Zig number 3 requires yet another shift in mindset.  In Zig number 1 you are doing everything, and you are working hard.  In zag number 2, you become the head cheerleader, and you are defining processes.  Zig number 3 requires deliberate planning.  It is very cerebral. It is the academic part.  It’s a shift that is hard for many people to go through.  Working hard and working cerebral don’t always go well together unless you consciously acknowledge these two forces and plan the expenditure of your energy accordingly. 

As you shift to your cerebral effort, you are standing back from the minutia, analyzing it, and determining what little levers you could flip that would have significant impact.  In other words, you’re deliberately thinking, “If I do such and such to the business, then we can accomplish this.”  Up until now, your efforts have been all about action.  Now you’re looking for ways to maximize the work being done, and for ways to shift your work to others.

One of my recent ventures involved building an email list of several thousand subscribers.  That’s not a huge number, but for this particular niche we had amassed a sizeable database.  We had gone about building this list in a hundred or more different ways.  We tried one thing, and if it failed, we tried another.  We worked fast and we worked hard, which meant we didn’t always refine our efforts to the point of perfection.  In fact, in many cases we settled for “good enough.”  This is what my friend meant when he said he was “Striving for mediocrity.”

After we had built our email database to what we determined was our critical mass, we set about to craft the pitch that had always been our endgame.  We had one chance—an email blast that, if people responded, would bring us the success we had been building toward.

At this point, our strategy shifted from action to considerable thought.  “Good enough” no longer was.  Whereas early on we had thrown together things that took literally minutes, we now spent hours and hours on this one pitch, running our final effort through layers of strategic review and approval.

I can’t tell you exactly where you’ll need to expend your cerebral capital.  What I can do is encourage you to carve out time to step back, get away, and do the thinking that will identify where you can focus, refine, add resources, create processes, and move toward the scale that will create value whether you’re in the office or enjoying the fruits of your efforts.

I can also tell you this.  I have had very little success getting to a scale component when I’m in a crisis or in a reactionary mode.  I’m great at solving problems, but I am lousy at coming up with new ideas when I am in that task-oriented, problem-solving mindset.  Find time to get away to a relaxed, calm atmosphere when you’re generating ideas for how to scale your business.  I have had enough ideas come while I am on the golf course to justify my green fees for the next ten or twenty years.

 I do have some businesses that do not fit into these last two categories but have been very stable businesses that have scaled well.  My wife and I started purchasing rental properties many years ago.  We bought our first fourplex at a fire sale after the owners went bankrupt.  We put enough money down that the cash started flowing from the moment we bought it.  As we obtained more cash, we paid off this property.  Through trial and error, we have been through the learning curve to know how to manage these rentals.  With the money we made from that first rental, we bought another rental property.  We added resources by hiring a repairman and other people to help manage the properties.  We hired our sons to work on these rentals, as this was a great way to teach them how to work hard. (I’d hire my daughters, but we don’t have any.)  One by one, we purchased rental properties that got us to cash, paid them off, and then purchased more.  The great thing about these properties is that they are income-producing assets.  Even as the housing market took a nosedive, our rentals remained full.  Those people who no longer qualified for mortgages needed places to live and were happy to live in our rentals. 

      When my partners and I started CastleWave, we first got our initial SEO contracts to drive us to profitability, and then we hired the engineers we needed to build our resources. Then it was time to add scale.  The scale component in CastleWave was our link-building component—the ability to get other authoritative web sites to direct traffic to the sites for which we were consulting.  Our expertise in this area was our number-one value asset.  We put together a pragmatic system—aset of processes and approaches that were bundles—that we could then have our employees replicate and follow, allowing my partners and me to focus on other issues. 

      If done properly, scale allows you to develop a system and train other people in how to use that system. Put together an entire system and process using all your rules of engagement, and then flip the switch and start cranking out the cookies.  A cookie-cutter system is what will get you to scale.

      Microsoft Windows is a great example of scale.  How many times did Microsoft build Windows?  Yes, Bill Gates and company have released updates and improvements (well, most of the time), but they really only built the program once!  And they have been able to sell it millions and millions of times over.  Virtually every PC sold has Microsoft Windows already installed, and Microsoft gets a royalty each time a person opens their box.  Now that is scale—and the reason why Bill Gates is one of the richest men in the world!

I have developed four rules I follow whenever I create a business.  There are times I violate them, but I do so deliberately.  Keep in mind that these are my rules that fit into my skill set and values.  You will need to look at your own situation and determine the rules that work for you. 

Rule # 1 – Ride a Wave:  I like businesses that are on a wave.  Just like a surfer who gets in front of a wave and rides it to the shore, I want the environment to be right before I get on a wave in my business or my life.  If the wave is big enough, then just being in its vicinity will generate enough power to propel you toward your destination.  But if you catch that wave wrong, life can come crashing down around you.  The key is to get on and off the wave at the right time.  September 12, 2001, would have been a terrible time to start an airline.  This same day would have been the perfect time to start an anti-terrorist airline security business.  Purchasing a row of new condos in 2006, when housing prices were at a point where experts were beginning to see they were unsustainable, would have been a bad move.  Purchasing those same condos after the housing bubble burst and prices were slashed in half would have been the right time to add scale.  You need to assess your environment and pick the right waves to ride.

Rule #2  – Transaction Businesses:  I like businesses that sit in the middle of a transaction.  A well-known example is credit card companies, which make 2-5 percent every time one of us slides our credit card through a reader.  None of us give what we’re paying a thought (and if you think we’re not paying, think again).  Merchants are happy to pass along the fee because the convenience brings more people to their business.  Customers love the convenience of not having to carry cash or write a check, so they willingly pay their annual fee (and high interest rates) as well.  Positioning yourself in the middle of a transaction puts you in a great place to make money.

Rule #3 – Own the Customer:  I like to own the customer.  I don’t like being in a business where I can’t look into the eyeballs of the customer and resolve the issue.  I like to be in the middle of the transaction, but I do not like being sandwiched between brokers.

During the rise in the housing market, I was riding a great wave with a company called Mortgage Saver 101.  We had an awesome web site that generated leads of people looking to obtain mortgages.  The company was riding a wave and was a transactional and a digital business.  The only problem was that we did not sell our leads directly to the banks or the people who were coming to refinance their loans.  We sold our leads to a broker who would then sell them to multiple vendors.  Many times the broker would come back to us and say he did not like some of our leads.  We would ask what he didn’t like and he would simply say, “It wasn’t a quality lead.”  Without being able to talk to the bank or the customer, we were left to guess at what they really wanted.  This left us very vulnerable, giving all of the power to the broker.  If there was a problem, we had no way to solve it.  On the other hand, credit card companies are good examples of being able to own the customer.  The credit card company can communicate directly with the merchant that is selling the product or the customer that has signed up for the credit card.  They own the customer.  They can manage the relationship on both sides of the transaction.

      Rule #4 – I Like Digital Assets:  This is my very personal preference, but I love digital assets.  I really do not like retail.  Why?  Because I stink at retail.  I don’t have enough discipline and I am not patient enough to succeed in retail.  It doesn’t scale as well for me.  I know many other people who have been highly successful in retail, but it is just not my preference.  Once I make a website or an application, I have made it once and as many people as want to come will fit into that store.  That’s the primary reason I like digital assets. 

 One way would be to bring another dentist into his practice so he could take Fridays off to work on creating his new product.  He could then join forces with other local practices to build a channel or infrastructure to test and promote his new product.  When that has proven successful, he could create an online presence.  When we talked about his options, my friend was amazed that he could take control of his own destiny and move from the constrained “I’m going to spend the rest of my life drilling teeth” mindset to the “I can actually pursue my beacon in the fog” mindset.

      While others see limitations, I see examples of scale all around me.  I found one while attending a retreat being run by a well-known chiropractor.  This man is clearly an exceptionally talented chiropractor who had become very profitable in his practice.  He then added resources and staff and was able to add several additional offices to his practice.  Then he made the big leap to scale.  He compiled his own set of processes that worked in his business, including the equipment he used, the supplements he recommended, and the processes that made him successful.  He put all of this together into a system he could sell to other chiropractors.  This man is now distinctly known for his training programs among chiropractors throughout the United States.  With his training program, he helps other chiropractors—and then profits when they tell their associates about what he’s done for them. But he has no direct involvement in their day-to-day businesses.  This is scale.

      My oldest son seems to have gotten some of my genes, which led to him getting involved in my web businesses several years ago.  (He was one of my original nerdy kids who helped me move CastleWave forward.)  After I sold CastleWave, he wanted to start his own business.  He worked hard to follow the principles and processes he learned at CastleWave and ended up building a scalable web business of his own.  His is now in Japan for two years working as an unpaid service volunteer, and he has a business that is still making money for him.  While he is gone, his seventeen-year-old brother is the CEO of the company.  He also hired his younger brother and several other smart and energized teenagers to keep his business going—and growing.  They have the same values in place.  They have their beacon in the fog set and are fueled with the passion of youth.  As I write this, my son has been gone for thirteen months, and he has a resource and an asset that will fund the remainder of his college when he returns.  That is the power of scale.

The third zig is about adding scale to your undertaking. After getting to cash and then adding resources and processes, you need to add scale to get your product or services to the masses. In simple terms, scale is something that can be published or duplicated or sold over and over again.  Think about the music industry as an example.  There are amazingly talented studio musicians who get hired to play for top recording artists.  They come into the studio, lay down their tracks, get a check for an awful lot of money, and then go onto their next gig.  They live a good life, making more than most of us.  The trouble is, their check is a one-time payment.  On the other hand, the artist who writes and records the song gets a royalty every time the song is downloaded, sold at Wal-Mart, or played on the radio.  Through scaling their talents and business strategies, recording artists gets lots and lots of checks for an awful lot of money—and live a great life!

Business gets really fun for me when I can make money while I’m sleeping, or on vacation, or working on my next project.  I remember the first time this happened for me. I was laid up in bed for what I knew was going to be a few weeks, so I came up with a little business idea, threw together a web site, worked my search engine optimization magic, and went to bed.  I got up the next morning, brushed my teeth, checked the web site, and found I had made $37.50—while I had been asleep!  (That number got bigger as the days went on.)  Scale is what allows me to do that.

My colleagues and I often use the term, “Nail it, then scale it.”  What we mean is that during the first two zigs and zags, you’re really trying to figure out how to nail your business.  You’re figuring out the discipline, the effort, and the processes that will make it work.  In zig number1, you are figuring out how to get to profitability.  In zag number 2, you are adding resources.  In zig number 3, you need to figure out a model that you can replicate quickly and get your product out to the masses.  This is the “scaling it” part.

When I’ve talked or written about this concept, I’ve offended several members of my family because I summarize my ideas by stating, “I never want to be a doctor and certainly never a lawyer!”  My point is not to offend my brother, who is a very successful doctor.  My point was that doctors have to put on their literal rubber gloves and poke at some very tender places, and attorneys have to put on their figurative rubber gloves and poke in some dark places. Otherwise, neither one is making money.  I don’t want to do that.  I like making money beyond the time that I am physically and/or mentally working. 

There are alternatives most of us can pursue, though.  I have a good friend who is a dentist.  He’s told me several times about a really great product he wants to develop that would make it so much easier to fill cavities.  He has lamented that he just doesn’t have enough time to work on this because he is stuck drilling and filling teeth all day long.  He feels he has no options, but I’ve explained that the option is to zigzag.  He already has a business with a solid cash flow.  He just needs to add resources—and then scale. 

Eating Our Own Cooking

In our test business, we hit profitability one month ahead of schedule.  We then documented processes, which helped ensure that when we began hiring people, they would actually know what to do.  Shane, our college student that was so helpful in the beginning, graduated from college and was able to join us full time.  The next person we hired was Koral, my executive admin. I believe this hire is always the most important.  We vetted and screened hundreds of people before we found Koral.  She has been a perfect fit with our values, and she has brilliant skills.  She is now the gatekeeper of our values and does a screening of every person who enters our organization.  She makes sure that they are a valued fit.

To help document the process that made our company profitable, I identified twelve parts of our operations that needed to be managed in order for us to be successful.  I then stapled a piece of paper with one of these items written on it to a $20 bill and posted these around the office.  I told everyone that the first person who wrote up the process for that step got to keep the $20 bill.  We now have twelve documented processes, each with their own set of simple steps written out so that each new person who joins the business has a clear picture of what needs to be done to make our company work.

After hiring Koral and a few other key positions, my partner Curtis needed to hire a very important individual for our sales team.  At this point, we had created our values filter, and we had the skills test assembled to give to our future hires.  Curtis was thoughtful and pragmatic as he ran a large number of candidates through this process, even though we had an urgent need to fill this position. After screening all the candidates, one in particular stood out.  He was very talented and had the skills we needed.  He had passed all of our tests.  I told Curtis to just hire the guy, but Curtis slowed down just a little because he saw some red flags.

Some of the red flags had to do with this individual’s work history.  He had not had real consistency in his employment.  We figured we could overlook this because we knew he had dealt with some health problems.  Another red flag was that in our interviews, this man seemed to have more motion than momentum.  Even so, I was convinced this guy was a good hire, but Curtis was still concerned. After I kept prodding him, Curtis decided to extend the offer.  As Curtis and the man were talking on the phone, Curtis could hear the man’s wife in the background.  She was shouting things like “If you agree to accept this, make sure they let you work from home two days a week!” We hadn’t discussed that in the interviews, but Curtis thought it might work.  Then Curtis heard her say, “Make sure the health insurance kicks in immediately!”  That was fine because we offer a good health insurance package.  Then he heard her say, “Find out how many vacation days they’re giving you, and then ask for a week more.”  In a bad economy with a lot of competition for this position, there was no gratitude or excitement about the offer.  There was no dialogue about how he was going to add value to our company. It was all about take, take, take.  After four or five of these demands, Curtis paused and simply said, “I’m sorry, we’re not moving forward.” He knew our company’s values, and he knew we would not be adding a resource that fit.  Even though we really needed this position filled, Curtis went back to the drawing board and started all over.  Fortunately, we soon found a delightful woman named Chiaki who fit our needs perfectly.  She is aligned with our company values and has been the right hire for this job.

Summary

After you have hit profitability in zig number 1, zag number 2 is all about adding resources.  You are making the transition from working harder to working smarter.  You are going from determination to discipline.  You are going from being the butcher, the baker, and the candlestick maker to cheerleading a team and turning over control to others.  Remember that this will involve letting them make some mistakes and do things a little differently than you would.  But if you do this effectively, you are increasing your profitability, adding resources in to the system, and documenting the processes.

This is where the culture of your company will be defined.  It’s one of the most fun phases of your business and where stories will come that will define the life of your business – good and bad!  Your values will be tested for the first time, so hold strong.

The Five-minute Whiteboard

One of the powerful tools I use in my business is The Five-minute Whiteboard.  This is designed to ensure that everyone on the team knows which of our tasks are the 20 percent that will result in 80 percent of the results.  It works for a team of up to seven or eight members. 

I’ve installed a huge white board in our office.  We write each team member’s name across the top with a different color of marker.  In our staff meetings, each person then brain dumps everything they have to do during the coming week.  It doesn’t matter whether it is a small little thing or a really big thing—we list everything.  After everyone has listed their tasks, they then put an “A” “B” or “C” next to each task to give it a priority (“A” for vital, “C” not so much). 

We then all stand back and look over the board.  We’re then able to see that if this person doesn’t get something done, this other person won’t be able to get her highest priority done. We also discuss if items need a higher priority or if they are not really that important.

As the week goes on, each team member crosses off completed tasks.  They also have the ability to write on someone else’s list.  If there is a task anywhere on the board that is critical to you, you can increase its priority.  I have even put big red circles around someone’s task, letting them know that it is getting to be a hot potato in the business and that they need to deal with it.  When one team member’s list is getting shorter, they’re expected to help someone else with their list and cross off items.

There are three very powerful functions this Five-minute Whiteboard fills:

1. Instantly, everyone on the team knows what the critical tasks are for the week.
2. The team knows when someone is overburdened, and they can help him or her out.  If John has 15 “A” items on his list, the rest of the team knows not to dump more onto him.  If Matt only has a few smaller items, he knows he must help John.
3. It provides accountability and transparency in the organization, which ensures that everyone is actually producing and being effective.

I have found that the Five-minute Whiteboard is the most powerful when we do it on a Friday afternoon rather than first thing Monday morning.  This allows everyone to subconsciously begin thinking through their task lists so that on Monday morning they are geared up and ready to attack.

Recently, I witnessed yet one more example of how effective our five minute white board is.  We had a situation where we had a large shipment that had been stalled due to some shipping infrastructure issues.  As a result we had $150,000 worth of merchandise just sitting in our warehouse waiting to be shipped—and holding up our cash flow.  The day finally came when the truck was able to come, but he showed up two-and-a-half hours earlier than scheduled.  Loading this truck and getting this shipment off was an “A+” item on our warehouse manager’s list.  When the truck showed up early, not one word was said.  Everyone on the team just got up, put on their coats and gloves, and went out into the cold parking lot to help Cameron load the truck.  Everyone knew this shipment was critical to our business and essential to the cash flow.  Everyone understood and was in tune with the environment of the company.  That is the power of the Five-minute Whiteboard.

Now that you’ve started bringing in some cash and adding resources, your organization is going to need more structure and discipline.  As you add more flesh to the bones of your infrastructure, you’ll need to work on making consistent progression.  This will require that you build on what you have learned so far as you have been driving to profitability.  In some cases, those will be lessons you haven’t even realized you’ve learned.

Building processes for your organization is vital to your short-term and long-term viability.  It’s a step that often gets left out as you head toward your beacon in the fog, but I’ve been convinced of its importance since I was a little kid mowing lawns.  After I had acquired a few lawn mowers and convinced my brothers and friends to mow lawns for me, I had to teach them the processes that had made me successful in the first place.  Here are the steps I took each and every time I mowed a customer’s lawn:

1. Present yourself well. I would tuck in my shirt and wipe the sweat and dirt off my hands and face before knocking on the customer’s door with a big smile on my face and saying, “Hello, I am here to mow your lawn today.  It will take me about an hour and a half. Is now an okay time?”
2. Clear the lawn. Before mowing a lawn, I looked it over carefully and removed all the balls and junk.  I picked up any dog mess, trash or anything else that may be on the lawn.
3. Trim the lawn. I used the trimmer to trim around the entire edge of the lawn before I began mowing.
4. Check the oil in the lawn mower
5. Check the gas in the lawn mower and make sure the tank is full.  I only put gas in the lawn mower while it was on the sidewalk so that I didn’t kill any grass if I spilled.
6. I went to the center of the lawn and picked a point straight across the lawn.  Then I shot for a straight line.  Everyone likes nice straight lines better than random tire marks across their lawns.
7. I followed the wheel patterns through the entire lawn to keep all of the lines straight.  If the lines got off, I corrected them.
8. I emptied the grass bag before it got full so that clumps of grass would not spill out on the lawn.
9. After mowing, I cleaned up the lawn and yard.  I raked any grass or debris that was left on the lawn and blew or sweep the sidewalks off.  Everyone likes their yard to look neat and clean after the grass is mowed.
10. I respectfully invoiced the customer.  I wiped the sweat off my face and the dirt off my hands and knocked on the customer’s door.  I then handed them the invoice for mowing the lawn and put a piece of candy or a package of seeds with it as I thanked them for the opportunity of mowing their lawn.

This process example may seem rather elementary, but I had to mow a lot of lawns before I learned that it took a lot less time and the lawn looked much neater if I trimmed the edges before I mowed.  I also learned that when I was having other people mow lawns for me, they all wanted to do it their own way.  But I knew that my customers had hired me to mow their lawns because they knew they would have straight lines and they would like the way their lawn looked after it was mowed.  They also loved that I gave them a packet of seeds or a piece of candy as my signature when I finished.  So, I had to document the processes and teach these things to my employees so they would know what my customers expected. 

My wife worked for Kentucky Fried Chicken while she was a teenager.  They have a list posted to the wall above the biscuit machine detailing the exact steps for making their delicious, fluffy biscuits as well as other lists detailing each step in making their chicken and every other menu item.  This keeps the consistency and quality that is expected each time a customer goes to eat at any KFC.

I used to love to eat at a regional fast-food restaurant that sells delicious chicken and rice bowls.  But one time when I went there, the dish I was served did not taste the same.  I commented to the person at the counter, “Something tastes really weird in my chicken.”  He said, “Oh, yeah, our normal supplier was out of the chicken we normally use, so we had to use different chicken today.”  I thought this was just a fluke, so I went back the following week.  This time the chicken tasted much spicier than usual, and it was even worse than the previous week.  I mentioned it to the guy at the front again and he said, “Yes, we had to try an even different supplier this week.”  I went back a few more times, but each time the chicken was different.  Not surprisingly, this franchise went out of business not long after, and now I have to drive thirty miles to get the chicken and rice that I love.  Whatever the size or complexity of your business, processes matter!

In zag number 2, you have to document the processes that led to your initial success.  You need to put these into bite-sized processes that other people can follow.  That is why I instructed my employees to trim the grass before they mowed the lawn and to put the gas into the mower while it was on cement so as to not kill the grass.  I had made all these mistakes and had learned from them, so I institutionalized what I had learned.

As you document your processes, remember to learn from the mistakes you made driving to profitability.  Documenting what not to do is as important as documenting what to do.  You want to have something in place that makes people think twice about making the same mistakes, and it will help if you have already proven what doesn’t work. 

Other Resources to Add

Your organization will need resources other than more people.  Resources can include more capital or a new piece of equipment that will simplify your processes.  For example, if I were to create a cookie company, once I made enough money selling my first batches of cookies, I would consider using that money to purchase a machine that kneads the dough and then another one that cuts the cookies—after looking carefully at their cost and the potential return on my investment. 

Outsourcing is another way to add resources.  I started a company a year ago with my son.  My son created a website, and we then outsourced the building of five or six more websites.  We gave the developer our website template and told her exactly how we wanted our sites to be built.  Then we focused on other more lucrative parts of the venture.  One good thing about outsourcing is that you don’t have to worry as much about the value system.  The high production or the end result is what matters when you outsource.  The key to outsourcing is that you only want to outsource those things that can be thrown over the wall to someone who can do them independently.  Do not try to outsource those things that require your full involvement.  For example, I would not want to outsource my company’s financial books.  There are so many moving parts in my books that my executive assistant and I must go through them daily.  I want to know when bills go out, when we will be paid, and when our bills are due. 

One time I tried to outsource one of my companies’ bookkeeping to someone I knew in town.  It ended up being a nightmare because I was no longer able to know at a moment’s notice exactly where I stood financially.  On the other hand, I do outsource my payroll.  We send the payroll agency the hours each of my employees work, and they take care of all the required forms and paperwork.  I also outsource my taxes to my accountant.  We just send him a copy of our QuickBooks and the year-end papers, and he can take care of our taxes without taking any of my time.

On the flipside, at this same time I made a couple of horrific hires, in part because we didn’t have our value system clearly in place.  During this time I was literally living off three to four hours of sleep a night and I hired an executive assistant who had a good resume, but what impressed me even more were her outstanding grades and recommendations. I had some concern that her work experience was a bit thin; but I needed someone quickly, so I hired her assuming her grades indicated a solid work ethic. 

One week while my partner, Ron, and I were working a trade show in Florida, I kept trying to call into my office.  I tried at several different times, but I just could not make contact with my new assistant.  I finally called another recent hire who was supposed to be at the office.  She did call me right back and said she was on a short lunch break and would call me back, which she failed to do. After four days of not being able to reach anyone, I called my wife and asked if she would go by the office and find out what was going on.  When she arrived, the front door was locked and all of the lights were off.  She found the main telephone was set to voice message.  She did find an engineer in a back room, where he was working on a project.  When she asked him what was going on, he told her that these two women, who were supposed to be answering my phones and greeting people, had decided that since I was gone that they would “work from home” that week.

Needless to say, I had to terminate both these women when I returned from my business trip.  I made the mistake of hiring two young women who weren’t hungry for the work I offered and who had a safety net at home that would rescue them.  I also made the mistake of not screening them effectively against my organizational values, one of which is that we value hard workers. 

Since that experience I have learned to not be too busy to pay close attention as I add resources.  I’ve also developed a series of questions and skills assessments that I run potential hires through, especially my executive admin, who I believe is my most important hire. 

One of my best hires is a woman named Colette Marx.  She is a mother who, by mutual agreement, is working for me from her home (which is yet another way to conserve resources).  When I hired her, I gave her a copy of my book, Bootstrap Business, and told her she needed to read it and then take a test.  The other people I hired at the same time all went home and skimmed through the book.  But Colette wanted to succeed at this job; so she read the book, and then she went back and read the book again, this time highlighting it and making copious notes. When she brought it into the office to take the test, it was dog-eared, it was tagged, it was well used.  Not surprisingly, Colette scored a perfect score. She’s the only one to have done that.  (She even scored higher than I did, and I wrote the book!)  Colette didn’t come with the strongest resume or the most extensive experience, but she is one of the most committed and engaged employees I have ever had. 

As you add resources to your business or your life, you still need to keep your cash flow heading in the right direction.  Obviously, you don’t want to begin hiring if doing so is going to put you in the red.  But as you hire, you need to be clear in your mind, and with those you hire, that if the business becomes less profitable, you will have to decrease resources.  This may seem harsh, but if you have employees in your organization who are not getting you to cash, it puts the whole company at risk.  It is better to lay off those people who are not performing or creating value so you can create opportunities for more employees in the long run.

I was a middle manager in a company that hired a lot of employees but did not become profitable.  That company waited until it was completely out of money and had declared bankruptcy before telling the employees they were out of jobs.  To add insult, the employees were let go without being paid for their last month of work.  Blind bliss is not bliss at all.  It would have been much better for every person in that company to have been laid off when the problems started so they could begin their new job search, rather than wasting a month doing work for which they would never be paid.

In your life, you have to do the same thing.  When you get to cash, you can spend a little more money adding resources such as a house, a car, a computer, or just some things that will make your life nicer and more efficient.  When times get tight, you need to immediately tighten your budget and stop adding those resources.  If times get really tight, you might have to sell off that nice car to make ends meet.  The key is to always keep a close eye on your bottom line.  Always stay profitable.  If you’re creative as you think about adding resources, you may be able to make more progress and spend less money.

When we began to add resources to CastleWave, the business Ron and I bootstrapped with only $5,000, our first significant hires were not college graduates.  They were not even college students; they were nerdy sixteen- and seventeen-year-old high school boys.  In our drive to profitability, I needed to add the resource of engineers. I knew I couldn’t afford to hire engineers at the going rate, and I also knew I could train people who had a working knowledge of computers and the Internet to do what needed to be done.  It hit me one day that my labor force could be found among my teenaged sons’ friends.  My only concern was that I needed them to have a strong vision, so I told them, “When you walk in this door each day, you’re no longer seventeen.  You’re an MBA graduate from Harvard, and I expect you to behave like one.”  And guess what?  They did exactly that.  They grasped what I needed them to do, and they bought into the company culture. It probably didn’t hurt that we paid them far more than they could have earned flipping burgers, but for a number of strategic reasons, those kids were so excited to come to work, they would sleep on the couch some nights because they were totally vested in what we were trying to do.
    

Adding resources is harder than it sounds, but it’s the only way you’ll build your dream.  I have a neighbor who owns a shoe repair shop.  This man makes a decent living and takes care of his family’s basic needs.  However, to keep his head above water, he has to work day after day, week after week, repairing those shoes single-handedly.  If he needs a day off, he has to close the shop.  Same if he’s under the weather or has to take care of a sick wife or child.  Of course, that leads to a loss of income.  Now, his business model allows for some days off, but it’s a pretty thin margin.  If something major happened, the effects could be catastrophic.

My friend has made it through zig number 1 profitability—but he has not thought to turn his skis in the other direction for zag number 2.  In other words, he has not added the resources that would allow him to live a fuller, richer, and safer life.

A key reason many people have a hard time adding resources is they have become accustomed to micromanaging every aspect of their business. As hard as it can be to let go of control, as you hire the right people to fill in the gaps of knowledge or skill that you don’t have, and then as you help them learn your processes, your company will begin to reach its full potential.  Think of yourself as being akin to Emperor Shah Jahan, who may not have known how to carve flowers out of stone but was able to hire someone to do that job—and thus help him create his masterpiece.

I’m familiar with a family-owned business, run by a father and his sons, where the father has micromanaged every aspect of the business.  The father is now getting old and is about to retire.  He has talented sons who want to modernize the business, but his response is always, “We have been doing business this way for over forty years.  This is how it has to be done.” When the sons bring up the need to modernize equipment or processes, the father adamantly refuses. 

It’s no wonder the sons and their families are frustrated.  They feel stuck in a business that is archaic, and they would like a little leeway in bringing the business into the computer age and making it more productive. 

This example is common among family-run businesses, but the same plight is found among businesses founded by a strong-minded personality, who is then unwilling to bring in additional resources and let them do what they were hired to do. As you begin to take zag number 2 in order to grow your business, remembering that it is all about disciple will help you loosen your grip on the controls.  The imagine I keep in mind to help me do this (because, I’ll admit it, I can be a bit controlling) is what I call the “Yes, Yes, Yes, NO! Principle.”  While you are working on zig number 1 and trying to get to cash, you will, of necessity, say “Yes” to many things, such as:

• Yes, I will do the accounting.
• Yes, I will sell a small order that has potential for larger orders.
• Yes, I will answer the phones.
• Yes, I will take out the trash.
• No, I will not compromise my values.

Now, as you add resources, it’s time to add a few more “Nos.”  Some of these might be:

• No, I will not take out the trash. I will hire a cleaning person.
• No, I will not do my own accounting. I will outsource my taxes to an accountant.
• No, I will not answer the phones and do the bookkeeping. I will hire an administrative assistant.

Adding Processes and Resources

I love the Taj Mahal.  I’ve had the good fortune to visit this remarkable shrine several times, and neither words nor pictures can describe it. What adds to its magnificence is that I’ve always come straight from the chaos of India, where there is mayhem everywhere, and to walk into this peaceful grove is like walking into another world.

The Taj Mahal was built with a labor force of over twenty thousand workers who were recruited from all across Northern India and other parts of the region.  In addition to common laborers, the workforce included sculptors from Bukhara, calligraphers from Syria and Persia, inlayers from Southern India, and stonecutters from Baluchistan.  A team of thirty-seven men formed the creative unit.  Of these, one was a specialist in carving marble flowers and another was the best at building turrets.  It took twenty years to complete the Taj Mahal.  It was built by Mughal Emperor Shah Jahan in memory of his beloved third wife Mumtz Mahal.  It is considered one of the most beautiful buildings in the world and is a symbol of eternal love.

Imagine for a moment the possibility of this emperor trying to build the Taj Mahal all by himself.  He clearly had a vision of what it was to be. He was a very wealthy man, so he had the necessary cash.  And likely he knew where to find the materials from which this edifice was constructed. Despite all that he had at his disposal, building the Taj Mahal would have been an impossible feat, even if Shah Jahan had had several lifetimes in which to complete the work.

Instead, he put together his beacon in the fog, fueled it with his passion, and then added resources—lots and lots of resources.  And as he added those resources, he had to get everyone to catch the same vision for them to complete something that beautiful.

Adding Resources

In the first zig, you made your business or your life profitable.  Zag number 2 is about adding resources.  Once you have enough cash from the first zig, you can use it to add those people, equipment, and other resources that you need.  You need to do so in order to help perform the labor-intensive work that keeps the cash flowing.  Then you are able to spend more of your time defining the processes and adding meat to the bones of your organization.  This is the time to formalize, structure, and expand those things that led you to your initial success in zig number 1.

Getting to cash feels great! Your determination has begun to bear fruit. You’re in the black. Life is good. You’re actually making money. The only problem is you’re completely worn out.  And your gas tank is now on fumes, if not completely empty.  You know you need to make a change, but you’re also sensing how hard it is going to be to let go of some of your control and bring others on board.  Doing so requires that you shift gears dramatically, and if you don’t you’ll never get to your destination.

I’ve learned a great deal over the years about failing efficiently.  When I use the word fail, I’m not talking about falling off tall buildings, going bankrupt, or losing everything. What I mean by failing efficiently is that if you can’t get to profitability, you accept that you have nowhere left to go.  You have to become financially profitable before you go on to the next step.  I see far too many people say, “Oh, well, if I just add resources and scale, then I’ll get to profitability!”  But they are inevitably wrong.

Failing efficiently means that unless you hit profitability in whatever time you allocated, you are done!  You need to stop.  If you do, you’ve failed efficiently, and life goes on.  If you aren’t willing to stop, you will fail at a level that may have devastating consequences. 

In your personal life, if you keep going into debt without getting to profitability, you will end up in financial ruin.  You cannot keep trying to add resources or buy more and more things unless you have the cash to pay for them. (And while, yes, credit can be easy to get, at some point you’ll max out and no one will loan you more money.)  Become profitable in your life, in whatever pursuit you have undertaken.

Eating our own Cooking

When we took back Froghair, we decided that Curtis would not quit his full-time job to come on board until we had $60,000 in the bank as a buffer.  We felt that a three-month buffer was a safety net we would be comfortable with and that it would take the pressure off in case we had any kind of a hiccup.

To begin with, we were working Froghair as a fifth priority.  I was taking time off to hike in the Himalayas after selling CastleWave, and Curtis had other priorities.  We had a part-time college student named Shane who was helping us.  In August 2010, we sat down and defined our zig number 1.  After looking at our expenses, we determined and wrote down our financial target number, which was that we needed to net $25,000 a month in order to be profitable.  We were both dedicated to putting 65 percent of our resources toward this effort.

Other than Shane, we did not hire any employees until we hit this target, so the three of us were doing everything.  We had a lot of motivation to reach our goal of becoming profitable before January 1, 2011.  We also set a goal to have five new, high-profile brands in place.  On December 1, 2010, we officially hit this goal one month ahead of schedule.  In November we posted $382,600 of sales with $51,195 in net profit.  Now, having hit that target, we celebrated and then turned our skis so we could zag in the other direction.  That next step was to begin hiring and adding additional resources, as I’ll discuss in the next chapter.

Summary

When you are driving to profitability in zig number 1, follow the basic components.  Set a financial target and figure out how long you will allow yourself to hit your target.  And be sure to give yourself permission to be miserable along the way.  This is hard work, and you’ll have to dig down deep to get through it.  But absolutely do not start working on the other steps until you hit this first zig.  If you fail, that’s fine. You failed efficiently.  You can restart.  You should absolutely begin your undertaking with the mindset that you are going to succeed, but if you don’t, get past the pain and move on to the next thing.  But, as your first step, always drive for profitability as your zig number 1.