Instead, you should be focusing on your gross margin -- that is, the percentage of profit you make after covering the direct cost of whatever it is that you are selling. In my opinion, gross margin is one of the two or three most important numbers in any business and by far the most important one in a new business. You have to pay all your expenses out of gross profit -- your salary, your rent, the phone bill, gas, electricity, photocopying, and so on. If your gross margin is 10 percent, you need $10 in sales for every $1 of overhead just to break even. If your gross margin is 40 percent, you need only $2.50 in sales for every $1 of overhead. So you will have more to show for the same amount of work with a high gross margin than with a low one. And if you are just starting out and have limited capital, that could be the difference between failure and success.
8. Identify your true competitors, and treat them with respect.
Here's something else I didn't know starting out: Not everyone who does what you do is your competitor. Rather, you compete against only those suppliers that offer the same services, are more or less equally reliable, and charge prices similar to yours. That doesn't mean you won't meet other types in the marketplace. In every business I started, there were people around who claimed to provide a service like ours at a fraction of the price. Invariably, they had tiny operations with little, if any, overhead. If the owner-operator got sick, or if a truck broke down, the customer would be stuck. Customers willing to put up with that risk were not good candidates for us. Conversely, customers that demanded reliability -- and were willing to pay for it -- were not good candidates for the mom-and-pop operations.
As for our real competitors, I came to see that they were extremely important to our long-term success. They played a critical role in shaping our reputation in the industry -- which was our most valuable asset -- if only because their opinion carried more weight than that of any other group. When they spoke well of us, everybody listened. So I made a habit of treating them with the respect I hoped they would show us, and I insisted that our salespeople do the same.
9. Culture drives a company. In the long run, the boss's most important job is to define and enforce it.
When I started my first business, it never crossed my mind that I was creating a culture as well as a company. I didn't even realize that companies had cultures, let alone that the cultures might actually affect the businesses' performance. It was only 15 years later -- when my wife, Elaine, joined CitiStorage -- that I began to think seriously about the matter. She introduced programs that fundamentally changed our culture, making it much more employee friendly, with business games, contests, educational programs, new employee benefits, and group activities of various sorts. I couldn't help noticing how much better the company functioned as a result.
Along the way, it dawned on me that setting the culture was ultimately the CEO's responsibility. Although Elaine was doing the heavy lifting, she couldn't have succeeded without my support. Not only did I have to give her the resources she needed, but I also had to modify my behavior to fit in with the new regime and make sure that everyone else went along. Among other things, I had to learn how to hold my tongue and respect the chain of command. That was probably the most difficult new habit I have ever had to develop -- and certainly one of the most important.
10. The life plan has to come before the business plan.
It took a major whack on the head for me to get my priorities straight. For my first eight years as an entrepreneur, I always put my business goals first. As a result, I missed my first daughter's childhood. I spent too little time with my wife and friends. I didn't do any of the reading or traveling or gardening that I enjoy. My life was one full-bore, supercharged, nonstop, 24/7 rush to create a high-growth business. You know how that turned out.
Fortunately, my descent into Chapter 11 came early enough in my life for me to learn the appropriate lessons and make a fresh start. The most important lesson was this: Building a successful business is not an end in itself. It is a means to an end. It is a way to create a better life for you and those whom you love, however you -- and they -- may define it. You need to do the life plan first and then keep revisiting it, to make sure it's up to date and your business plan is helping you achieve it. That habit, I can assure you, will prove to be the most important of them all.
Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, will be published by Portfolio this month.
