Before you develop a business plan, you need a life plan.
Before you develop a business plan, you need a life plan.
I recently had a visit from a long-lost friend. His name is Mike, and he has a family-owned trucking business in New Jersey. I'd first met him almost seven years ago when he'd come to see me looking for advice. He had decided that he wanted to drive his company's sales from about $1.7 million to $10 million or $15 million in five years, and he thought I'd be able to help him figure out how to do it.
I had only one question: "Why?"
Mike looked at me quizzically: "What do you mean?"
"I mean, why do you want to have $10 million or $15 million in sales?"
He didn't know what to say. The question had never occurred to him. He'd just assumed that it was always a good thing to increase sales as much as possible. In fact, he was about to fall into one of the most common traps in business -- a trap I happen to have experienced myself. From 1979 to 1987, I was driven by a single obsession: I wanted to have a $100 million business. I never asked myself why. I was simply determined to have one, and I focused all my attention on getting the additional sales -- neglecting my family and everything else I loved.
Eventually I reached my goal, but I did it by making an acquisition that proved disastrous. Combined with the stock market crash of 1987 and the spread of fax machines, it pushed my messenger business into Chapter 11. After taking sales from zero to $120 million in nine years, I saw them go from $120 million to $2.5 million in nine months. It was a horrible experience, but it made me a better businessperson. Among other things, it forced me to step back and think about why I was in business in the first place, where I wanted it to take me, what kind of life I wanted to have.
Those are the questions I'd asked Mike back in 1996. "Listen," I said, "let's forget about business. Business is just a means to an end. The question is, what's the end? Where do you want to be in five years from a family standpoint? What do you want to earn? How much time do you want to take off?"
Mike needed several weeks to come up with answers. He had to talk it over with his wife and consult other family members -- including his father, brother, cousins, and uncle -- who were active in the business. By the time he got back to me, he'd settled on some goals. First, he wanted to double his salary. As it was, he was making barely enough to get by. Second, he wanted to buy a larger house. The one he had was too small for his family of four. Third, he wanted to take off two or three weeks a year. He hadn't had a vacation in a long time, and he worked every day. Fourth, he wanted to be able to put his work aside at the end of the day and focus on his family. That was impossible as long as he was serving as office manager, dispatcher, bookkeeper, and several other roles at the same time.
In that case, I told Mike, he should forget about getting his business to $10 million or more in five years. To do it, he'd have to work 18 hours a day, seven days a week, and he'd never see his family. Instead, I helped him put together a plan to let the business grow in a way that would allow him to achieve his life goals. Rather than hiring new salespeople, as he'd intended, he reorganized the business to give himself more time to sell, which he enjoyed, while his brother took over some of the office work. I also suggested that he look for other services he could offer his current customers, on the principle that the easiest customer to get is the one you already have. When we finally got around to doing sales projections, we figured that the company could reasonably be expected to do $3.2 million in the fifth year of the plan. Mike thanked me for my help -- and then I didn't see him for the next five and a half years.
So naturally, when he dropped by late this spring, I was curious to find out what had happened. I could see at once that Mike was a different man. He'd lost 40 pounds and was far more relaxed than I remembered him. He laughed as he told me how his life and his business had changed. To begin with, he'd fulfilled all his goals. He was making more money. He had a larger house. He took vacations and spent lots of time with his kids and his wife. Since hiring a dispatcher, he'd been able to shut off his phone and leave work most days at 5 or 5:30. On the business side, he'd begun selling storage services to his trucking customers and now had several warehouses that provided an additional revenue stream. Business was great, he said, despite the weak economy. With obvious pride, he told me that the company had finished the fifth year with $3.6 million in sales, beating our projection. This year, he expected to do $5 million.
"That's terrific, Mike," I said. "Congratulations."
"Yeah, I'm happy," he said. "I'm ready to take the next step."
"What's that?" I asked.
"Buying other trucking businesses," he said.
An alarm went off in my head. "That can be awfully tricky," I said. "You can really hurt yourself with acquisitions."
"What do you mean?" he asked.
Well, for openers, I told him, you never know exactly what you're getting until you acquire the company. Buying other trucking businesses would be especially risky because most of the contracts are at will. Mike could acquire a company and discover that a lot of customers were leaving, or that the salespeople controlled the accounts and were threatening to take them away, or a million other things. Since he'd have to borrow money, he could get into major cash-flow problems. In the worst case, a bad acquisition could bring the company down, as I'd learned to my chagrin.
For years, I was driven by a single obsession: I wanted to have a $100 million business. I never asked why.
Understand, I'm not saying that people should never buy businesses. Sometimes it's the best way to grow. Moreover, there are steps you can take to protect yourself -- for example, by persuading the sellers to let you pay them out of sales and over time. But Mike had another issue to consider. He'd just spent five years creating a good life for himself. Did he really want to risk throwing it away? "Well, I have a concern," he said. "I do almost all of my business with two large customers. I'm really in good with them, but it would be tough if one of them dropped us or cut way back."
That, I had to agree, was a serious concern, but there were other ways to address it. Mike could, for example, go out and sell. He was good at it, he enjoyed it. Instead of borrowing to buy companies, he could leverage his relationships with his two main customers -- one in cosmetics, the other in apparel. They were fabulous references, and they gave him great entrée into their respective industries. Even if he signed up just two or three more customers of equal size, he'd be in much better shape. You can sleep a lot more soundly when your largest customer accounts for 20% of your business than you can when it represents 50% or more.
Mike wasn't completely convinced. "Getting more customers that way takes a long time," he said.
"Yes, it does," I said. "But you know something? There are no real shortcuts in business, and when you look for them, you usually get in trouble. It took me a long time to realize that. People like me want instant gratification. One of the hardest lessons I had to learn is that you can't expect good things -- like more customers and better sales -- to happen overnight."
Mike is a good listener, but I don't know whether he heard me. Some lessons we have to learn on our own. Even after we've learned them, we may need reminders from time to time. A couple of years ago, for example, I had an opportunity to buy some valuable property. If everything had gone well, my partners and I could have made a huge score. We even had money people who were ready to finance the deal. We just had to guarantee their investment -- which meant putting my business on the line. Fortunately, one of the money people pointed out how foolish that would be. "You've got a good life and a growing business, Norman," he said. "Do you really want to put it all in jeopardy?" I suddenly realized I was about to make the same mistake that had led me into Chapter 11. We let the deal pass.
Now Mike has to make his own decision. Maybe he and his wife need to do another life plan. (My wife and I do one every year.) In any case, we'll meet again in a few weeks. If he's dead set on buying companies, I'll help him lay down some ground rules to minimize the risks. After all, he's seen for himself how business can give you a better life. I would not want him to do what I did: lose it all and have to start over.
Norm Brodsky (email@example.com) is a veteran entrepreneur whose six businesses include an Inc. 100 company and a three-time Inc. 500 company. This column was co-authored by Bo Burlingham. Previous Street Smarts columns are available online at http://www.inc.com/magazine/columns/streetsmarts/.