The Mental Trick That Can Help You Ruthlessly Prioritize Your Goals

You must consider whether something is a distraction or an opportunity.

Not long ago, I had dinner with a promising entrepreneur. We discussed his startup, and I offered plenty of advice.

I hope he chooses to follow one particular suggestion: ruthless prioritization.

No matter who you are, you can’t do more than three things well – let alone recall more than three things–at any one time. Remember the child’s game Whisper Down the Lane, also known as Telephone? There would be eight to 10 items initially that participants had to remember and pass along to the next person in line. Invariably, only three items made it to the end.

Pick three things in your business to focus on now, and don’t worry about anything else. Ignore the other stuff or delegate it someone else.

It’s easy to preach this advice. That’s why I also have to practice it–and you should, too.

Why ruthless prioritization is crucial for every entrepreneur

Have you ever heard the expression “jack of all trades, master of none”? You definitely don’t want to be Jack. Don’t believe me? Here’s what Facebook Chief Operating Officer Sheryl Sandberg told Inc. a year ago:

“I think the most important thing we’ve learned as we’ve grown is that we have to prioritize. We talk about it as ruthless prioritization. And by that what we mean is only do the very best of the ideas. Lots of times you have very good ideas. But they’re not as good as the most important thing you could be doing. And you have to make the hard choices.”

In other words, you must be ruthless in saying “no” to things that don’t mesh with whatever your overriding goals are in that moment.

Consider whether something is a distraction or an opportunity. More often than not, the distractions are going to far outweigh the opportunities. And even when it comes to opportunities, you’re likely to find many of them are only going to offer marginal benefits not worth your time or energy.

All that means is that you’re going to have to pick and choose and remember that what you say “no” to is more important that what you say “yes” to.

How to ruthlessly prioritize

There have been countless times over the years that I’ve felt overwhelmed. When I do, there are two exercises I count on.

The first one is to sit down and make a list of everything I am working on, and then I force myself to ask “if I can only do three of these what are the most important?” It’s not easy, because you are scared of something that you are going to miss–but it’s critical for success. Once you get over the fear, you clear your mind.

The second exercise is to push hard to delegate. If I had to give eighty percent of this work to somebody else and I had no choice but to do it, what would I give away? Then, I have to do it and let go.

Every 90 to 180 days, take a step back to evaluate your priorities and revise them as necessary. Things change, so it’s not a failure to make changes as needed.

Emergencies and other unforeseen things may occur that require you to stray from the plan. That’s fine. You always need to put out the fires before returning to the meat and potatoes issues.

When you do return to the plan, a re-evaluation is a must, even if it’s been less than 90 days since your last evaluation. In fact, any time the game changes for you, think about re-prioritizing.

Cherish Honesty and Transparency When You Find It

Thanks to movies like “Wall Street,” “The Wolf of Wall Street,” “The Big Short” and even “Trading Places,” the public perception of the world of finance isn’t generally favorable, with finance jobs often ranked by the public among the least-reputable professions — barely above politicians and used-car salesmen.

That’s a shame because while the industry has its share of bad eggs (and which industry doesn’t?), there’s a whole world of professionals out there looking to do what’s right for their clients and not get overtaken by greed.

Yet we’ve found that being both honest and transparent with our clients can produce both good and bad results.

When we meet and assess a client, we’re upfront about the odds of landing a positive financing outcome. That means we might tell them there’s a 90 percent chance things will turn out as the client anticipates. Sometimes, we suggest it’s a coin flip. And other times we might say the odds are low for success.

We recently told an established client that we were pessimistic that financing was the right choice for them — and they promptly fired us, especially after hearing that some loan officers said they could get the job done. They were quick to go elsewhere.

That gave me pause: Did I do something wrong?

I decided I hadn’t. Our job is to provide fair, impartial advice and we did that. I could have told the client what he wanted to hear, made some money off him and not really worried about his fate. After all, he wanted me to provide a service, right?

Wrong!

It just wouldn’t have felt proper. I sleep better at night doing the right thing, not to mention having a client base that’s generally happy that results match expectations.

Have our assessments ever been wrong? Have we ever failed to properly understand a client’s situation?

Well, sure, nobody’s perfect, but having done this a long time, more often than not we’re at least in the ballpark. Remember that financial valuations and other assessment techniques are both an art and a science.  Cold, hard numbers are considered, but you have to trust your gut, too. Mix the two and chances are high that your opinion is the correct one.

As for any client (ours or someone else’s), don’t take it as an affront when you receive a less-than-rosy forecast. You’re paying for impartial advice from an outside source; do you really only want to hear from sycophants kissing up to you? That’s a surefire way to get in trouble.

Of course, you’re always free to get second and third opinions and perhaps they’ll be more favorable, but if more than one opinion opposes yours, it’s best to heed the flashing red lights. Remember that a consensus is more likely to be accurate than a single, insular opinion.

Speed Bumps an Unavoidable Part of Business

Most entrepreneurs are optimistic by nature, which makes sense considering that an important part of success is believing in yourself. If you don’t have faith in yourself, who will?

But it’s unrealistic to expect that even the most successful business won’t hit a speed bump at some point. Unexpected problems may lurk around every corner.

Consider Starbucks, it seems like there’s one on every corner and devotees hit them regularly for caffeine fixes and assorted muffins and food items. Lots of small purchases add up to big bucks.

But then there was the April incident in Philadelphia when two black men were arrested after declining to leave the premises, stirring allegations of racial bias. Aside from bad publicity, it led to a massive apology from Starbucks and a day where all stores were closed for employee sensitivity training.

Does that mean Starbucks is going down the tubes or that Facebook will follow MySpace into the online graveyard? Probably not, but it does mean you need to take measures to be prepared.

That should include measures where you take both offensive and defensive positions. One thing every company should do — but few actually complete — is to develop disaster contingency plans. While not every problem can be anticipated, you certainly have some ideas about what could go wrong.

Perhaps your CEO leaves, taking the management team with him. Maybe you discover your CFO has been cooking the books for months. A competitor could introduce a clearly superior product or service.

What would you do if you couldn’t get the raw materials you needed? What’s your response to a lawsuit alleging age discrimination or sexual harassment? What steps do you take if a warehouse burns – taking with it most of your inventory?

Granted, these things don’t happen too often, but they do happen. Know what steps you’d take if those scenarios came to pass.

If there’s malfeasance on the part of someone in your company, own up to it immediately, take your lumps and move on. Public relations counsel can help in these kinds of situations. Whatever you do, don’t let it fester. Just ask Richard Nixon – the cover-up ruined him, not the initial burglary. Same deal with Bill Clinton and Monica Lewinsky.

If there’s a problem to correct, correct it. You may need to alter your plans, such as taking on additional debt to fix the problem. Remember that debt used correctly will help you grow.

Finally, lower your expectations, even if only temporarily, and remember that the problem probably isn’t as bad as it seems. Most issues go away fairly quickly – know anyone who’s still boycotting Starbucks? – so let your natural sense of confidence take control and move forward.

Don’t Fear the Banker

Frankenstein. Dracula. The Wolfman. Jason Voorhees. Freddy Krueger. Michael Myers. Hannibal Lechter. Jigsaw.

Debt.

One of these things is not like the others. And that would be debt.

While there are good reasons to be scared of the fictional folks mentioned in the first paragraph, debt isn’t nearly as scary as it seems.

Yes, debt can be crippling — and the media loves to play up horror stories of both companies and individuals whose lives were ruined by it — but debt also is a tool needed to grow your company.

Unless you have a sugar daddy bankrolling you from the start, win the Powerball lottery or are that one-in-a-million company where literally everything goes right from day one, you’re going to need capital at some point. Remember, you need to spend money to make money. Even the guy playing guitar on the street knows that, which is why he seeds his instrument case with a few bucks.

Still not convinced? Well, ask yourself how many Fortune 500 companies are debt free.

As of May 22, there were just 12, according to retirebeforedad.com. While there are some big names on the list (Facebook being the biggest), it means there are many more that are holding at least some debt. Sure, some of those companies may be in financial trouble, but it’s fair to say many more are in excellent shape and effectively using debt as a growth tool.

Think about how debt can help you.

What if you have a chance to buy raw materials at a rock-bottom price?

Would buying new equipment increase efficiencies and/or capacity?

Could hiring a new executive team put you over on your biggest competitor?

Would a larger headquarters and/or some key branch offices help your cause?

How might a marketing/advertising/public relations campaign impact business?

Without capital, you might not be able to do any of those or dozens of other things that could help your business venture. And that could mean a struggle to grow.

Here’s another way to look at debt. Ask yourself three questions.

First, what bad could happen by taking on debt? Next, what good can happen by taking on debt? Finally, what is the middle result?

Then focus on the last question because that’s the most probable scenario. It’s unlikely that your company will come crashing down because of debt. Simultaneously, it’s unlikely everything pans out exactly as expected and you become the next Marc Zuckerberg.

Also note, that are ways to protect yourself when it comes to debt, most of which come down to due diligence. Don’t jump on the first loan opportunity that you receive. Take your time to review options and really work on the repayment scenarios.

You’ve heard me say it before, and I’ll keep saying it to the day I retire: Your starting point should be a Small Business Administration-backed (SBA) loan, which offers a great combination of low interest rates and generous repayment terms. Many businesses wrongly assume they are ineligible for an SBA loan, so take the time to find out if you qualify.

If you don’t qualify, there are other lending options, some more desirable than others.

There are plenty of reputable non-SBA lenders out there who can offer reasonable loans and terms. Do be wary, however, of so-called online lenders, which offer quick and easy approvals; those repayment terms often can be onerous, especially on short-term loans.

And, as a last resort, remember that you’re not obligated to take out a loan. Perhaps holding on to the status quo for six months or a year or two will be the best bet, especially if you put yourself in a position to land a desirable loan later on.

Private Equity Requires Careful Consideration

Is private equity all that it’s made out to be? That’s a question with no simple, all-encompassing answer.

On the surface, there’s a strong emotional appeal to sell a controlling share to a private equity firm (PEF). The idea of partially cashing out while still having ties to your company is a powerful one.

But assuming the acquiring firm takes control, you’re back to basically working “for the man,” which may well have been the reason you originally founded your own company. There’s always the possibility that your vision and the vision of the PEF dovetail nicely, but it’s more likely there’s going to be at least some level of conflict.

In other words, if you go the private equity route, choose carefully and consider how important your legacy is to you.

In other other words, you’d better be sure the dollars you’re getting out of the deal are enough to make you happy.

Consider a couple examples:

  1. An entrepreneur sells 70 percent of his company to a PEF. He gets cash out for 35 percent at the closing table, with the second installment coming in five years, assuming certain financial milestones are met. But in those five years, the new owners leverage the company to the hilt, making the cash out less of a windfall. Is that a good deal?
  2. A different entrepreneur sells 60 percent of his company, which he receives in one fell swoop, to private equity. Within a few months, the company triples in size, making the original payout look less appealing. Is that a good deal?

The bottom line is that there’s never a guaranteed good result. And not all PEFs are created equally. The number of these firms has skyrocketed in recent years, which likely means the percentage of them that are bad actors has increased, too.

Here’s something else to think about if you’re uncertain about selling to a PEF: If your business is attractive to someone, maybe you should think twice about selling — and potentially missing out on huge profits.

PEFs aren’t out to lose money, so even if you believe your business is struggling, the fact that someone wants to take a chance on you might be a sign to stay fully aboard. That’s even more valid because PEFs are looking to make money in a relatively short timeframe.

If your business is cash-strapped, it’s usually better to think about loans first. Yes, many people are scared of debt — and too much debt can be crippling — but there are ways to make your debt work for you.

You also may be pleasantly surprised to find that your company is eligible for loans backed by the Small Business Administration (SBA), the gold standard in business lending.

In conclusion, selling a chunk of your business to a PEF may well be a high risk/high reward proposition.

If you’re thoroughly convinced you have no better options or are looking to wind down your career, a PEF may be right for you. But odds are your situation isn’t as gloomy as you believe and it’s better to maintain control of your company, even if that means taking on debt.

Check the SBA Directory When Researching Franchise Opportunities

The thought of become a franchisee is an appealing one for many entrepreneurs.

Some relish the idea of being part of a company with prestige, clout and a track record of success. Others like the chance to get in on the ground floor of the “next big thing.” And some people prefer the guidance, marketing and perks companies offer their franchisees.

All are valid reasons for becoming a franchisee, but remember that plenty of franchisees fail — sometimes of their own volition and sometimes because the terms and conditions set by the company make it difficult to succeed. Without naming names, how often have we heard about a company’s sales promotion that may bring customers into the store, but prevent the franchisee from making a profit on the promoted item?

When you do your due diligence in researching franchise opportunities — and you are going to do your due diligence, right? — one of the first things you should do is check the Small Business Administration (SBA) Franchise Directory at  https://www.sba.gov/document/support–sba-franchise-directory. The directory was created earlier this year and includes more than 2,500 eligible brands

While the list is designed for lenders and community development corporations “in evaluating the eligibility of a small business that operates under an agreement,” would-be franchisees can make good use of it, too.

The directory is a compendium of franchises and brands the SBA has reviewed and determined are eligible for SBA financial assistance. As a reminder, SBA-backed loans should almost always be your first lending choice because of the combination of favorable rates, reasonable terms and generous repayment programs.

The extensive directory contains for each brand a franchise identifier code, an indicator that it meets Federal Trade Commission (FTC) guidelines for status franchise, notes as to whether various addendums are required, the date the franchise identifier code was started and a notes column (for only some franchises) including technical details.

So, why should you be carefully perusing this directory?

For one thing, there’s a lot of information there and you might even come up with some franchise possibilities you hadn’t considered. When people think about franchises, they tend to think of the ubiquitous Subways and Jiffy Lubes of the world, but as this list shows, there are hundreds of other possibilities.

More importantly, it can be an early warning sign if a company isn’t eligible for the directory – or hasn’t thought to get itself included.

If you become a franchisee of a company not on the directory, that obviously precludes SBA funding and it might make it difficult to line up anything with other reputable loan sources.

And the fact that the company hasn’t considered inclusion on the directory is a red flag that the terms and conditions it offers to potential franchisees may well turn out to be onerous. This can save you headaches in advance.

I’ve mentioned numerous times before how the SBA is both an example of government working effectively and a godsend to small- and mid-sized business owners. Do yourself a favor and take advantage of the directory and any other services you need that the SBA provides.

Take the Path More Traveled With Your Startup

Silicon Valley’s formula could take you on a trip you may never return from.

There’s a recent article on TechCrunch that details how many prominent Silicon Valley startups are succeeding despite losing large sums of money — and wonders if that’s a formula for other startups.

Uh, in a word, no. In two words, hell no!

I work regularly with entrepreneurs who are terrified of debt and counsel them that it can actually be their friend. The saying “You have to spend money to make money” remain true, but I would never counsel a company to go into excessive debt, especially when it was already bleeding money. Nor is it healthy to continually lose money, something a first-year economics major could tell you.

The kind of companies that TechCrunch mentioned — Uber, Dropbox, Airbnb and Salesforce, to name a few — are exceptions to the rule. Turns out that these companies aren’t profitable or took a long time to get into the black.

For whatever reason, those companies gained cachet as game changers and became investor darlings. Investors are willing to take an extra-long view of their prospects and are waiting for the veritable pot of gold.

In some regards, these companies are outliers, as defined in Malcolm Gladwell’s bestseller of the same name.

That’s all well and good, and some of those investor bets may pay off big. Still, companies can’t keep losing money indefinitely, and it wouldn’t be a surprise if some of those big names eventually go down in flames.

And no offense, but your company isn’t likely to be a game changer.

Sure, you may have a good, even great, idea for a product or service. You might even build your business to a prodigious size, sell it for a ridiculous price and retire at age 42 to some place that once was featured on Lifestyles of the Rich and Famous.

But you probably won’t.

You very well may succeed and enjoy a comfortable life, but you’re going to have to work your business and put one leg in your pants at a time.

That means gradually building your business and taking calculated risks. Those risks will include loans. Your best bet (and it’s more accessible than you think) is likely in obtaining a loan backed by the federal Small Business Administration (SBA); those loans offer a winning combination of reasonable interest rates and generous repayment terms.

If you find yourself struggling, other, less desirable options may present themselves. Those include the possibility of selling an equity share in your company.

Yes, the thought of not having debt hanging over your head may be appealing, but equity partners are decidedly a mixed bag. What happens if your partners have radically different ideas about the direction to take your company? It’s not out of the realm of the possibility that you could find yourself marginalized (or even forced out) of your own company.

Another saying comes to mind: “If you take the king’s shilling, you do the king’s bidding.”

None of this is meant to squash your dreams of fame and fortune. To the contrary, by taking a measured, reasonable approach, the chances of you reaching your goals are likely much higher.

Size Matters: The SBA and Some Misperceptions About its Loans

The federal Small Business Administration (SBA) is a rare example of government working like it should.

That’s why it’s so frustrating to have to correct misperceptions about which businesses are eligible for its loan programs. The most common perception is that only the smallest of businesses — true mom-and-pop operations — are eligible.

Wrong!

While the Amazons and Apples of the world won’t qualify for SBA-backed loans, plenty of businesses will, most likely including yours.

And you want SBA loans if you can get them because of a variety of loan sizes, low-interest rates and lengthy repayment terms (up to 25 years in some cases) that are offered. They can be used for just about any business need you have, including office space, marketing, payroll and seasonal inventory.

Because SBA loans are considered the lending world gold standard, the requirements can be pretty stringent. You’ll likely need bank statements, profit and loss statements, both personal and business tax returns, balance sheets, collateral and legal documents impacting your business.

Rather than go into detail about size requirements — both minimum and maximum — the SBA offers a size standards tool, which can be accessed here: www.sba.gov/size-standards/.

A few basic requirements:

  • You must be a for-profit business that is officially registered and operates legally.
  • You must be physically located and operate in the U.S.
  • You must have invested your own time and money into the business.
  • You must have exhausted other financing options.

More general criteria includes a credit score higher than 620 (a 680 score or above will get you better rates and terms), more than $100,000 in annual revenue and at least two years in business.

So what kinds of businesses get the most SBA loans?

According to the SBA, full-service restaurants accounted for 22,385 7(a) loans between 2006 and 2015. Those loans totaled nearly $6 billion, or roughly $264,000 each.

Limited service restaurants, with 16,577 loans reaching just under $4 billion were second, while dentist offices (10,883 loans, $4.85 billion in total) were next.

By number, the remainder of the top 10 were beauty salons, doctor offices, specialty trade contractors, general automotive repair, gas stations with convenience stores, landscaping services and local general freight trucking.

In terms of volume, hotels and motels received just under $10 billion in SBA funding, or $1.48 million per loan.

While the 7(a) program is the SBA’s biggest and most-recognized programs, there are other funding options available.

The CDC/504 loan program should be considered when financing is needed for major fixed assets, such as if you’re looking to buy real estate and need major pieces of equipment.

There’s also a low-interest disaster loans program for businesses of all sizes, private nonprofit organizations and even homeowners and renters. When there’s a declared disaster, those loans can go for repairs or replacement of real estate, personal property, machinery/equipment, inventory and business assets.

And there’s even a microloan program offering short-term loans of up to $50,000 for some kinds of businesses and not-for-profit child care centers.

The point is there’s something for everyone so at the very least, it’s worth a look to see what your government can do for you.

Amazon and Business Lending

An Unholy Marriage ???

There’s no denying that Amazon ranks as one of the biggest business success stories of the 21st century – if not the biggest.

Not only has it made itself the world’s largest online retailer, but it’s permanently altered the retail world, causing seismic shifts in consumer spending habits as well as changing the game for all brick-and-mortar businesses.

Sure, there have been some warts (just ask a big chunk of its workforce or former workers), yet there’s no denying that Amazon is a game changer in a lot of ways, including efficiency.

That’s why word that Amazon, which has been lending to its business partners since 2011, is amping up its program by partnering with Bank of America Merrill Lynch is so potentially troubling. Changing the retail world is one thing, while changing the finance world is something completely different.

Why is Amazon’s lending program so wrong for many businesses?

On the surface, things seem fine, as the program typically lends at rates anywhere between 6 and 14 percent. That’s reasonable.

What isn’t so reasonable for many small- and mid-sized businesses is that these are term loans that are repayable in a year.

Consider a $500,000 loan at 8 percent. That means the monthly payment would be $43,494 a month – a crushing amount to many businesses because it severely restricts cash flow

Or how about a $300,000 loan at 10 percent? You’d be paying about $22,000 a month. Still pricey.

Small and mid-sized businesses would be much better off with either revolving loans that can be drawn down and repaid multiple times as conditions warrant or longer-term loans.

Let’s look at that $500,000 loan again, but this time through a lender certified by the federal Small Business Administration (SBA). At the same 8 percent, but spread out over ten years, the monthly payment is a far more palatable $6,066.

Yes, you’d be paying about $227,000 in interest over the life of the loan compared to $22,000 over a single year, but think about the $38,000 a month you’d be saving on payments with the longer-term loan. Surely you can put that amount to good use.

The questionable value of Amazon Lending also begs the question: Does the company really need to be in the lending business?

Yes, companies grow by expanding the scope of products and services offered, but it seems as if Amazon may be going a bit too far.

You can make the case that Amazon is reviving the “company store” for the 21st century.

For those who need a quick history lesson, company stores were retail establishments that sold necessities such as food and clothing to employees of a company. They typically were located in remote areas (with little or no competition) and gave easy credit to employees, especially before payday.

The problem is, the company stores basically were monopolies and funneled money back to the company owners. Workers often were left beholden to the company because of debts they accrued.

It isn’t hard to see how Amazon’s merchants could get caught up in the same sort of scenario, with Amazon pretending to be the benevolent helper, yet tying down its partners long-term in unfavorable situation.

It seems clear that a properly structured loan is the key to business success. What’s less clear is whether Amazon actually has its merchants’ best interests in mind or merely its own bottom line.

We reached out to both Amazon and Bank of America for comment on this article, and we did not hear back.

Revisiting Men are From Mars, Women are From Venus

There are many days in my business where I feel like a counselor, business relationships can be tough.

While there’s definitely an art to being a successful entrepreneur, the business world focuses more heavily on scientific factors — primarily cold, hard numbers gathered by tried-and-true methods.

Then why I am (jokingly) thinking about adding “marriage counseling services” to both my resume and the list of services offered by my company? Maybe I could be the next Dr. Phil or John Gray, author of Men are From Mars, Women are From Venus.

It’s because there’s more (often a lot more) to a business finding its way than just a great idea for a product or service and a strong business plan.

On a regular basis I see businesses thwarted — and even ruined — by non-compatible partners.

Sometimes it’s because one partner has stellar credit, while the other has a credit score below 600. Or maybe it’s because one partner believes it’s feasible to grow the company 20 percent per year, while the other thinks 5 percent is more realistic and safer. And it could be something like one partner wanting to hire a bunch of relatives that the other partner can’t stand and/or thinks is incompetent.

Sometimes the friction is obvious and manifests itself quickly. Other times, problems take a while to emerge, just like in a regular marriage.

The number of potential flashpoints is essentially limitless, which is why it’s so important for entrepreneurs that plan to enter into a partnership to make sure they’re with the right person.

While there’s some dispute over marriage and divorce statistics, it’s believed that about 40 percent of all marriages will end in divorce. And while there are no statistic on entrepreneur “divorces,” it’s reasonable to assume the rate is fairly high, too.

But what if those entrepreneur divorces could be sharply curtailed, increasing the likelihood of business success?

That’s why I’m focusing these days on the psychological elements of business; relatively speaking, matching entrepreneurs with the best financing options is easy. Taking things to the next level, however, isn’t.

In my last post, I mentioned research I’ve begun into developing a business-oriented version of the Myers-Briggs Type Indicator questionnaire, which categorizes people into 16 different personality types. Myers-Briggs reveals the psychological preferences that go into decision making, as well as how participants view the surrounding world; mine will do the same by questioning participants on growth goals, risk tolerance, investment tendencies and the company’s growth stage.

The results have been promising thus far. Small-scale data suggests that the 16 business personality types being developed roughly match the Myers-Briggs types in terms of frequency throughout the population.

To help with the research, I’ll be launching a website later this month designed to help gather data. I’m certainly interested in hearing from as many of you as possible and will keep you apprised of the information collected.

Of course, for any research to be considered valid, it’ll take time to collect the data needed for an appropriate sampling size, but given the important and exciting implications, it seems likely to be worthwhile. Stay tuned.