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The Next Hot Management Tool: A Paper Napkin

Simplify the essence of what your business is and where it's going.
August 25, 2009
URL: http://www.entrepreneur.com/article/203174

On the one hand, it's amusing that I am giving you management advice, considering that I lived on the streets at age 14, was an alcoholic at 17 and decapitated hogs at a slaughterhouse to put myself through college.

On the other hand, I became a self-made billionaire and my success was examined as a case study at the Harvard Business School. You don't have to go to Harvard to discover some advice I have for you: To get big, think small. At least three critical elements of your business should fit on a napkin.

Critical Element #1: What's your business?
You have a business plan? That's good. You even have an executive summary? Even better, but you're not there yet. You need a napkin-sized paper that states what your business is really about.

This is what I put on mine: "We treat delinquent borrowers with dignity and respect. As a result, they pay off our debt first."

That succinct statement helped us become the first debt-collection company to be rated by Standard & Poors. While we did some extremely sophisticated things like the first-ever securitization of credit card debt, that simple statement remained "true north" on our corporate compass.

Burn through a ream of paper if you must, but keep working to distill the essence of your business down to one or two sentences. Don't be satisfied with dull, static labels like "I'm a dentist" or "We're computer programmers." With a finely honed message defining how you are truly different from your competition, you'll cut right through those guys.

Critical Element #2: What's your number?
When I graduated from law school, my focus was on income. In 1975, when smart first-year associates could earn perhaps $40,000, I opened my own practice right out of law school. People told me I was crazy not to align myself with a big firm. I went my own way and made $100,000 that first year.

The number I wrote on the napkin was what I wanted to earn at the end of my first year. I'm convinced that having a crisp idea of my income goal helped me to achieve it. Do you know your number?

Before you answer that, let me give you two other ways of measuring monetary success. After a few years of looking at income as the key measure, I switched to looking at net worth. I had become a multimillionaire in real estate and my net worth looked great--on paper. Pretty soon I discovered net worth was not a very good measure because I had to convert it to dollars before I could spend it.

After 40 years in business, I've arrived at what I think is the best measure: cash flow. I have a daily ritual of knowing precisely how much cash I have in the bank, minus near-term obligations. There's nothing to convert in order to spend it.

Do I look at other financial measures to get the fullest sense of how I'm doing? Of course. But I suggest you focus daily on this critical napkin number.

Critical Element #3: How is your business doing?
OK, maybe this one will take a piece of paper the size of one of those larger dinner napkins, but no larger

I ran an organization with 3,900 employees using one sheet of paper containing about three dozen key metrics for my company. By having one single sheet of paper and looking at it daily, I could quickly spot problems

If you're saddled with spreadsheet after spreadsheet, it's no wonder you're feeling overwhelmed. Keep working until you distill your business measures down to one page. It's very important to make sure the majority of those numbers are "leading indicators" to warn you of trends while you can still do something about them. Looking only at things like revenues and expenses is forever looking in the rear-view mirror. That's no way to run a business

On one level, your business is unlike any other. But on another level, we're all the same. Cut through information overload and get down to the true essence of what your business is about and where it's heading. You'll reach your goals faster, not to mention all the headaches and trees you'll save.