Norm Brodsky - Street Smarts: An All-Purpose Tool Kit for Entrepreneurs

Table of Contents

PORTFOLIO

Title Page

Copyright Page

Dedication

PREFACE

CHAPTER ONE - How to Succeed in Business

CHAPTER TWO - The Right Stuff

CHAPTER THREE - Why Start-ups Fail

CHAPTER FOUR - Where the Money Is

CHAPTER FIVE - Magic Numbers

CHAPTER SIX - The Art of the Deal

CHAPTER SEVEN - It Begins with a Sale

CHAPTER EIGHT - Good Sales, Bad Sales, and the Ones That Get Away

CHAPTER NINE - Customers for Keeps

CHAPTER TEN - How to Lose Customers

CHAPTER ELEVEN - The Decision to Grow

CHAPTER TWELVE - Becoming the Boss

CHAPTER THIRTEEN - The One Thing You Cant Delegate

CHAPTER FOURTEEN - Sel ing Is a Team Sport

CHAPTER FIFTEEN - Help! I Need Somebody

CHAPTER SIXTEEN - When the Student Is Ready, the Teacher Appears

CHAPTER SEVENTEEN - Keeping Up with the Stones

PORTFOLIO

STREET SMARTS

Norm Brodsky is the founder of CitiStorage and seven previous start-ups, and a three-time Inc. 500 honoree. He began writing his monthly Inc.

column (with Bo) in 1995. He lives in Brooklyn, New York.

Bo Burlingham is editor at large for Inc. His previous books include Small Giants, which was a finalist for the Financial Times/Goldman Sachs Business Book of the Year Award. He lives in Cambridge, Massachusetts.

PORTFOLIO

Published by the Penguin Group

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Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario, Canada M4P 2Y3 (a division of Pearson Penguin Canada Inc.) Penguin Books Ltd, 80 Strand, London WC2R ORL, England

Penguin Ireland, 25 St. Stephens Green, Dublin 2, Ireland (a division of Penguin Books Ltd) Penguin Group (Australia), 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd) Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park, New Delhi-110 017, India Penguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore 0632, New Zealand (a division of Pearson New Zealand Ltd) Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R ORL, England

First published in the United States of America as The Knack by Portfolio, a member of Penguin Group (USA) Inc. 2008

This paperback edition published 2010

Copyright Norm Brodsky and Bo Burlingham, 2008 All rights reserved

Portions of this book first appeared in issues of Inc. magazine.

Includes index.

eISBN : 978-1-101-19576-5

1. New business enterprisesManagement. 2. Success in business. 3. Entrepreneurship.

I. Burlingham, Bo. II. Title.

HD62.5.B75 2008

658.11dc22 2008024979

Set in Bodoni Book

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To Elaine Jerome Brodsky

and

Lisa Meisel Burlingham

Almost eighty years of marital bliss

and counting

Economies go up and down, but the fundamentals of business dont change. Thats one thing weve al learned since the hardcover edition of this book (original y entitled The Knack) first appeared in the fal of 2008. Since the books publication people have asked me and my coauthor, Bo Burlingham, to put together a list of the most important rules to keep in mind as they build their companies. Heres what weve come up with: 1. Numbers run a business. If you dont know how to read them, youre flying blind.

When I started out, I thought that CEOs ran businesses with the help of their top executives. What I didnt realize is that a business is a living entity with needs of its own, and unless the leaders pay attention to those needs, the business wil fail. So how do you know what those needs are? Theres only one way: by looking at the numbers and understanding the relationships between them. They wil tel you how good your sales are; whether or not you can afford to hire a new salesperson or office manager; how much cash youl need to deal with new business coming in; how your market is changing, and what impact the changes wil have; and on and on. You cant afford to wait until your accountant tel s you these things after the fact. Nor do you have to become an accountant yourself. You do have to know enough accounting, however, to figure out which numbers are most important in your particular business, and then you should develop the habit of watching them like a hawk.

2. Cash is hard to get and easy to spend. Make it before you spend it.

Most people dont understand the value of cash when they go into business. If they did, they wouldnt waste it by purchasing brand new furniture, paying designers to produce logos, ordering fancy business cards and stationery, or spending money on dozens of other things that they dont need and that deplete their start-up capital without getting the business one inch closer to viabilitythat is, the point at which the company can sustain itself on its own internal y generated cash flow. But its not just start-up entrepreneurs who waste cash. The corporate landscape is littered with the corpses of companies whose leaders thought the good times would last forever and spent money they hadnt yet made on luxuries they didnt need. I made that mistake myself once and paid the consequences. One of the lessons I learned was: Make the money first. If youre smart, youl put some of it aside for a rainy day. Whatever is left over you can spend as you please. You can pay big bonuses to your employees. You can make big donations to charity. You can buy a corporate jet. You can run for president.

Whatever. But first you must earn it.

3. Dont focus on the top line. Gross margin is the most important number on the income statement.

In the early days of a business, everybody obsesses about sales. We want to see them increase constantlythe faster, the better. But focusing exclusively on sales is dangerous, especial y when youre working with limited capital. Instead, you should be tracking your gross marginthat is, the percentage of your money left over after accounting for the direct cost of whatever it is that youre sel ing. (Gross profit is sales minus cost of goods sold. Gross margin is the percentage of sales that represents.) I believe gross margin is one of the most important numbers, if not the most important number, in any business. In the start-up phase, it determines whether or not youl survive long enough to reach viability. (See chapter one.) Thereafter it continues to have a major impact on your ability to grow the company. It takes the same amount of time and energy to build a low-margin business as it does to build a high-margin one, but youl have more to show for your efforts if you stay focused on maximizing the gross profit you earn.