Four simple truths I’ve learned in ten years of business

It is fair to say that in ten years we have learnt a lot from witnessing and experiencing “those two impostors” of success and failure. Here are the four most important lessons I have learnt. They will not surprise you but they are no less valid for that. They are my 4 Cs of success.

1) Cash: Never run out of it

Business guru Jim Collins said the most successful bosses keep a cash reserve around three times the value of their assets. As a co-founder of a strategic consultancy, whose principal asset is its people, I’d say that rule matches my experience. You need that cash buffer because at any time trouble can hit you. A bad creditor, a market downturn, a war, a change of government, a change of personnel at your customer or client, or a trend in consumer behaviour you did not spot. You never know what is around the corner.

I conducted a consulting project for a then stock exchange darling. It was growing rapidly, had a pristine balance sheet, was profitable and its regular reports to the city were glowing. But, in truth, it was running out of cash. It operated in the contracted services market and much of its business was from government contracts which were highly competitive. It started making bids that seemed too low to be profitable, began recognising the value of some contracts before work had begun and before the client was actually paying it money, and even reported a loan as operating cashflow.

It might have got away with it but when a new government came in and cut back or cancelled key contracts, the company went bust. It simply had no cash to sustain it. Crazy as it sounds, cash is more important than profitability. Amazon has been more unprofitable than profitable through all the years of its life. But it has been able to find cash from investors inspired by its vision and growth.

So, lesson one from my ten years in business: There are many reasons why cash is king but the most obvious is that without it, you can’t do anything. You can’t pay staff, you can’t buy inventory, you can’t rent offices, you can’t produce marketing material, you can’t invest in R&D, you can’t pay your bills. Lack of cash is the ultimate reason many businesses fail. Conversely, strong cashflows are what appeal to investors. Remember this mantra: Revenue is vanity, profit is sanity but cash is reality.

2) Culture: Protect and nurture it jealously

When I was starting in business, I heard a few management gurus talk about culture. One said “culture eats strategy”. I didn’t know what they were talking about. That is because it is a “nebulous” subject. As one of the great exponents of business culture, the legendary CEO of Southwest Airlines, Herb Kelleher said, culture is “like the Supreme Court’s definition of pornography, you know it when you see it but it’s hard to define”.

In the last ten years, since I co-wrote my first business-book, Uncommon Practice, People who deliver a great brand experience, culture has been something of an obsession of mine. It is that remarkable interplay of personal “chemistry”, competence and commitment inside an organisation which propels performance and compels people to go beyond the limits of their contract. And it is the cussed, immoveable and invisible force that makes the best laid plans of MBAs and CEOs “gang aft agley”.

Hard though it is to define, you need to write down what you want it to be. What are the characteristics of the people you want representing your brand? What is the environment you want to create for them? What is the experience you want to give them and your customers? And then develop the principles and policies to hire, fire, retain, develop, empower, reward and recognise that will distinguish you. Create a culture that gets talked about.

Find “rituals” and a distinctive language to dramatise the culture making it easier for people to explain what is different and special about you. Like Pret-A-Manger’s practice of getting store staff to vote on whether a potential employee is hired or Zappos’ offer of $4,000 to first-week recruits to leave. And be super selective in whom you hire. Southwest Airlines look for “a warrior spirit, a servant’s heart and a fun luving attitude”. It is apparently statistically harder to get a job at Southwest Airlines than it is to get into Harvard University.

Read on to see what Harley Davidson, Proctor & Gamble and John Lewis have in common – and how it relates to insights gleaned from ten years of business

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