Why Businesses Often Fail When They Expand

If they don’t fail outright, most businesses fail to fully achieve their potential. That’s because the person who owns the business doesn’t truly know how to build a company that works without him or her…which is the key.
MICHAEL GERBER

Other than the very obvious problems of stretching themselves too thin, both from a cash flow and talent point of view, the number-one reason that causes second locations to fail is simply the lack of business systems. When an owner opens up a second store, he or she naturally assumes that the second store will be run just like the first. The only problem is they forget that you can’t be in two places at once.

Business methods and protocol that the owner takes for granted are not followed at the second store, or if the owner opens the second store, they soon go by the wayside at the first location. With systems, this cannot happen.

There is a general misconception about what is involved in creating a business system. Many business owners have some of the components but few manage to put them together and, to be honest, it’s not easy. The upside is that once you have systems in place, running your business becomes ridiculously easy and expansion becomes possible. Without systems, expansion becomes a nightmare sooner or later.

A system must have:

1. a set of specific MEASURABLE results
2. a list of the tasks involved to attain the results
3. an orchestration of tasks so that they are done in the correct order
4. scripts
5. training
6. reporting

For example, let’s take the mundane task of cleaning your business. First I will ask you the $64,000 question: What is clean? Your idea of clean and my idea of clean may be very different, so, first of all, we must define clean.

For example:

• windows have no 5-year-old paw prints
• business smells like a new car, not a high school gym locker
• all trash receptacles are empty
• no cobwebs or dust
• all chairs and equipment are in designated places, etc

How specific should this list be to QUALIFY as a real system? Well imagine for a moment that you left your Hyatt hotel room for the day and came back at night. How would you know the room had been cleaned?

How many things can you identify? 10? 20?

Okay, the beds have been made, there are fresh towels in the bathroom, and if it’s a ritzy place, you might have a candy on the bed. That’s three, how many more can you name?

The fact of the matter is, there are 127 different things that a maid in a Hyatt Hotel has to complete in order for the room to be defined as CLEAN! Imagine 127 different checks to make sure your room is clean—and I bet you didn’t get past 20.

The remote must be in the right place. The Bible must be in the bedside table. The phone book, free soap, visitors’ guides, and phones MUST ALL be in their designated places. Otherwise there would be inconsistency, and inconsistency creates more problems.

The first step to designing systems is to take every task in your business and DEFINE the outcome.

Once the outcome has been made clear, a list of tasks can be assembled to accomplish the outcome, followed by an orchestration of those tasks so that they happen in the right order (like dusting before you vacuum, not afterwards). Scripts can be put in place where needed, and training must be established so that everyone follows the system to the letter.

Finally, reporting must be put in place in the simplest form possible so every task is checked off. In the systems I designed for my business, the check boxes are just big enough for a yes or no, which means they are not big enough to write in an excuse.

McDonald’s was so successful in expanding because every little detail was built into a system.

You NEED written systems to expand your business successfully.

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Why Most Business Contracts Are Worthless

Always do right. This will gratify some people and astonish the rest.
MARK TWAIN

For most of the time that I have been in business, I have done business—including some really large deals—without contracts. At various times I have tried contracts, or others have insisted upon them against my wishes.

I tried them in the karate business when I was selling licenses. I had what I thought was a simple yet complete five-page contract drawn up at great expense by a contract-law attorney. The majority of people signed it without any fuss, but about a dozen sent it to their attorneys. All of these came back with numerous paragraphs they wanted changed on the advice of counsel. But you know what’s really funny? None of the 15–20 paragraphs in question were the same.

After trying to appease a couple of potential licensees whose attorneys were doing nothing more than TRYING to justify their fees, I finally just said to sign it as is or don’t, I am not making any changes.

Eventually they all signed.

My web business took off no upfront fees or contracts, I began to use contracts as my product became more and more powerful it took far longer to set up, so I changed to contracts again. People signed them, dated them, faxed them back, and then completely ignored them five months later when a new manager showed up who demanded a cheaper solution.

In my experience it just doesn’t make a difference having or not having contracts, as the results are the same.

FACT: When someone wants to break a contract, they will lie, steal, cheat, dream up nonexistent problems, and blame you and your staff for every ill in their lives.

This person is not someone who will bring joy or prosperity to your life. Forget the indignity of it. Forget the lies. Forget the fact that you are 100% in the right and the contract breaker is wrong. It simply doesn’t matter. If you sue them, you MAY win. (The lawyers always win!) It will cost you a large amount of time, money, mental energy, and lost opportunity, and even if you win that’s just where the fun starts.

IF you win, you then have to collect. Ask the Brown family how much they ever got from multimillionaire and “presumed” double murder O.J. Simpson and you will begin to get an idea of what chance you have of ever seeing a penny from your judgment. Yes, you should have things spelled out in as much detail as possible to avoid confusion down the road. You can even go to the trouble and expense of having an attorney draft a solid letter of agreement so you both know what you should be doing, or just write something up yourself so it’s clear to both sides what the deal is. Just don’t expect it to mean much once a person has decided to no longer do business with you. If you have a good attorney—and I have had a few—they will give you exactly the same advice as above when it comes to pursuing contract settlements through the courts. People who want to screw you will try, and people who don’t won’t. A piece of paper, no matter how well written, won’t stop either party from acting the way they act.


Contracts kill more deals than they save; use them only when you have no choice.

Please consult your attorney before following this sage advice (LOL).

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Timeless Business Advice from Singer Kenny Rogers

To be successful, you have to have your heart in your business, and your business in your heart.
Thomas Watson , Sr., founder, IBM

Although I was in the martial arts business for a decade, I physically taught martial arts for a living for only about four years. I enjoyed it for about nine months. Teaching seven-year-olds the same ten moves, three hours a day, six days a week, gets old fast.

I knew my time had come at Martial Arts America (my nationwide karate franchise) when I eventually wised up to the fact that despite a fantastic product, I could never realize my dream of 500 units operating under my banner. The churn rate was just too great. Instructors signed up and learned how to run their businesses better. Then when they thought they had all the answers, they quit and went back to being Joe’s Karate. Some of them made it, most didn’t.

I stayed in the business for another three years after I knew mentally that I was done, thereby wasting three years in limbo before finally pulling the plug and moving on to the next venture.

The opportunity cost of staying in a business beyond its “sell-by date” takes its toll physically, mentally, and financially.
As Kenny Rogers sang in the ‘80s hit song, The Gambler,
You have to know when to hold ‘em.
Know when to fold ‘em.
Know when to walk away,
Know when to run!

When your passion is gone, you HAVE to move ON.

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Don’t Put All Your Money in One Place

If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.
JEAN PAUL GETTY

One of my best friends lost $30 million to Bernie Madoff, just about every dime his family had amassed in thirty years in business. But you don’t have to be a victim of the greatest fraud in history to get in deep financial trouble at the drop of a hat. It can just as easily happen at your local bank.

When I was in the martial arts business I had my personal account, my business account, a line of credit, and a credit card with Bank of America. When I moved back to Florida from California, I obviously changed all of my addresses. I was slowly winding down one business and starting a new one when, out of the blue, $30,000 vanished from my bank account, making it impossible to make payroll.

When I called the good folks at Bank of America, to my utter astonishment they told me they took it.

“You can’t do that!” I stammered.

“But oh yes we can,” they said. “You left the state of California and didn’t tell us. Your line of credit does not allow you to move your business without telling us first, so we called it.
I pointed out that they had been sending my statements to my Florida address for almost two years but to no avail. They took the $30,000 and wouldn’t give it back, even though I was paying the loan!!!

In another case, the credit card processing company I was using changed its rules overnight and demanded a $15,000 cash reserve that they could keep for up to six months. Not devastating, but painful enough at the time.

Don’t put all your money in one bank. A bank’s change of policies will screw you— it’s just a matter of time.

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The Method Factor

Almost all quality improvement comes via simplification of design,
manufacturing, layout, processes, and procedures.

Tom Peters

If you look at the success of most major companies, like McDonald’s, Federal Express, The Body Shop, or Gold’s Gym, the most common factor is a methodology, a unique and systematized way of doing business. They create a method that permeates every level of the organization and indoctrinates every employee to the cause.

Apple has a highly systematized way of launching its products. KFC has a highly systematized way of cooking and serving its chicken. FedEx has a highly sophisticated way of initiating picking up, tracking and delivering packages. It’s not necessary to be a multi-million dollar business to make massive gains in your operation by copying this concept.

For example, are your sales presentations written and orchestrated so no two salespeople will answer the same question differently? There is only one perfect way to answer most sales objections. If your people are ad-libbing, they could be winning and losing at random. It’s highly unlikely they will get the same sales results using different scripts. Find the answer that fits best and make that the script everyone uses–without exception. This is the process that makes companies like Disney and The Ritz-Carlton so consistent and so successful.

You need a method for every part of your business. You need a predictable method of generating leads. You need a predictable method of training new staff. You need a predictable method of delivering and servicing your product. You need a predictable method of forecasting revenue, paying your bills, and reporting on results. Such revenue items should be done on a set day, every week or every month, not when you have time or feel like it.

The more you write down, orchestrate, and share with your staff your method and unique way of doing business, the more successful your business will become.

The more methodical you make each part of your business, the more predictable your results will become.

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Income Versus Wealth & Developing Your Millionaire Mindset

I made my first six-figure income at the ripe old age of 28. I promptly bought a home in a gate guarded, country club community, a Porsche and a golf club membership. Bingo I thought I was rich!

Instead I was spending every dime of the $8,500 a month or so I was making and then some. I looked rich but was actually flat broke. The house was I thought was an investment although after a decade I sold it for less than I paid for it. The golf club I managed to pay for by playing in the Friday skins game with a bunch of guys whom had plenty of cash and loved to gamble. Thankfully there golf was quite erratic or I could never have kept up the membership. My eternal thanks to Messer’s Haness, Lynch, Blaney, McGee, Meziger, Weber and Richers.

Then of course there was the car. The car, my dream car that I had wanted since riding in a friend’s fathers car as a 15 year old. I was proud owner of a two year old 928S, and the $4,000 insurance bill that went with it for living in California as an under thirty, single. (Twenty-five years ago, what an INSANE waste of money!)

Some of the guys above I played golf with where to me at least, crazy wealthy making a half a million to a million dollars a year or more in income. Surely they were wealthy? But for most of them of them the answer was no. One in the carpet business went from a million dollar personal income to borrowing money off me to buy carpet and gas for that day when the bottom dropped out of the California building market back in the mid–nineties and his top sales guy left the business along with half the clients he had left.

Another in the produce business destroyed a massive income when he disappeared on a two-week bender in Cabo San Lucas and never answered his phone. These guys all had massive homes, great cars and super incomes but they did not have wealth. They could not stop working because as another of these friends in the music business shared with me to my utter astonishment, it’s not that easy living on $100,000 a month (25 years ago) he too went through some hard times!

Hindsight is always twenty, twenty but income is not wealth. Income no mater how much can dry up in a heartbeat, wealth takes time to dissipate but it’s also hard to build much wealth without income. Do not confuse income and the trapping of success with true wealth they are very different. You must plan to grow your wealth and lifestyle in proportion to your income and that takes discipline.

What Does it Take to be Wealthy?

Although a million dollars isn’t what it used to be, (there are ten point one million millionaires in the United States according to the Spectrum Group, 2015) it’s still a popular asset threshold to determine whether or not you’re rich.

As of 2015, it requires a net worth of around $2 million to make it into the top 5% and takes a net worth of $6.8 million to join the much-talked-about 1% club. A household income of just over $100,000 would put you in the top 20% while $218,810 would put you within the top 5% richest households in the country. But you’ll need $521,411 in income to get you into the elite 1% group!

The good news is you don’t need anything like that kind of income, to accumulate real wealth. According to the book The Millionaire Next Door by Thomas Stanley and William Danko, the average annual household income before tax of all the people they studied was just $137,000, yet their average wealth was 3.7 million.

You can build wealth with even half that income or less and have a good time doing it, provided you have the right mindset.

Developing Your Millionaire Mindset

Keith Cameron Smith in his book “The Top 10 Distinctions Between Millionaires and the Middle Class” explains that millionaires think long-term, while everyone else thinks short-term. He breaks society down into five groups, and explains how each group thinks:

  • The very poor think day-to-day; they seek only to survive.
  • Poor people think week-to-week.
  • The middle class thinks month-to-month and seeks comfort. The middle class wants instant gratification; they want whatever they want when they want it. They charge it on their credit card or make a down payment with the intent of paying out the balance later on.
  • The rich think year-to-year; they seek freedom. They put freedom ahead of instant gratification and rarely buy things other than real estate that they cannot afford to pay for at once!
  • The very rich think decade-to-decade and already enjoy freedom.

The rich and the very rich ask themselves questions such as the following:

  • How can I double my net worth this year?
  • How can I legally lower my taxes so that I can invest in more income-producing assets?
  • What do I want ten years from now?
  • How about twenty years from now?
  • How can I set up my estate so that my heirs will be protected?

It’s this long-term thinking that allows them to pull ahead. Change your thinking from the short-term satisfaction to long-term wealth accumulation.

The bottom line is this, you should not work all the time to live nor should you waste all your income on lifestyle. Commit to growing your income, wealth and lifestyle in proportion and you can have the best of all worlds.

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