Tighten Your Belts: G. Michael Moebs

Monitoring Cash Flow, Collecting Debts

Six Deadly Business Sins

Planning Infrastructure, Neil Budde

`Engines of Tomorrow,’ Robert Buderi

Sifting and Focusing: Don Blohowiak

Corrections or additions?

These articles by Barbara Fox and others were

prepared for the January 3,

2001 edition of U.S. 1 Newspaper. All rights reserved.

Entrepreneurial Potholes

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Tighten Your Belts: G. Michael Moebs

Picture yourself in the desert," says G. Michael

Moebs of Moebs Services in Chicago. "You haven’t had water

for two days and in another 24 hours you will be dead. But you find

a well, and attached to it is a bottle of water with a note: Don’t

drink this water. Use the bottle to prime the pump."

Expense control, says Moebs, is using the water to prime the pump.

And if the bears on Wall Street prevail, as many fear they will, the

year 2001 will see some belt tightening and expense cutting. Moebs

specializes in this. An alumnus of the University of Illinois at


Class of 1969, he was a student of George Stigler and Milton Friedman

at the University of Chicago (www.moebs.com).

Moebs usually consults to bankers (and he gives a workshop,


Control & Fees for CEOs, CFOs, and COS," on February 14 for the

New Jersey Bankers Association), but his hardhitting "Eleven Ways

to Control Expenses" can help any kind of organization slash their


1. Make a commitment to control expenses. "This is

probably the hardest of all the steps," says Moebs. His favorite

story about commitment concerns the octogenarian owner of the most

profitable bank in Illinois. He motivated his employees to cut


by turning off electric lights when they left a room.

2. Divide workers into small units that they feel they


Home Depot, for instance, posts signs proclaiming the name of



3. Generate a good chart of accounts.

4. Compare yourself to peers using expense to asset ratios

not expense to revenue ratios. If you use revenues as the benchmark,

expenses will seem to loom larger when your profits dwindle, when

actually they may have remained the same.

5. Classify expenses by short term controllables (what

can change in six months, such as clerical salaries), long term


(what can change in a year, such as computer services, rent, and


interest) and "that which you can’t control."

6. Rank-order expenses by category.

7. Work with the classifications and categories. Weekly,

look at the top 20 percent of your short-term controllables. Monthly,

look at the top 20 percent of long-term controllables. Quarterly,

pay attention to the short-term controllables in the lower 80 percent.

Semi-annually, the long-term controllables in the lower 80 percent.

Annually, look at the "uncontrollables."

8. Identify why you are good or bad at controlling expense

but emphasize the good. "Often, every business is good at


one category, but they don’t take the skills or technology or tools

that they use on the good thing and apply it to the bad things."

For instance, find out why you really control "salary



9. Set a goal for each expense category.

10. Make someone responsible for that goal.

11. Establish communication procedures for everyone


for controlling expenses.

Then go back to number one and see if everyone has a commitment.

For the New Jersey Bankers Association on Valentine’s Day, Wednesday,

February 14, at 9:30 a.m. at the Eatontown Sheraton, Moebs’ workshop

will include topics of particular interest to bankers: how to double

fee income for consumer checking, how to adjust the pricing triad

(fees vs rates vs balances) and how to reduce fees and increase the

bottom line. Cost: $300. Call 609-924-5550.

Says Moebs: "People who make it to the Superbowl don’t make it

on scoring touchdowns, but on keeping other people from scoring


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Monitoring Cash Flow, Collecting Debts

Faithful customers? Or repeat offenders? If at the end

of the day, your customers don’t pay, they may be bleeding your


slowly, says Steve Douglass, district sales manager for ABC

Companies, a Pennsylvania-based commercial collection agency (January

12, 2000). "If a customer thinks that they can get away without

paying, they will," he says.

The danger in this: as debt ages, says Douglass, the chance of


the full amount goes down exponentially. Experts say that a business

owner is likely to collect only 72 cents on a debt of $1 after 90

days. After 6 months, the business owner will probably only see 50

cents of that original $1.

Effect on the bottom line? "If a business operates at a net profit

of 3 percent," says Douglass, "to offset an actual loss of

$50 it has to make an additional sale of over $1,600."

Even small businesses need credit and risk analysis, says Douglass:

Create a credit policy . "Sit down with a CPA and go

over the receivables and determine what your temperature is for


he says, "and how much is an average credit line for your


The customers that represent over 5 or 10 percent of your profits

— those you might be willing to take some loss on."

Explain the credit policy to consumers. "The


has to go with the first invoice," he says. "If you’re trying

to play catch up, you’re losing time and money."

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Six Deadly Business Sins

At the top of Allen M. Silk’s list of the "Six


Sins" for business is dumping all your life’s savings into your

business. "That’s like investing in one stock," says Silk,

an attorney for Stark & Stark on Lenox Drive (www.stark-stark.com,

U.S. 1, April 19). "Then the business starts to take a bad turn,

and all your eggs are in one basket."

Not only do small business owners make the mistake of not diversifying

their assets, some leave too many loose ends in relation to business

partners and, in the case of family businesses, successors, says Silk.

If a buy-sell agreement becomes outdated, for example, and there’s

an unexpected death, the business could be sold out from underneath

the partner for a fraction of what it’s worth. Likewise, a business

could die out if a successor is not named.

Silk’s advice for small business owners:

Don’t put all your money into your business . Diversify.

Borrow more. Invest outside of the company.

Update your buy-sell agreement annually . "If there’s

a premature death, and they’re dealing with a document that’s 15 years

old, the company is not at the same value," he says. "Law

suits begin at that point."

Have an appraiser value your company . "Many people

just put a dollar amount on the company because it was worth very

little when they entered into the contract with the partner,"

says Silk.

Groom a successor early on . "It’s the old story of

the father coming to the son and saying I want you take over the


and he doesn’t want to do it," he says. "People wait a long

time when there’s a child or successor to be groomed, and they wait

until it’s too late. Or a parent who is running the business never

chooses the successor and it creates a war in the company."

Procrastination still remains one of the biggest business


says Silk. "People believe they really can’t plan because the

IRS changes their rules," he says. "The IRS doesn’t want you

to plan because as a default all the money goes to them. If there’s

a premature death, the IRS or state of New Jersey gets the lion’s

share of the assets."

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Planning Infrastructure, Neil Budde

Fast growing companies: Don’t take your planning a year

at a time, says Neil F. Budde, vice president, editor, and publisher

of WSJ.com, the Wall Street Journal Online, which draws from 6,000

newspapers, magazines, and business news sources, plus customized

stock portfolios that monitor stocks and cash in 57 currencies.

"If every year you say you are going to add 20 percent growth,

it doesn’t necessarily provoke you to rethink your organization, your

structure, and your systems for communication," says Budde (U.S.

1, June 21). He has hands-on-practice at starting a business inside

a large organization and growing it to several hundred workers.

Laying the groundwork for good infrastructure might involve these


Communication . Make sure everyone understands the goals

and the mission, what you are working on now, and how it fits with

the overall picture. "Before, we had someone in every group who

was there from the earliest days, and there was a natural sharing

of knowledge, ideas, and ethics," says Budde, but a growing


loses this shared set of experiences.

Finding funds within a larger company that operates under

the scrutiny of Wall Street. "To some extent, the constraints

are self imposed," says Budde, "but at some point expenditures

could start to hurt the bottom line of the company."

Retaining employees . A hazard for "old economy"

employers comes when dot.com companies dangle stock options in front

of their employees. Address it through compensation and packages or

even set up a separate "tracking stock" that could reflect

the upside or the downside of its dot.com businesses.

Emphasize the intangibles , says Budde. Give people a sense

they are working for something exciting and challenging, a business

that is going somewhere.

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`Engines of Tomorrow,’ Robert Buderi

Today’s high-tech corporations can churn out


innovation at a rapid clip by using The "Seven Rules for


by Lee Davenport, the research director for General Telephone and

Electronics (U.S. 1, May 17). These rules are invoked by Robert

Buderi, author of "Engines of Tomorrow: How the World’s Best

Companies Are Using Their Research Labs to Win the Future." Among

the rules:

1.) Success is based on schedules and results, not effort,

job difficulty, or loyalty. You must expect your R&D people to produce

and reward them accordingly.

2.) Since most projects last several years, managers must

break them into shorter segments, with measurable goals at each phase.

3.) Never allow general goals. Avoid such words as:


advance, increase, investigate, study, explore. All are immeasurable.

4.) Look for idea people. Only a few individuals have

truly unique ideas. Encourage them.

5.) Find product champions — internal entrepreneurs

who understand technology, explain it clearly, and can push ideas

through corporate barriers. These traits typically elude top


6.) Hire young blood. A research staff’s average age must

not increase even one year per annum. In a high tech lab, a nice


is under 35.

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Sifting and Focusing: Don Blohowiak

Don Blohowiak offers a refreshingly simple piece of

wisdom: Focus, he says. "It’s really that simple and that


says Blohowiak, a management consultant, author of six successful

management books, and founder of Princeton Junction-based Lead Well

Consulting (U.S. 1, January 12, 2000). "Remember the guy on the

Ed Sullivan show who used to spin plates on a stick? The thing with

businesses is they try to keep more and more plates spinning, and

to torture the metaphor, some of those plates are worth 10 cents,

and some are worth $10 million, and you have to figure out which is


Sifting through the endless amounts of information and deciding what’s

relevant — that will be the essential challenge for businesses

in the Information Age, says Blohowiak. "I give seminars and in

every audience I find a universal: I ask if they have information

piled up in a corner, trade journals or whatever, and they smile and

titter because we all have that. We have an abundance of information

— newspapers, magazines, flyers — and then add the Internet

to that mix."

To sift through, distill, and make sense of that information requires

time — more time than many managers feel comfortable with at


says Blohowiak. "We’re moving at Internet speed," he says.

"Things change really fast and consumer expectations have


it up. That spins out into how you hire, train, and compensate people.

It’s hard for our organizations to gratify instantly. I joke that

we’ve become the instant gratification nation."

If time management was the catch phrase of the ’90s, then the mantra

of this decade would be "energy" management, says Blohowiak.

"The challenge is going to think about work priorities in a


way," he says, "not just managing time, but managing your

mental energy."

Other things executives can do to get their businesses in shape:

Focus . "The biggest challenge is focus," says

Blohowiak, "sifting through the many channels and the sheer volume

of information to decipher what’s important, truly new, and what’s


Pay attention to the personality of hires . "We see

hints of this now, but I think it will be more broadly adopted,


technical skill is so quickly outdated anyway, and the capacity to

learn and predisposition to serving others is so important to an


he says. "It’s the whole human being that comes to work everyday.

We’re going to push people — long hours are a given now —

but they are also intense hours. I hear people say that there’s no

down time. The real you will come bubbling out in those


Spend time in the human resource garden . "We have

to tend to those who are doing good things and pull weeds, so that

we can grow the business in the right way," says Blohowiak.


have real frustrations that they have the wrong people doing the job

and they’re afraid to make the decisions they need to. We can’t carry

people who are unproductive or underproductive. Too much time is taken

retrofitting people; too many managers end up on the treadmill to

mediocrity by spending too much time with people who aren’t going

to be able to do what needs to be done."

Subpar performers bring down the performance of others, and

eventually, the business as a whole. "Good performers get more

and more heaped on them," says Blohowiak. "Managers must have

the best people around them with the support and tools to do great

work." Simple advice for a complicated world.

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