Go With The (Cash) Flow
Many businesses struggle to find a consistent rhythm of profit, allowing them to achieve the company's full potential. Often businesses will seek the advice of business coach or consultant.
Recently, our CEO sat down with Josh Patrick to learn how companies can overcome this problem and begin to truly thrive. In this blog, Hollywood Branded learns how you create a business you love, where not only your work is valued, but you're creating profits. We discuss all of this with Josh Patrick of The Sustainable Business.
A Little More About Josh
Josh Patrick is the founder of the Sustainable Business, a coaching and mentoring company for private business owners. And he's also a certified financial planner. Additionally, he's a regular contributor to outlets such as the New York Times, Forbes, the Huffington Post and American Express OPEN. He also hosts the Sustainable Business podcast.
Interview Transcript Highlights
Question: Could we start off and chat about how you got to where you are today, where you are now coaching and mentoring other business owners?
Answer: Like most people my age, it's a long and winding road. From the first 20 years I was in business, I owned a food service and vending company. We fed people in factories essentially. And I knew absolutely nothing about business. So since I knew nothing about business, of course, the first thing I did was volunteer to teach other people about how to run a business. And what I learned by doing that idea is that when you volunteer to teach something, you actually have to learn it before you teach it. So that was my start.
I have attended a zillion different seminars on how to be good at business and I've run businesses. I made every mistake that was possible to make while I was building my business, especially the first seven years. I tell people a lot, I said, "When I first started in business, the worst thing that could possibly happen to a 24 year old happened to me." And they say, "Okay, I'll bite. What's that?" And I'll say, "I was really successful."
So what happens when you're 24 and you're really successful in business? You don't think it's luck. You think it's because of your innate wonderful skill and brilliance that you got there. Well, after a bunch of good luck, you usually are followed with a bunch of bad luck. And if you don't learn to manage that, you don't have a certain amount of humility, you become a target for everyone in the universe. And that was me for the next five years.
And then finally around five years down the road, when I was pretty close to 30 years old, I went to one of these new age seminars. And I learned to look in the mirror and stop blaming it on others and justifying my way through life. So I guess it's probably my fault if things are going well. And it's also my fault, if things aren't going well. So maybe I should stop whining about things, not going well and learn from that. So that's the 30,000 foot view of how I got to where I am today.
Question: That's a good background. So with the improving of cash flow, that's your specialty. You work with business owners to come in and figure out how they can run their businesses better and improve cash flow and find more profit. Does that basically sum up the core of your work?
Answer: With almost every business I work with, their issue when you get right down to the core thing is they don't have enough excess cash running around their business to do what they need to do. So we need to learn how to create excess cash. A friend of mine, named Mike Michalowicz, has a wonderful book called Profit First. And I'm a big fan of Profit First and I'm sure a lot of your listeners have heard of it. And I've modified it a little bit in saying that, okay, if you want to run a business, you want to be successful, there's four buckets of profit you have to fill. The first bucket is your lifestyle. You have to have enough money to live and hopefully live a reasonably good life.
The second thing is you need to have an emergency fund. And we're recording this on April 24th in the age of the coronavirus and those businesses that have an emergency fund are doing a happy dance. And those that didn't are thinking about how they're going to close down. So you don't think you need an emergency fund in good times. And that's probably true, but we never know when the bad times come and they always come.
This is the fourth total economic meltdown I've lived through as a business owner. So it's not new. We act like it's new. This is the worst of the four I've gone through most likely, but it's not something we haven't seen before. And if you go back even a few more years to 80 years ago, we were in the middle of the Great Depression, which was another huge societal structure.
The third thing you need to have, is you need to have a fully funded growth program. Most people think a fully funded growth program is money for marketing and sales. Well, it goes past that. It also goes, you need to have enough money to fund receivables that you're going to have. You need to have enough money to fund extra equipment you're going to buy. You need to have enough money to fund extra people you're going to need to hire before you need them. You need enough money to go out and afford more payables. So you have to buy inventory.
Then the final thing is you need to have a fully funded retirement plan. And this is something that most business owners don't realize. They think at the end of the road, they're going to sell their business, get all this cash, ride off into the sunset and they're going to be happily retired. Well, the sad news is that almost never happens.
There's 28 million businesses in the United States. Only 6 million of those 28 have any employees at all. So that 22 million with the solopreneur businesses, and I'm sure there's a lot listening, your businesses aren't really sellable. You might get a little bit of money for it, but you're not going to get enough to retire. I can promise you that. So you need to create enough excess cash so the retirement plan becomes a major source of funding when you decide to stop working.
Question: Are you a believer in EOS?
Answer: I'm a huge fan of Gino Wickman. I mean that's why I'm going to talk to Mike about. I think that if you take EOS, which stands for the Entrepreneurial Operating System, and you use EOS and you combine it with Mike's Fixes First, you're going to have a company that, because part of EOS is IDS, which calls for, what's it? Something you discuss and solve. Identify, discuss, and solve. And the problem with IDS is you've got this whole laundry list and you don't really have a process for choosing where you want to go. And if you use Mike's Fixes First, which is a Theory of Constraints and combine that with IDS in a weekly meeting, that you're going to do, the level 10 meeting that Wickman talks about, then it's a really good combination.
My experience is you never want to just do one thing by itself, you'll always want to add things on. I mean back 20 years ago, the world was in love with Michael Gerber's E-Myth, and E-Myth is great, if you're an engineer and you like huge spreadsheets with lots and lots of detail. That's not most entrepreneurs. However, having said that you can take pieces of Gerber stuff and apply it to your business and you should. So what I recommend to people, you know there's probably 20, 25 books, which are absolute must reads, and take pieces of them and apply them to your business in a way that makes sense for you, which is a fair amount of work and you have to be pretty curious to do that, but to be successful, and you're not a lifelong learner and you're going to live to a hundred, it's going to be a very boring life.
Question: Can we dive into that a little bit more and where business owners (of companies of 5-10 people) are stuck and why they're stuck?
Answer: Yeah, it's really quite simple. They haven't learned how to delegate. And delegation is not a skill anybody does well out of the box. It is the hardest skill for business owners to learn. There's a whole bunch of reasons for it, but I'll give you two. To delegate you have to have high trust in the people you're sending a job to, and you have to have a high tolerance for mistakes and understand mistakes are learning experiences. If you don't get those two things, you're never going to delegate. Now here's what typically happens with a business owner.
They try to delegate. They give a job to somebody and then they either become a helicopter manager where they just are micromanaging, or they completely abdicate and walk away. Now, neither one of those is going to work as a strategy for a delegation. If you're going to be a micromanager, you might as well do the darn job yourself. And if you're going to be an abdicator, I can guarantee it's not going to be done properly. So my first mentor had a great system. He called it EIA, which stands for expect, inspect, accept. So when you delegate, you set up an expectation for what you want, and then you're going to go back, you're going to inspect to make sure it's done the way you wanted. And then, assuming it's done well, you're going to accept it.
Except here's what happened when you first delegate. I set up an expectation, which probably isn't very clear. It's clear in my mind, but it's probably not clear in the person that I'm delegating to. And then I'm not going to inspect and I'm going to go and I'm going to finally figure, well, I'll go check on what's going to do. And I'm going to hit it and say, "Oh, that wasn't what I wanted at all. What's the matter with you? Are you an idiot? I told you what to do."
And then you're going to go back and you'll say, "Well, delegation doesn't work so I can't do it anymore. I'm just going to put a bunch of helpers around me." And you run out of bandwidth at about 10 employees with helpers. You have to be able to delegate and people have to go and be able to do the job without you being around them.
So first you have to say, okay, the question you want to ask when someone makes a mistake isn't, "Why was that made?" You want to say, "What did we learn?" And you have to realize that if you're having a hard time with trust with delegating, I can't delegate to this person because I can't trust what they're going to do.
There's a book called the Trust Formula, which I highly, highly recommend. And in there, basically it says intimacy plus competence, plus doing what you say you're going to do, divided by self-interest, will tell you how much you're going to trust somebody. Now, typically when a business owner doesn't trust to delegate, it's usually because they don't think the person they're delegating to is competent enough to do the job.
So they're not likely to do that. And they're going to be always testing their competence. Well, instead of doing that, why don't we have a conversation about what competence means and systematize the process? You also want to realize if you're an owner of a business, yeah, we don't like mistakes. No one likes making mistakes. It's now something, but it's how you learn. And the truth is if I'm making mistakes, I'm learning. And it's almost impossible for one of our employees to make a mistake that's big enough to put us out of business.
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