Build a profitable business- the baby steps part 39

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Grow a pair. Be tough. We cannot stress enough the importance of being able to handle difficult and emotional situations in a good way for the entrepreneur who is starting out. In many of these situations a cool head, a good ability to read people and some basic diplomacy will go a long way. But there will be times when you need to be tough. There is a reason the saying goes; “nice guys finish last”. Nice boys are not likely to win the girl, nor are they likely to seal the business deal. Nice means being a pushover. Nice means letting somebody else dictate your agenda. Nice means not having the corage to ask or say what is already out there. So where are we going with this? What do we mean? We certainly don´t mean that you should start acting like an idiot and be rude to people. That will not get you any respect, and it will definitely not gain you any business. We are simply saying that you need to be able to back your professional and friendly “autopilot” manners up with balls of kevlar. And if you are having problems finding the kevlar version from the onset, settle with balls of steel for the time being. You can always upgrade later on.

You need to be friendly and nice most of the time but you have to have a mean side to you as well. If you are unable to find that balance and make the switch when the situation calls for it you won´t be getting any free lunches. And what´s worse, somebody else is probably going to eat your lunch for you. You need to have two sides to you. Sort of “Forrest Gump” meets ”Scarface”. You need to come off as friendly and reasonable most of the time, but they need to know there is a “darker” side to you. If all they get is the nice guy, you will get no respect and that is very likely to begin showing in the way your business contacts interact with you. If they have seen your crazy side they´ll think twice before overcharging you. If they have seen a gleam of terror in your eyes they are much less likely to be late to your meetings. If they have heard you scream in fury they will be a lot more reasonable when you negotiate with them. We wish that the world would look another way, but these are our experiences. Whether or not you believe us it up to you. But we know these general rules to be true.

Carrot or stick? You need both. If you are only running around with a carrot all day long people will start to figure you pose no threat to them. You need a scary, fat stick hanging by your side to scare off any casual attempts. You might never get to use it, but it needs to be there for the world to see. It is your meal ticket to a more comfortable and less complicated business life. It is a statement that says: “Don´t f_ with me!”. And it should convey that important message loud and clear. The truth is that the business world is very often a place where the resources sitting in the middle of the table are scarce and everybody is reaching for them. Some are more aggressive than others and if you are not careful they will try to take your share of the spoils. That´s why you need a stick as precaution. You hope that you will not need to use is. You hope it is only there for show. You can consider it your nuclear weapon, something that establishes enough of a terror balance to avoid unnecessary future conflicts. Be prepared for war, but strive to live a life of peace. That´s the best way to go about it. But at the same time, you must be prepared to start swinging if you, or your interests are under fire. Make them understand that to take the money from you they will be forced to fight you every step of the way. Once they realize that they will have to claw the money out of your clenched hands they will look elsewhere. They will leave you alone and go luck for some lower hanging fruit. And that´s just what you are after. The business world can be a ruthless place and only those who are willing to fend for themselves need apply for a seat at the table.

Apart from being able to fend for yourself, in business the ability to get really pissed off can be a real asset at times. That is providing that you only get angry when there is a legitimate reason to. If you get angry frequently without cause people will shy away from you. But if you get genuinely pissed when the situation calls for it, that is likely to help you immensely in your business activities. We are not sure why that is. But we have our theories. The world tries to avoid problems and conflicts. The world is always trying to go along the line of least resistance. If they know that the´ll end up on the receiving end of one of your outbreaks they´ll think twice before overcharging you. Why do it to the screaming maniac when you could overcharge the timid nice guy who pays no matter what or how you charge? And that´s that. The choice is made, and very often we believe that this choice is made by the subconscious. The subconscious mind knows what you are really after and it always helps you to follow the line of least resistance. The timid nice guy is the line of least resistance. The rage of the screaming maniacs out there (that would be us) is to be avoided at all costs. It´s really a matter of self preservation. Always stay tough and do not blink. If you manage to project strength behind your pleasant demeanor you have alreday won half the battle.

We could give you a lot of stories that underlines our theory regarding the importance of projecting strength. But we will only give you one. It is by far the best example that comes to mind every time we think about this issue. It deals with an immensely wealthy entrepreneur that had made a habit of calling up his suppliers and give them a rollicking from time to time. One of us once had the opportunity to overhear one of these calls. The supplier got the verbal beating of a life-time. He got completely annihilated. he didn´t even get to say anything, he was under constant barrage. It was all brilliant fun. Just thinking about it puts a smile on our faces. Ren minutes after that phone call it turns out that the mistake had not been made by the supplier (as was initially suspected). Instead, the mistake was made in the organization of the wealthy entrepreneur with a knack for telephone terror. What do you think the wealthy entrepreneur did? Well, he didn´t call up and appologize, that´s one thing we can tell you. When one of his employes asked him if they should call the supplier, kiss and make up he said no and added; “It´s a good thing we give it to them from time to time. It will keep them on their toes, and they will think twice about messing with us in the future”. And he was right. From that day on the supplier was extra careful with that particular account. They gave it special treatment all the way, and were very focused on not making any mistakes. A couple of years later we met the guy who was at the receiving end of the aggressive phone call. He told us they were all scared of the crazy entrepreneur and from the day of that phone call they had been giving that account special treatment for the next couple of years. What´s more, when they renegotiated prices with their customers one year after that event, that was the one account were they didn´t up the prices. They figured it would just be a lot easier on everybody if they let that one slide. We give you this story not because we think that the behaviour is a good example of how you should behave as an entrepreneur. Rather we are trying to illustrate that by being a major pain in the ass, you will very often get preferential treatment. Your business surroundings will stop to lie in wait for you and move on to better hunting ground and easier prey instead.

Finally we would like to discuss how this concept can be applied to negotiations. Every second year or so we usually go on a cost-cutting hunt. What this means is that we take a close look at each business and look for excess fat. We look for expenses that can be cut without affecting the business negatively in any way. We always find something, and so will you. If you think in creative ways there is big money to be saved. And the best part of it is that very often that money goes straight down to your bottom line, drastically improving your take from your enterprises that year. Now a big part of any companies costs are usually related to what you are paying suppliers. And we´re not only talking about the suppliers of goods and services that goes into your base production. We are talking about the supply of some secondary services that almost any business has. For instance, if you run an electronic store your base supplier costs are what you pay for the electronic devices that you are selling in your store. These costs are probably an ongoing battle for your business and it´s often not here that you will find potential costs that you can cut in your cost-cutting hunt every second year. The secondary service costs on the other hand can often provide cost saving opportunities. What are these? It´s anything that doesn´t go into your production, or that you don´t sell to your customers in any way. Your legal expenses are an example. Your accounting and bookkeeping goes in here as well. Maintenance, and the cost of the premises also fall into this category. The list goes on. If you check your costs you will probably find lots of expenses that are related to services of this kind.

Now the next step in this process is to find the biggest posts, the costs on this list that are coming from the same company and that constitute a large expense to you. Those are the expenses that you need to target, since that is in most cases where you will be able to cut costs the most. Make a list of those companies and the expenses they constitute. Now you need to contact two competitors to every company that is on that list. Describe what those companies are doing for you and ask for a competing price. More often than not, the companies that you contact will try to undercut your current supplier in the hope of securing a new account. Quite often they will give you a  very low price only to get your business in through the door, and they figure they can always up that price later on. That´s ok for you. In most cases you only use their quotes as a reference point and as leverage in your negotiation with your current provider. When you meet your current provider be humble and pleasant, and try to cut your prices to the levels you now know are possible. If they are giving you a hard time, you could mention that you have been talking to competitors and that they have been able to offer you a better deal. That will get their attention, at least if they want to keep you on as customers. We have been through this process a number of times and we have basically always been able to cut our costs using it. We are not saying it is foolproof, we are merely stating that it has worked very well for us, and saved us lots of money over the years. Besides the money that will be saved, you also save a lot of time using this method. Your service providers will think twice before they raise prices on you or tweak your deal to the downside. It´s a great way to arrive at a fair market price in those cases where the other side has the information advantage, and you don´t really know where the price should be.We just love that.

We have tried to teach this “system” of cutting costs to “brand new” entrepreneurs and in general it has been successful. One problem seems to surface though. We have noticed that many fresh entrepreneurs don´t like to have to call their service providers or service suppliers for a renegotiation of the price levels even though they have received competing quotes at much more favourable prices. In most cases it has to do that nobody really enjoys a situation with a potential conflict built into them. Business meetings where you are trying to pay a considerably lower price for a service usually don´t turn out to be the most exciting and entertaining affairs. Just remember that it is over in a jiffy. One unpleasant conversation today can save you dozens of unpleasant conversations tomorrow. Think about that. It could be a bit unpleasant once, but you get to enjoy the outcome for years in most cases.

Oh, and one more thing. Be sure to cut costs continually. You don´t have to do it every second year like we do. You can do it whichever way you like it, as long as it is a recurring event. Even more important is that you don´t do it when things are going bad and you have to cut costs. Whenever you find yourself cutting costs during the bad times, you are much more likely to cut costs that are necessary or even essential for your enterprise. The best time to cut costs is when everything is going well. In those times there are plenty of costs to cut in general, and you are less likely to even feel any side effects from those cuts. When those bad years come by, as they often do sooner or later, you will already have a pretty trimmed company in place and you will be much better prepared to meet the new tough climate. Take it from us.

Cut costs when you can, not when you have to.