Early in my consulting career I assembled a list of six “laws” that appeared to govern how small business was done. I referred to them as my “Immutable Laws of Business.” I still have them hanging in my office as a constant reminder to myself.
In one form or another, I’ve also written about many of these laws over the years including in these Notes, in articles I’ve penned for trade magazines, and I’ve even included a few of them in presentations I’ve given.
The six laws are pretty basic. While there’s nothing profound about them, they serve as a reminder of the importance of paying attention to fundamentals. They are:
- Your primary currency is your time
- Somebody always pays
- It’s always your fault
- Numbers follow
- Your ego is your biggest competitor
- Wealth cannot be grown in a vacuum
I was introduced to the second law, somebody always pays, by a customer I was trying to sell my company’s services to. This customer was the owner of a very successful property management company that I had been pursuing for some time. Sitting across the desk, I was building my case for why my company was his best choice, how our price was fair, and on and on when he stopped me and said, “Let’s be clear about how this works. You sell, I buy, they pay.” The “they” in this equation were his renters.
In six words this customer summed up a fundamental principle of business and taught this young business owner a valuable lesson in economics. No company will survive for long if it continues to add operating expenses without either passing them along to its customers or finding ways to pay for them through increased efficiencies. Any other option means that the company is paying for them out of its own profits, which will ultimately lead to the company’s decline.
Some companies attempt to sidestep this principle by adding new, and hopefully more profitable, products or services to their offerings while covering up the unprofitable performance of their original lines. This rarely works out long term, because the inherent reasons for the lack of profitability within the original services are never addressed.
So does all this mean that we can’t add additional benefits for our people, invest in newer technology, or enhance the services we offer our customers and expect to compete? Absolutely not! In fact, these activities can become competitive strategies when the added benefits we provide allow us to attract better workers who stay with us longer; when the new technology allows us to reduce operating costs or serve our customers better; or when an added product or service adds to our company’s value chain and makes it harder for a competitor to replicate and win over our customers.
All of this demonstrates that fundamentals are just that—fundamental. In this case, it’s about who’s paying. And it supports my second law of business by making sure the right somebodies are paying.
