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If you are thinking about starting a business then read these 5 rules.  This started out as my suggestions but as I wrote them I realized that these are fundamental rules.  I would argue that most business that fail do so because of one of the following rules.  These are the common and not so common sense tips that dictate success or failure:

1 – Don’t be an idiot… Be an innotator
In business there are innovators, imitators and idiots.  I don’t know who came up with that line but I love it.  Most people want to be innovators. They dream of being an entrepreneur on the cover of Inc Magazine. They relish in all the business ideas they have. They talk about how if they had money, they would do this or that. What they don’t realize is that there’s no such thing as a truly innovative business.  They all imitate some other business.  It’s like trying to write a story that hasn’t been written. Every book and story can be boiled down to about 10 storylines. Similarly, there are just a few different business models that are repeated over and over again. If you want to start a “new” business. Boil your business down the the business model and imitate people who have mastered that business model.  All business models have standard ratios and metrics that you should model after.  Innovate the business but imitate the model.  Be an inno-tator!  (and yes I made that up.  To use it you’ll have to fight through the auto correction.  Another great innotation that needs some work.)

2 – Always have a plan… Begin with the end in mind
Now that you have a business model to imitate, figure out what you want.  This takes planning and setting goals.  Its more than business planning, its life planning.  Why are you building this company?  Really understanding your drive and purpose for this is crucial to understanding what you want your company to be.  Are you looking for financial independence or just autonomy?  Are you a one man show or are you a team player?  These are the types of questions that shape the plan and exit.  Once you have the XYZ life goals, then you can start to plan the business goals.  You should be able to project with some certainty what you’re company will look like in 5 years.  How many employees will you have?  How much revenue will you be bringing in?  Who will be helping you finance your working capital?  The business goals need to be in sync with your business goals.  I know this seems basic but I know plenty of entrepreneurs that start down a path and realize they don’t like the life their business has given them.  Don’t paint yourself into a corner, figure out when and how you want to stop painting.

3 – Do the right thing… Cash is Queen, Karma is King
We have all heard that expression cash is king. This is based on the idea that businesses succeed or fail based on how much working capital they have and the best working capital is cold hard cash. Although that may be true, there are lots of ways to get cash. You can find cash from investors. Cash can come from lenders. Cash is like the queen on a chess board.  You can move it all around.  You should keep it safe and use it wisely.  If you lose your queen or your cash, you’re in trouble.   BUT its not game over.  The game is never over until the King is dead.  But why is Karma King?  If you don’t know what Karma is, go look it up on Wiki.  Basically, its the idea that our actions have a cause and effect called Karma.  Good actions lead to good consequences and bad actions lead to bad consequences.  Karma is king because if you continue to do the right things for your company, you will be rewarded.  If you do the wrong things you will be punished.  I’ve seen companies crippled by owners draining their balance sheet to put money in their pockets.  I’ve seen neglect lead to a slow decline in value and capital.  Its your business actions (good and bad) that determine your success.  Cash comes and goes but Karma lives forever.

4 – Don’t cut cornerstones…  beware of the shortcut
There is a big difference between a shortcut and efficiency. You can reduce costs and you can improve efficiency but cutting corners will kill you and it will chip away at the cornerstones of your business.  Every business process has a series of steps.  These steps are there for a reason.  There are times when you can skip a few steps because they aren’t relevant.  You can skip steps that might cost too much.  You can skip steps that slow down the process and prevent you from closing the deal.  But remember this, there is a reason why its a step in the first place.  There is a saying that anything worth doing is worth doing right.  That couldn’t be more true than in business.  A friend of mine always says that great companies make the best donuts.  Its a simple message but in order to be the best, you have to be the best.  Every industry has a leader and every leader is usually the best at what they do, PERIOD.  They don’t cut corners, and they don’t make exceptions.  They have built a product or a service or a business process that sets them apart.  They don’t stop one day and say, “You know what, that frosting is too expensive” from now on we’re only going to make plain donuts.  Cutting corners is a slippery slope and it can undermine the cornerstones of your company.

5 – Don’t cross the line… especially their line
Remember cash is queen and how you use your queen will dictate your success.  For most companies, investing in top line growth is priority number one.  That’s why you never hear “XYZ company just laid off their entire sales force”.  You never cut your top line.  So let’s discuss the bottom line.  Of course cutting expenses will help your bottom line.  A lot of companies spend money to save money.  All of my clients invest in technology and in most cases they are looking to save money and make things more efficient.  Whether you are investing in the bottom line or in the top line, don’t forget there two lines you don’t want to cross.

  • Your Line – The first line is the line between investment capital and working capital.  Basically, you need a certain amount of money to run a business, its called working capital.  There are all kinds of ratios and methods to determine how much working capital a company needs at any give time.  I call it your line because the minute you cross that line the business will need help from someone outside the business.  If you are going to spend money on helping your business remember not to spend your working capital.  In the end, you’ll just be hurting your business.
  • Their Line – The second line is what I call the short sale line.  More formally its a debt to equity ratio or a leverage ratio.  It has lots of fancy names, there are several ways to measure it and its different for every business.  The high finance professionals of the world live on this line.  They leverage to invest, they invest to increase value, they increase value to leverage more.  That’s the american way.  But value is a funny thing.  Its like cash because it comes and goes and it moves all around.  When you cross their line, you have basically borrowed too much.  You owe someone and that someone has set a line that you cannot cross.  Crossing their line can be devastating.  It is what leads to bank foreclosures and bankruptcy courts.  If you cross their line, its nasty and their is no turning back.  Which brings me back to Karma is king.  Although you never want to cross their line, if you do, then you will want Karma on your side.  In the end, people get what they deserve.

There are lots of stories of success and failure in business.  These 5 tips can be applied to any business at any time and under any circumstances.  If you find yourself in a business pickle then chances are you broke one of these 5 rules.

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