The Facts of Business Life (23 page)

Let's say, for example, that you are planning to open a manufacturing business and will need certain machines to produce what you're selling. You could just go out and buy the machines and have them installed, but doing so wouldn't do you very much good unless you have people to run them. Of course, you could also recruit and hire people, but that won't help much unless you make sure the people you hire either know or can be taught how to operate the machines. And even if they do know how to operate the machines, neither they nor the machines will be of any value unless you develop processes for using the machines, as well as processes to coordinate all the machines so you can manufacture your product. And none of this will happen unless you develop DNA for it, that is, unless you think it out, plan, and prepare for it beforehand.

This connection between tangible and intangible assets—and how they support one another—is, again, one of those underappreciated ideas you need to champion because if you don't do it, no one will. In order to do this, you must focus on two issues. The first concerns protecting all the company's tangible assets from events that could be catastrophic for the business. Your first step obviously would be to get insurance for those assets that can be insured in order to protect your investment and minimize your financial exposure to lawsuits. But is that all you could do? What would happen if your customers just stopped buying from you, or if most of your employees suddenly quit, or if for some reason the demand for your product disappeared. None of these scenarios are very attractive, but they could all happen. How could you protect yourself and your assets if any of these things were to occur? The answer is in your company's DNA.

As long as you have developed your DNA properly, your business should be profitable and operating smoothly, in which case the chances of your employees leaving without any warning would be minimal. In addition, if your business is competitive in price and value, and your customers are satisfied and comfortable with their relationship with you, they would have no reason to leave. And even if there is a problem, your processes would pick up on it, and you would be able to correct it quickly. Your DNA is accordingly one of the best weapons you can have to protect all the business's tangible assets as well as your investment in them.

The second issue concerns protecting both tangible and intangible assets by proactively leveraging, supporting, and coordinating them so they can work together to provide your company with long-term success and profitability. Let's say, again, that you're opening up a manufacturing company, and you've purchased your machines, hired people to run them, set up training for them, and created processes so the machines are all coordinated with each other. That's all well and good, but you will also need managers or supervisors who know how to maximize the use of the equipment and know which parts, supplies, or accessories will be needed to keep them operating efficiently. In addition, you will have to make sure that processes are in place for ordering the required parts, and the accounting department knows when these parts are inventoried, at what cost, and when and how much to pay your suppliers. And that's just the beginning—there could be hundreds of other processes that have to be coordinated, right up to the point at which your customers buy your product, and even after that. The point is that every aspect of your company's DNA has an impact throughout the business, so the best way to manage it all is through the business's DNA.

Since Level 2 is a preparation level, the focus at this point is not on the product's performance in the market, but on how your assets will support the product internally. In this respect, you need to focus on how the product will be delivered to customers, the equipment and personnel that will be required, and the need to educate your staff on the product itself, its pricing, and the processes created to support it. The overall goal here is to avoid sabotaging your own product even before the customer has a chance to buy it. That is, you have to make sure you don't beat yourself with conflicting processes, old rules and beliefs, poor decision making, an uneducated staff, making incorrect assumptions, or ignoring obvious market trends and realities. Of course, no sensible owner would do this intentionally, but it happens when owners don't focus on protecting and maximizing assets.

If, however, your business's DNA focuses on results, success, and internal control, the chances of beating yourself become exponentially lower. This is because an owner who understands DNA and its importance knows the overall goal of the business is to create customers and keep them. And this can happen only if the internal processes match what customers expect from the product and from your business. Of course, in order to accomplish this you have to know exactly what your customers do expect. Among the many things customers expect are getting the product or service when they want it, a competitive price, superior quality, professionalism and courtesy, and a sense that your business cares about them. In some cases, customers might also want to establish an ongoing relationship because they need advice and want to work with people they feel they can trust. And if this is what they want and expect from your company, you can create and deliver it through consistently run DNA processes. Again, this isn't necessarily easy to do, but if you do it and your competitors don't, you will have an advantage over them.

Although none of this actually happens until you reach Levels 3, 4, and 5, it's at Level 2 that you have to make all the necessary preparations. In other words, you have to make sure it works on paper before you ask your employees to implement it in the real world. However, if they are going to deliver what your customers expect, they have to be qualified to do what you want them to, have the training they need, be professional, understand both their responsibilities and their accountability, and know that depending on how they perform there will be either rewards or punishment. And that brings me to the third element—people.

One of the more interesting things about the customer–employee–owner dynamic is that while all three represent assets, none of them show up as such on your company's balance sheet. Because of that, they are rarely considered as an important asset group, and even when they are, it's not as a group that needs to be protected. But they do need to be protected because they are all important individually and because, as a group, they need protection from each other. And Level 2 is where you first develop and prepare to implement that protection.

Customers are important because your business needs their money, which they give you because they need or want what you have. As an owner, you need your employees to operate your company's processes and serve your customers. And your business needs you to lead and contribute your expertise and money. Of course, none of this is news, but what may be news is why these three groups need to be protected from each other. The reason is that, outside of the relationships described above, there is no particular reason for there to be synergy among them. What each one wants is essentially incompatible with what the others want. So there are inevitably going to be disagreements and, as a result, conflicts among them. As an owner, it's your responsibility to minimize these conflicts as much as possible, and that can be done largely through the DNA creation process.

The first step in doing so is identifying the major conflicts among these three groups. Customers, the first group, want what you have to sell, but they want to pay as little for it as possible. In addition, they usually want it sooner rather than later, and may feel inconvenienced by having to wait. One of the reasons the Kindle and other e-book products are so successful is certainly because they focus on these two desires and not only give customers a new book in 60 seconds, but do so at a lower price than traditional books.

Regardless of how happy the second group—employees—may be, they would all like to get paid more, know that their future is secure, and have great working conditions (although exactly what that means is difficult, at best, to define). They also frequently perceive of the owner or boss as being in their way, and often see customers as interfering with whatever their superiors want them to do.

Finally, there is you, the owner. You want to charge as much as you can for your products or services so you can make more money, pay off your debts faster, and lessen your exposure and risk. You would also, and let's be honest about this, like to have your payroll on the low side of your competitors because it can give you additional pricing or marketing flexibility, as well as greater profits. In addition, it's these employees who create the problems and situations that give you heartburn, high blood pressure, and sleepless nights.

How do you avoid problems like this? Whether you are starting a business or adjusting the DNA in an existing one, the answer is the same—it's about planning and executing the plan. In other words, you can build things into your company's DNA that can help at least alleviate, if not eliminate, these problems. For example, if your processes are more efficient than your competitors', you can have fewer employees, which in turn enables you to pay them at least the industry norm and still have lower payroll costs, which is to everyone's benefit. Similarly, if your staff is sufficiently trained and follows the processes you've established, it will help eliminate some of their “bad days,” as well as the likelihood of their exhibiting a negative attitude when dealing with customers, which will certainly make your customers happier. And as far as your bottom line is concerned, if instead of focusing on just the dollar amount you look at all the variables that go into making it up, and look for ways to increase it without penalizing one group over another, you, your staff, and your customers will all be happy.

As I have said before, none of this happens by accident. Establishing and maintaining a balance among these three assets is more of an art than a science, and it's an effort that requires a healthy dose of ownership skill. You have to not only make sure this balance is built into your company's DNA but, once your business is up and running, make sure it continues working as you intended it to. It's making efforts like these, particularly with intangible assets, that are crucial in protecting your overall assets and making your business successful, which is the greatest asset protection of all.

Everyone understands that life is a lot easier and more secure when a parent, family member, or trusted friend has his or her back, and it's no different for a business owner or entrepreneur. It's a lot easier to sleep knowing someone or something is looking out for you and that you're not alone. And being human, all owners would like to believe that their employees are looking out for them. The problem, though, is that owners generally don't tell their managers or their staff exactly how they want their backs covered. They tell them their sales and gross profit objectives, and provide policies and procedures manuals, but they rarely talk about exactly how their employees can provide them with the kind of support they'd like to have, that is, how they can help protect the business's assets.

It is, however, important that owners do so because asset erosion can destroy an otherwise successful business. This is especially true when a company is first getting started, when it's expanding or investing in new facilities, and whenever the owner's liquidity and resources are stretched, because it's at those times that the business is most vulnerable. And this is the precarious position owners normally find themselves in when they get to Level 3. Perhaps even more important, while every owner hopes that his or her company will move smoothly and rapidly along the spectrum from survival to success, things don't always happen that way. Sometimes, instead of moving forward, businesses move backward from success to survival. And nothing will move a business backward faster than having its assets disappear or losing a significant amount of its value.

This is because asset erosion reduces the overall net worth, or value, of a business, even if the business is profitable. Assets represent the foundation that successful businesses are built on, and if and when those assets start to crumble the chances for success become much slimmer. Look at lending institutions, like banks or credit unions. They don't base their lending decisions on just the hope of future profits—they rely on the net worth and asset value of the business on the day they're asked to make the loan. In other words, assets represent the value of a business, and without them there will be no business. That's why asset protection has to be foremost in your mind.

Generally speaking, Level 3, the first action level, is where you begin implementing all the plans and processes you developed at Levels 1 and 2. That is, having identified your assets, devised processes to protect them, and satisfied yourself that you understand what and how much those processes should accomplish, you have to put them in place so they are ready to begin operating. In addition, by this time your employees should have received whatever training they need to make sure they know what asset protection is as it relates to them and their jobs, as well as how you want the assets protected. It's important to bear in mind, however, that not all asset protection processes can be rolled out at the same time. Some processes have to be put in place first because they must be operating in order for other processes to work effectively. The general rule here is the more macro a process, the earlier it has to be in place, and the more micro a process, the longer you can wait before it starts to operate.

There is, however, one additional task that must be performed at this point. That is, you and your key people must continuously watch and exercise control over how these processes are being implemented, how effectively they are working, and what can be done to make them work better. This is essential because, at the end of the day, while asset protection is about protecting or guarding the “machine,” that is, your entire operation, including all your tangible and intangible assets, it is also about making sure all those processes are operating in a coordinated way so the final result will be what you want it to be.