"I should say that Helene was finding it out. She learned very quickly. Bobby took a little longer, but then, he had more obstacles to overcome."
* * *
Helene Stone recalls mainly the anxiety and the tension of the first year. "We fought every day, every single day," she says. "I was so angry at those people for taking our livelihood away. And he just sat there on the couch in our basement."
"I was there -- that was the big problem," says Bobby. "For the longest time, she resented that I was just physically there and not at a job. She kept bringing it up. 'I want you to get a real job.' I said, 'What's a real job?"
"Not just me," says Helene. "Our family, our friends. They kept bringing it up, too."
"She was so anxious. She kept saying, 'What do we do when the severance runs out? What do we do when COBRA runs out?' And meanwhile, our son was getting married. I mean, there were so many emotions besides the business, so many emotions that flowed back and forth between us. It was unbelievable."
"And that was where Norman came in," says Helene. "Because we were so totally stressed out. Overwhelmed is the word I'm looking for. All these things were happening, and we still had a business to run."
"Norman put it back into perspective, and we needed that every month," says Bobby. "At least once a month."
"Norman would look over the numbers and say, 'OK, here's why your month was so low.' It was always the gross-profit margin."
"And he'd admonish me," says Bobby. "He'd say, 'You can't keep taking these low-margin sales. That's why your average gross margin for the month is only 32%."
"One sale he kept making at 9% gross margin," says Helene. "So Norman made me the keeper of the margin. If a sale came in under 20%, Bobby had to ask me if we could afford it. A lot of times, I said no."
"It took me a long time to grasp," says Bobby. "I'd have a chance to get a $3,000 order at 13% gross margin. That's $400 in the bank. I'd say, 'Look, I can get sales, and you're telling me not to? How is this business ever going to grow if we're turning away sales?' I just couldn't understand how a sale could jeopardize the business. It went against everything I'd learned for 14 years. I mean, I really want to get the sale."
"I'd bring it up with Norman, and he almost always took my side," says Helene. "I'd say, 'Norman, Bobby's out of focus again. He's off on another tangent. We have to get him back on track."
"It took me about nine months to grasp it," says Bobby. "Then, one day we're meeting, and Norman says, 'You know what, Bobby? You have a salesman's mentality. Not that it's all bad. But to make everything work, you have to have a businessman's mentality as well.' That was the lightbulb going on. I thought, 'Yeah.' It made sense. It had a very big impact on me."
* * *
STEP 3
Recognize the Sales Mentality Before It's Too Late
There are times, Brodsky says, when he thinks it's a miracle that anyone starting out fresh manages to stay in business. "You make so many mistakes. You get no good advice. It's so easy to get off on the wrong track.
"Take the salesman's mentality, which almost all entrepreneurs have when they first go into business. They want to see sales go up every month, every day, every hour. I myself didn't care about anything except our weekly sales figures. My investors were the same way, and many of them were accountants. You think they ever asked me about profits? All they wanted to know about were sales.
"That's the sales mentality. It's the idea that you should focus all your attention on making sales. With established companies, everybody talks about earnings, past and future, but with new companies, it's all sales. And it's very dangerous, especially when you're operating out of your basement on a shoestring.
"Why? Because sales do not equal cash, and cash is what you need to survive. You run out of cash, you go out of business. End of story. Look. It all goes back to the fundamental reality that you are working with limited capital. If your gross profit is not enough to cover your expenses, you have to dip into your capital to make up the difference. You dip too much, and pretty soon you run out.
"So here, in my opinion, are the two most important rules for every new business. Number one, protect your capital. Spend it only on things you are certain will generate positive cash flow in the short term. Number two, maintain the highest monthly gross-profit margin you are capable of achieving. Do not go after any low-margin sales.
"Now you may think these rules sound simple enough. Believe me, it takes discipline to follow them. It's very easy to go off on tangents, mainly because of the sales mentality. Here's Bobby Stone, for example, who was trained for 14 and a half years to think only in terms of sales. He'd never even heard of gross profit. His only job was to sell as much as he could at the prices he was given no matter how much, or how little, gross profit he generated.
"Now he's in business for himself, and he's having a bad month. In his business plan, he projected $20,000 in sales for the month. That's his break-even point. He's in the last week, and he's done just $10,000 in sales. He starts getting desperate. He calls up sales reps until he finds one who will buy $10,000 worth of supplies if Bobby will come down on price. They negotiate, and Bobby gives him a good deal. Bobby's happy. He's made his goal. He's moving a ton of product. He comes in and says, 'We did it. We hit our number for the month.'
