Dealing With the Tough Stuff

Practical Wisdom for Running a Values-Driven Business

Margot Fraser, Lisa Lorimer

• Publisher: Berrett-Koehler Publishers
• Year: 2009
• ISBN:
  9781605095790
• Edition: 1
• Topic: Business
• Subtopic: Small Business
• Index: Business

Your business plan is only going to get you so far. When you're actually running a values-driven business problems come up that you never could have anticipated. And as a mission-driven organization you face issues your more conventional colleagues never have to grapple with. The whole experience can be incredibly isolating and draining.Margot Fraser and Lisa Lorimer have been there, and they're here to help. Together with five of their colleagues—including Stonyfield Yogurt founder Gary Hirshberg and former Ms. Foundation president Marie C. Wilson—they offer the kinds of personal insights and seasoned advice you just can't get in business school. It's like having a coaching session with some of the nation's top socially conscious entrepreneurs. Each chapter of Dealing with the Tough Stuff tackles a particular challenge. How open and honest can you really be with your employees and still run an efficient business? At what point do you seek outside expertise? What do you do when things go terribly wrong? When is it time to leave? The authors and the members of their "advisory board" share their experiences—not just what worked, but sometimes what spectacularly didn't. Some of these stories are harrowing: a worker getting killed by factory equipment, a supplier embezzling funds, a false accusation of intellectual property theft. Others are simply day-to-day conundrums: meeting payroll when you're always in debt, deciding when and how to expand in a responsible way, balancing business needs with your commitment to the triple bottom line. At the end of each chapter, Lorimer and Frasier draw on the stories to offer practical "survival suggestions" that can guide readers through similar situations.This is a book that readers can look to for affirmation, hope and tools. Others have been through what you're going through, if not worse. They made it and so can you—because they're going to show you how they did it. No book can cover every challenge that might arise, but if you learn from the attitudes, techniques and coping mechanisms these seasoned leaders offer, you'll get through the tough stuff with your sanity and your business intact.

1 Conquering cash

Did you look at the chapter titles or flip through the book, skimming the headlines until you found the word “cash”? Welcome! You are the reader we are writing to, and this is the topic we assumed would get your attention first. If you ask entrepreneurs to name the toughest, most stressful aspect of running their companies, cash is almost always at the top of the list. It’s the King of stressors.

In this chapter, we talk frankly about how we stayed focused on cash while balancing our values with the realities of meeting payroll. Lisa and Margot talk about the importance of knowing when to be frugal and creative ways to deal with inventory and payment terms. Gary Hirshberg of Stonyfield Farm explains that all problems are really cash problems and how that can be a unique challenge for values-based businesses. Joe O’Connell of Creative Machines explains the importance of a steady moneymaker in a business that makes custom products. And Marie Wilson, a social entrepreneur at the Ms. Foundation and the White House Project, shows how to look beyond the money to the vision and how you can find a way for the two to meet. We also give you a step-by-step guide to owning your numbers (and sometimes ducking them when you are stressed) and finding ways to get the help you need.

In a business that’s values based, finding the balance between people, planet, and profit (cash!) is more complicated when there isn’t enough cash. Hopefully this chapter will provide you with useful information to deal with this sometimes painful reality.

Cash Is King

LISA

About five years before I sold the majority of my company, I attended an executive education program at Harvard Business School. On the final day, my accounting professor told us that after all the time we spent in class and all the tuition we paid, we really needed to know only one thing. He said it was the most important piece of information we could take with us. He held up a large sign written in black marker that said “Cash Is King.” We laughed and agreed. A simple sign that made us laugh, yet the idea is not so simple to deal with when we are in the midst of running a business.

I believe that perhaps the most valuable business practice is owning your numbers. Nowadays, I give talks to business groups and do one-on-one consulting about how important it is to understand your numbers. I tell business owners they can use their numbers to inform their decisions about what is most important and what to do next. I say that with a little practice, a calculator, and someone they can sit down with who will ask questions and help them find answers, all entrepreneurs can learn their numbers. These things are all true, and they help a lot. But there were times when I knew what the numbers meant, how to interpret them, and how to impact them, and yet despite that knowledge, I didn’t have the courage to look at them. I could not stand seeing the negative balance growing in the checkbook, and I would leave my newly printed financial statements from the previous month unopened in my in-box for days. Every time I walked past the statements, my heart would beat faster and my stomach would hurt. I tried to tell myself that in order to stay in my bubble—in order to call customers, stay upbeat, and remain positive for the rest of the staff—I needed to ignore my financial problems. But that was never a long-term solution. In order to move my company forward, I always had to turn around and face those numbers.

In dealing with cash, I sometimes found it difficult to match my values with my actions. When cash was tight (or nonexistent), it made sense for me not to take a paycheck and to put my personal expenses on credit cards, whose balances kept increasing. We all know that is what you do when you run a company. But when I tell that side of the story, it is the Hero’s Journey—I made a personal sacrifice to make it all work, and isn’t that grand? The truth is, when there wasn’t enough cash, my story wasn’t pretty. When cash was particularly tight, I printed checks on a Friday, held them until the following week or the week after that, ducked phone calls from my suppliers while continuing to place orders, and then sent out checks only to the ones who yelled the loudest and threatened to cut us off. The stress of running out of cash was compounded because our core company values—Respect, Tell the Truth, and Keep Your Word—were all violated as I juggled everything to keep the company running.

Running a values-driven business is about trying to keep track of the multiple bottom lines and knowing that one part of the equation sometimes has to take precedence. It doesn’t mean that we are perfect or even perfectly aligned with all our values all the time.

Forecasting Sales and Cash Flow Without a Crystal Ball

MARGOT

Very early on I had an experience that showed me the importance of doing my numbers myself and truly understanding how money came in and flowed out. When I started Birkenstock USA, Mr. Birkenstock in Germany gave me a $6,000 credit to purchase product. Unfortunately, that was not enough to get the company off the ground—we needed operating capital. My partners at the health-food store signed for a $6,000 loan at our local bank, but pretty soon, that amount wasn’t enough either. That’s when our accountant initiated me into the mysterious world of obtaining credit. I am forever grateful to him. He showed me how a cash-flow statement was done. It was an eye-opener. I realized that if I could do this, it would help me understand the business, so I took the statement home and worked on it. I was afraid the accountant was too optimistic and the loan officer wouldn’t believe the figures, so I played with the numbers, shaving off money here and there and being more conservative with our projected sales growth. Then I was able to convince our loan officer to extend us the credit we needed. It helped enormously that I did this myself, by hand, with a calculator and a pen, not with a computer that worked it all out for me.

I was so excited by working with my own numbers that I searched for a seminar on the subject. I found a three-day event in San Jose, quite a distance from us. I took our key employee with me because I thought it was so important. We were only three at the time, but for our size it was a considerable expense. It proved to be worth it. My people could now understand why it was important to save money wherever we could, and I didn’t have to fight them with my “stingy” notions.

Our accountant and the loan officer were helpful with cash flow when we began the business, but my ignorance saved me as much as anything else. I didn’t understand how the footwear industry operated when we started, and that was fortunate because we did something unprecedented in the industry that enabled us to get cash, as underfunded as we were. We gave retailers a 5 percent discount if they paid their bill within ten days. Several industry folks said I was making a mistake and “giving things away,” but I just laughed. We had calculated our selling price so it would cover this discount, and the folks that paid net thirty days actually paid a premium. This helped a lot with cash flow.

On the flip side of the cash-flow coin was inventory. Inventory was where most of our cash went and where our cash came from when we made sales. To build our business, we stocked inventory in our warehouse at all times. No other shoe vendor was doing that. It meant retailers could order as few or as many pairs as they needed when they needed them. Nobody would have ordered a supply from us unknowns for delivery six months out, as was customary in the industry. Instead, we shifted the burden of carrying inventory onto our own shoulders. We had only three styles in very few color combinations, and the sandals didn’t go out of style the next season, so this made the whole arrangement feasible.

Balancing inventory and cash is an ongoing battle that you have to keep your eyes on the whole time. Even when the inventory shows up on your balance sheet and gives you a profit on the books, if it eats up all your cash, and you can’t make payroll on Friday, there is still a chance you could go out of business.

Over the years, our inventory grew to be very large as we added more styles and more colors. Trying to carry stock in the warehouse wound up being troublesome and stress producing. As long as inventory sat in the warehouse, it just ate cash because we had to maintain it and pay continued interest on the money the bank loaned us to buy it. We could borrow only up to 50 percent of the inventory’s value. We also had to forecast what our customers might need and factor in the two to three months it would take before we received the merchandise. I took home lots of reports and pored over them at night. Pretty soon we had several people working on these forecasts, and we had spent thousands of dollars on computer programs that were supposed to cure the problem. A crystal ball might have been more helpful.

Eventually, we had to scale down our in-stock offerings and put some of the inventory burden back on the shoulders of the retailers. They had to preorder seasonal sandals six months in advance as was the industry norm. Our mantra—“The right goods at the right time for our customers”—wound up eluding us forever. Though we were very dedicated to customer service, I knew if we endangered the health of our business in the process, our dedication wouldn’t help our customers very much. Keeping our eyes on the numbers and making sure the numbers balanced helped everybody to prosper in the end.

No Matter What It’s About, It’s About Cash

GARY, STONYFIELD FARM

My story is one of constantly being out of cash or almost being out, so I learned the hard way that you have to keep your eye on your cash situation or you might be sacrificing your values, your business, and yourself to someone who has the ability to write a check. When entrepreneurs look for cash...