Recently, a friend and entrepreneur explained one of his business values to me. He said, “If a person in my business ever says, ‘I can’t,’ I make them pay a $20 penalty on the spot. That expression drives me crazy. But then I was forced to learn a hard lesson.” Here is his story.
Making Hard Decisions
I had a thriving business. We were growing our revenue and profitability monthly. Great wife, the kids on track and loving the Lord. It was all good.
The recession flipped the switch. My business’s revenues slowly shrunk by 48%. Because it happened slowly, I didn’t react quickly since I just knew next month would bring good news.
The good news of new clients never materialized. This left me with a decision. Give up or go on. I chose to go on.
I am competitive. I know how to win. I’ll do everything to win. Whenever I set my mind to anything in my life, I won. I knew I could do it again, and so did everyone around me. How I chose to go about winning wasn’t such a good idea.
I learned a big lesson: Only a fool thinks he can sell himself out of an economic collapse.
I was fighting a recession. And not just a plain old recession but the second biggest in US history. In spite of this, I knew I could win. So I refused to cut expenses. I figured I could sell myself out of trouble.
As time progressed, the expenses remained, and the revenues didn’t materialize. I was losing money and fast. I first used all the cash I had left in the business. Then I started to borrow money to keep the business afloat. Then I sold my house for the cash and moved my family to an apartment.
After doing all this over a period of two years, the business started showing signs of life. I started to have a break-even month here and there. The problem was, there was nowhere else for me to go to get the cash to cover the monthly losses.
I finally cried out to God, “I can’t do this anymore. Help me.” I realized I had to do the one thing I didn’t ever want to do. I cut expenses. That meant people. That was hard to do. I had to trust God with this because it challenged my pride. I am the great provider. I look out for my people.
The decision resulted in a business which was immediately profitable month to month. The bleeding stopped. The business survived.
We are now growing again, but the debt I accumulated has to be paid off. Every month, I save a little to grow the business and pay down my debt as a consequence of my pride.
I learned when the business climate turns bad, I must cut expenses sooner and not later. Thinking I could sell myself out of a downturn was foolish. I learned I needed to face the tough cost-cutting decisions and move on.
I’ve Been There (Three Times)
When he told me his story, I was checking the boxes. I did exactly the same thing three times.
The first time I was a general manager of a division of Informatics General Corporation. There was a shift in technology which we weren’t prepared for and revenues plummeted. I just knew we could sell our way out of it, and I didn’t even think of cutting expenses.
But my boss, who had more experience than I had, didn’t agree with me. He made me do a layoff which, looking back, saved that business and my career at the same time.
The second time was in 1991. I was running a professional services company, and we were hit with a recession. I told the Board of Directors we could sell our way out of it. I gave them a beautiful presentation. The more experienced board prevailed and cut expenses, including me.
The third time, I was the Board Chairman and investor of a professional services company which was experiencing the effects of another recession. The CEO and his partners were convinced they could sell their way out of it. I knew better but indulged their optimism. They burned through one million in cash, and we shuttered the business. With no accountability, my pride stepped back in.
I asked my friend if he sought advice. “Not really. I talked to people about the situation but never in any detail so they could help,” he said. “I wasn’t ready to listen.”
As the general manager of a division of Informatics General Corporation, I was forced to ask for advice. I was accountable to more experienced managers who had a lot invested. When I am unaccountable, I want to prove, hope against hope, I can sell my way out of it. Like my entrepreneur friend, my pride takes over.
Learn From My Failures
Learn from these bad examples. Wisdom starts with “I can’t.” As the owner of your business, be accountable to experienced advisors. Second, listen to them.
If you don’t have advisors, get some. Even if you own the whole company, you need a board of advisors. These are business-savvy men and women who care about you (maybe because you pay them) who will give you impartial advice. Advisors will force you to confront your pride and make the right decisions for your company.
By the way, my friend now has a growing, profitable business, a wife who hung in there with him, kids still on track, lower personal expenses and a closer relationship with Jesus Christ.
Also published on Medium.