually makes money. That’s not something that you typically read about in most business books.

NB: Yeah, the problem is that most people, salespeople in particular, and I can talk from experience because I am a salesperson, think about one thing and that’s making the sale. Now, there’s nothing wrong with that, and that’s a great thing to think about when you’re going out and making sales but there’s another part. One of the parts is that you have to make a profit to make a sale and as silly as that may seem, people say, “Oh, that’s impossible.”

I’ll give you an example that happened just a week ago. A young man came to me. His dad had died, and he took over the business and they couldn’t understand their cash flow. As I looked at it I said, “Well you know you’re in a service business. This is a cleaning business. What are your gross margins?” He looked at me like I had a third eye and he didn’t understand the question because he didn’t understand gross margins.

I said, “Why don’t you go home and for your two top customers,” – – I had taken a quick look at what they presented me with – – “figure out exactly what your costs are, your direct costs.” Low and behold he called me and said, “I can’t believe it. We’re spinning our wheels to two large customers. We’re losing money on every sale. The more we do in business the more we lose with them.”

So even though sales are sales, there’s a big difference between good sales and not-so-good sales. So what I say is that people who have that sales mentality don’t look at anything else, and that’s a bad thing. They should understand that not only do you have to make a profit when you make a sale, but also that when you make a sale, it’s not complete until you collect the money from the sale.

CH: A lot of business owners though, Norm, I think they tend to be hesitant to show how the business makes money to their salespeople, which I think is kind of silly.

NB: Yeah. I think that’s exactly right and what they should do is not disclose every single thing to them, but they should show them what the costs are that are involved. Salespeople tend to sell to the lowest common denominator. In our business, the document storage business, we have different prices for different customers depending on how many boxes you give us. So somebody who gives us 10,000 boxes pays a lot less than somebody that gives us, oh, let’s say 50 or 100 boxes and that’s in our association. That’s a normal type of thing.

If I told a salesman they could sell as low as $0.16 a box per month for rent then every sale would be that way. So, I had to explain to them what our costs were. They think you just put a box on a shelf and you have no cost. By explaining how we made money, not necessarily going into excruciating detail, but giving them the basics, they understand why they have to sell at a higher price.

BB: We’re not dumping on the sales mentality, but just saying that it has to be balanced with a business mentality. I think Norm would be the first to agree with the old message that nothing happens without a sale.

CH: In the book, you talk about the mistake some people get themselves into in business. They get too relaxed. They think that things are sort of safe… that they’re in the clear. Do you want to extrapolate on that a little bit?

NB: Yeah, that’s the point. The point is that first you have to understand that I treat a business like a living, growing thing. In other words, it’s an entity unto itself. So if you think of business like a human being growing up, well, as you grow up, you change. The only thing constant in business is change. If you don’t believe that or don’t adhere to that, you’re going to die.

CH: You’re right. I think that sometimes people get so relaxed that they get passed by the change in their industry.

NB: I agree with you 100%. You have to be on top of it. You need current information, and by that, I mean weekly. I get critical numbers every week. The series of numbers that tell me how our business is doing. I can track the changes. I can track what’s going to happen and before anybody else can see it, and that’s as the entrepreneur or the CEO, or whatever you want to call yourself, that’s one of the four or five jobs that you have to not delegate and you have to do yourself. Another one, of course, that we talk about in the book is the culture of the company which I think is also very important, and I think that that has to start at the top and work its way through.

CH: Let’s talk about that a little bit. I know you guys talk a lot about that, and I look around the last couple of years at the other Inc. 500 companies and what I’ve noticed is usually the leader of the company really has gone that extra mile to develop a corporate culture that fits for them.

BB: The problem is that often the culture of a company is totally unplanned, and a lot of the culture that you find in a company is really sort of dysfunctional and there are a lot of problems that result from that. I think that what both you, Chris and Norm, are talking about here is having the person at the top consciously say, “Okay, this is the type of culture I want. This is the type of culture that I think is going to be best for my business,” and then doing what’s necessary, whether it’s turning responsibility over to your wife or actually sort of going forward and taking the initiative yourself. That’s what the high performance companies have.

NB: Exactly. It’s a conscious decision. It might have started as an unconscious decision, but it has to become a conscious decision for it to be sustainable and backed up by management for it to continue. And culture does other things besides help people stay for long periods of time. People gravitate to the culture so it makes it easy to attract people, keep people for a long time, keep people motivated, and keep people wanting to do their best. So, there are a lot of benefits from it and the downside is very little.

CH: Exactly. Another point related to this that you mention in the book is to be a good boss. You guys talk about maintaining a certain level of distance from your employees. Do you want to explain a little bit what you mean?

NB: I like a lot of the people, or most of the people around me, but the thing is, I have to be separate with them because there’s going to come a time that I’m going to make a decision that, number one, they won’t agree with and, number two, may not be in their interest. If I was really friendly and best friends with somebody, it makes it more difficult for me to do that.

CH: It’s kind of like parenting in some respects.

NB: It is.

BB: I think that this point about the company having certain needs that you need – – that’s basically the CEO’s responsibility to make sure that those needs are met. You have to go back and look at it and make sure that everybody understands that you can be close to your employees but ultimately if you’re the boss, if you’re the CEO, your job is to look out for the needs of that company and that company has needs that need to be met. If you’re not aware of that it’s going to spell trouble for your business.

NB: Let’s talk about new entrepreneurs, people who want to start their businesses now. You know, they always look for an excuse. “Well, the timing isn’t right;” “The economy isn’t good;” “Well, we’re in a recession.” Personally, I think the best time to start a business is in a recession.

BB: Absolutely.

NB: I say that because the last two businesses that I just sold in December were both started, coincidentally, in a recession. That’s number one. People say, “Why? How can you say that? It’s tough to raise money.” Yes, it’s tough to raise money.

In new start-ups it’s always tough to raise money. But you have such an advantage now because when you start a business, your overhead tends to be lower than your competitors that you’re going against. You can offer more services for the same dollar. Notice, I didn’t say offer the services cheaper, because I’m a big believer that if you sell a product, price shouldn’t be the reason you went into business. So you can give more services for that thing. You can move quicker. You can change directions quicker when you’re starting out. You’re more nimble.

The second thing that happens is you have to think differently than you competitors. I’ll give you an example. Gas went to about $4.50 a gallon not long ago and most of my competitors passed it along to the customer. We made a company decision not to do that, but used that to our advantage.

We sent a letter out to our customers saying, “We’re not going to increase your gas prices. We know that it’s impacting us somewhat, but we’re able to hold the line.” Now we took a beating on it, but we went to the prospects that were thinking about becoming our customers and showed them the letter that we sent our current customers. They, on the other hand, had letters from their suppliers increasing their prices. We profited greatly from a tough time by just looking at things in a different manner.

CH: Right. Another concept you guys talked about in the book is not to turn a revolutionary new concept into a business. Go find an old, great concept instead. You want to talk a little bit about that?

NB: I have three criteria for starting a business. The first criterion is the business idea or concept has to be over 100 years old. For example, I’m in the box storage business. Storage has been around for over 100 years. I’m in the shredding of paper business. Well, the garbage business has been around for over 100 years.

Why? Because, like most first time entrepreneurs, I don’t have a lot of money. I can’t educate the public. So people who want to store things know where to look. People who want to destroy things or shred things know where to look. So the customer base is always there.

The second criterion is that the business model has to be antiquated. So in the box storage business, for instance, it was run by a bunch of moving and storage guys who did it as an adjunct business and didn’t pay a lot of attention to it. So they had old racking, old buildings. It was antiquated.

The third thing that I look for to start a business is the niche within the business itself. By the way, I just want to tell you that even though the business concept is 100 years old, when I start them, I sit on the edge of technology. I get the most modern, up-to-date technology I can.

CH: You’d love my latest business which is upscale, membership-based men’s barber club, Kennedy’s All-American Barber Club, which brings back the straight razor shaves.

NB: There you go.

BB: This is really what it means to be a street smart entrepreneur. The common wisdom about entrepreneurship really amounts to bad advice. People are constantly being told, “If you really want to start a business you’ve got to come up with something that’s new so that you don’t have a lot of competitors and you know you have the market to yourself.” In fact that’s actually the absolute the worst way to go.

CH: What advice do you have on planning for next year for entrepreneurs, business owners and their advisors?

NB: There are two things that you should not do during a recession. Number one, don’t stop going out and selling. Your selling should increase in these particular times because there’s going to be more opportunity.

Second, continue the same level of services. That’s important because your competitors are not going to do that. They’re going to look to cut back in the wrong places which are sales and services. This year we plan on doing extra sales, keeping our service levels where we’ve kept them before, which means that keeping our customer service people happy and at the same staffing levels as we did before, even though our sales may be flat or down a little bit.

BB: Obviously everybody’s aware that we’re in tough economic times. There are two possible responses to that. One is to be afraid and the other is to see it as an opportunity. A recession is a period of lots of change. If you can get your people to understand that, in fact, you’re in an environment where there’s going to be lots of opportunity and the mindset you have to be in is to spot those opportunities and take advantage of them, you’ll be a lot better off.

CH: All right. Thanks for your time today guys. I want to remind everyone that your book is available at any major bookstore, and they can also learn more about your book at www.TheKnack.info.

NB: Thanks. Bye, Chris.

BB: Thank you, Chris. Bye.

Chris Hurn is currently President, CEO, Cofounder and Board member of Mercantile Commercial Capital (MCC). His company was recently added to the 2007 Inc. 500 list of the fastest growing companies in America, number 245 with 951% growth over the past 3 years. Chris is well-known for his innovative marketing achievements and continues to coach and consult with various business owners and entrepreneurs. To date, MCC has closed commercial loans in 31 states for over $350 million in total project costs – one business owner at a time, and has been voted “Best Place to Work” by the Orlando Business Journal for 3 years running.

A few other business achievements Chris has received:

• Reader’s Choice Award for “Most Respected Executive in Central Florida” and “Best Small Company in Central Florida.”
• “SBA Marketing Guru of the Year.”
• NADCO’s Banker of the Year.
• SBA Financial Services Champion.
• Top Twenty Most Influential People in Small Business lending.
• Hallmark Award for Top Producer in Mortgage Lending.
• “Top Male, 40 Under 40″ in Orlando.
• One of the “100 Most Influential People” in Orlando.

Throughout his career, Chris has been in various leadership positions, including his background as business consultant and financier with GE Capital and as CFO for the NAI RealVest group of companies. Chris’ educational achievements are equally impressive. He graduated from Loyola University with two magna cum laude Bachelor Degrees; earned a Master’s Degree from the University of Pennsylvania’s Fels Center (formerly at the Wharton School of Business); and only spent one year at Georgetown University Law Center before wising-up about becoming an attorney. Chris is a frequent speaker and writer and has appeared in the Wall Street Journal, Inc. Magazine, LA Times, the Sacramento Bee, the Orlando Sentinel, Scotsman Guide and many other regional and nationally-recognized trade publications. He maintains a busy civic calendar as a Board member with the Orlando Regional Chamber of Commerce’s Small Business Board and the Florida Hospital Foundation Board, as well his involvement with many other esteemed community organizations. Chris is married to his wife of 12 years, Shannon, and has two children, Reilly and Julianna.

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