In a September 2006 Trump University article, Richard Parker writes about “The Ten Critical Commandments for Entrepreneurial Success“, but doesn’t elaborate much on where he’s coming from. He makes some important points, and several of the items need to be explained and expanded upon, so we’ll address those rather than rehashing the entire list.
In Commandment #1, Richard says “Pay for the past, consider the present, but buy for the future.”
What he’s talking about is not paying for the future performance of the business. No one, not even Trump, can 100% accurately predict that. Paying a reasonable and fair price for the performance of the business in prior years is your goal – and in fact, the only thing that makes good sense unless there is some hidden gold that you’ve already detected (see #7). That aside, what’s going on today could change in a moment. You sure don’t want to pay for what the current owner thinks might happen in the future. Presumably, you are better at strategic planning and execution, management and marketing BUT that is YOU. You aren’t paying for you, you’re paying for the assets. One note about that: the customer list and its recurring revenue, while generally looked upon as worthless by many banks, is the real gold.
In Commandment #2, Richard says “Buy a good business that you can make great.”
In other words, buy potential, that so-called diamond in the rough. Buy something that your skills and the skills of your team can make substantially better. You dont want to spend 100% of your time in survival mode, because that’s all you’ll ever do. It’s worth it to spend a more to get a business that you can spend time expanding and fine tuning, rather than just trying to keep it alive. I hold #2 pretty close, as most of the businesses I’ve owned got that way by virtue of Commandment #2.
In Commandment #4, Richard says “Fall in love with the profit, not the product.”
Richard takes a lot of heat for this in the comments area on that page, but I believe thats because some didnt fully understand what he meant. Of course, he might have intentionally been vague to provoke some reactions from those who just didnt get his point. Hard to say. What he really is trying to get across is that your desire to buy a business has to be based on the numbers. You just cant allow yourself to be blinded into buying a bad business because of your love for the products and services it offers. You must be objective and matter-of-fact about your choices. You can ALWAYS use your love for that favorite product or service from that unprofitable business in some other way.
In Commandment #6, Richard says “Look for a company that offers ‘autopilot’ and ‘cruise control.’ “
What he means here is that the company has systems in place to accomplish tasks. If you are required to repeatedly perform tasks that can be automated, or can be systemized, you’ll get tied down doing that work. If the systems arent in place, but can be built in short order, that’s ideal. When I say “systemized”, think about McDonald’s (not the food). Most of them are run day to day largely by a bunch of young teenagers on their first job. How can a billion dollar, global business do that?? Simple. Systems are in place for everything. Manuals and procedures and automation define and/or control every process. Constant measurement. In other words, autopilot.
In Commandment #7, Richard says “Find the hidden gold.”
As long time readers know, I owned a software company a few years back. One of the frustrations that we faced early on was a struggle to convince our clients that they needed to backup their databases on a regular basis. After all, hard drives fail, power goes off, and computers die or get stolen.
To solve this problem, we created a small, easy to use backup program for our users. It worked great and helped both ourselves and our clients. It helped us because it saved us weeks of time over a year’s worth of dead hard drives, trying to recover critical data for our clients. Instead, we now had a tool that made the job easy and clients benefited from that. So now we have clients with properly backed up databases (most of them anyhow) and we have occasional need to look at their databases.
This was before gmail and other email services allowed for big emails, so we once again faced a challenge. We took our little backup program and gave it the ability to upload the backup to our web site so we could get a client’s data. One thing led to another and we decided to offer the ability for our clients to backup their data on our web site, so they could sleep easier at night, knowing they had an off-site backup.
This “afterthought” of a service, that started mostly as a convenience for something that challenged us…ended up being a upper 4 figure monthly increase to our bottom line. That’s hidden gold. EVERY business has hidden gold, and most have more than one mine. Look carefully for them when examining a business for possible purchase, you may find that you choose differently based on the opportunities you discover.
In Commandment #9, Richard says “Identify what is not perfect yet.”
Everything is an opportunity. Look back at #7. Having clients who didnt realize the value of backing up turned into substantial revenue. That business still isnt perfect. None are. Every flaw might be an opportunity for a product or service that your clients simply cant do without. Systemize processes. Make the business more efficient, and your employees not only get better jobs, but the net result is a staff that generates more revenue.
What commandments would you add? I’d like to hear them.