Learn to destroy value - a success recipe?

My friends got married in 2014, and in 2017 decided to go into business together.

The fact they got married in the first place dumbfounded everyone, since their relationship had been nothing but trouble for the prior four years.

They had four (4!) kids by 2022, and everything about their business and their household was a recipe on what not to do.

When creating value, sometimes the best thing to do is to

avoid all the things that destroy value

Here are the top 5 things that helped build the road to their ultimate demise:

• They lacked planning: Costco is the natural place to shop for a family of 6, but instead, they often bought toothpaste at CVS, toilet paper at Whole Foods during their grocery runs, and UberEats became their go-to dinner plan once they realized it was too late to cook and kids were starting to freak out.
• They could never agree on things: It was funny to see how much they couldn’t agree on basic things, but the worst part was that each person often took a course of action that completely undermined the other. For example, *W* didn’t want her kids playing in the jungle gym, but we often saw their dad cheering them on at the monkey bars near our place.
• They were meh bosses: The fact that their nannies would last more than a month was a miracle. This couple would often get back home three hours late, cancel plans on our friend group (and the nanny as a result), and they would honestly just be mean, even when we were there.
• Tax season was a disaster: I hope their CPA was charging them accordingly, because walking into their house was like walking into a file cabinet owned by a beaver. Papers were everywhere, multiple computers seemed to be in use, and I’m pretty sure I saw him tweaking a spreadsheet on his iPhone one of the times we were hanging out (that's a no in my field).
• Inability to think outside the box: This one is hard to explain, but when you meet someone who thinks this way - you’ll know. Despite living in utter chaos, they seem to never want advice from anybody. I’m ok with not giving parenting advice, but at least hear out your accountant on how to help him file your taxes.

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I could go on, but you get the lay of the land.

So if their life partnership was interesting, how do you think they ran their business? Exactly the same...

1. Their strategy changed quarterly, and they seemed to want to launch a new product every few months.
2. They constantly made decisions on their own, and marketing (which he ran), never seemed to match the product strategy (which she was in charge of).
3. They were micromanagers and their employee turnover was off the charts.
4. They had been lucky to score one large customer early on (which kept them afloat), but the risk of those guys going to a competitor was a constant threat that kept their margins shrinking.
5. They were too cheap to purchase market reports, hire consultants, or hire more experienced folks to run the different divisions.
6. Their financial reporting was incomplete and done on a cash basis, so when they asked me to come on as an investor it was hard to pick apart what the real cost drivers were from their year-old reports.
7. They hadn’t invested in their core competency given the disagreements, and one thought their product drove the sales while the other swore it was his sales ability.
8. I had no idea how they would ever scale working out of their garage, where inventory had piled up from the previously failed products, and employees barely had a desk to work in.
9. They were now in debt (expensive debt) and had very little cash flow to reinvest in the business, so it was a matter of time before a shock would put them in the negative. Once that happened, and they had maxed out their business credit card, it was a matter of time before interest rates killed their business.
10. They had no protections for the one product that had kicked-off their journey (which was honestly shockingly good), and of course, we started seeing copy-cats on Amazon for a third of the cost about 2 years in.

If you flip a lot of these principles,

you get to some key must-do’s for a lot of businesses

While not a comprehensive list, business owners should first focus on what they want to avoid, so they can better assess what actions they will need to take to be successful. This is why soft business areas like mission, vision, and strategy are so important to invest in - these make up the roadmap to success.

Here are some of the principles that I often hear have made a difference in people’s SMBs, but I’m always happy to hear that successful public company execs have followed similar core values.

• Set a strategy and stick to it until you realize you have to pivot (yes, it’s ok to pivot). Correcting mistaken paths early can stop value destruction and set you on a better path. Sunk costs are old news!
• Make decisions as a team and create internal systems that communicate and support each other.
• Trust your people and incentivize them to take the actions you believe will help the business grow and that your employees can stand behind.
• Diversify your customer base and find adjacent markets for your products, but don’t forget to obsess over your most valuable customers.
• Know when you need help and hire the right people, even if part-time. Sometimes leaving sales to a sales expert leads to a larger bottom line than experimenting yourself.
• Get your finances in order! Good records are the key to a successful outside investment or a future exit. Good records can help you make better decisions every month, as data driven decisions founded in strategy lead to optimal outcomes.
• Decide what you’re best at and double down. Is it your marketing engine? Is it your sales team? Is it your ability to come up with innovative products? Triple down on this.
• Create processes that scale and revenues that are recurring. Predictability in cash flows will help your stress levels tremendously and can allow you to make longer term investments.
• Manage your cash flow, know when debt will aid growth, and reduce leverage as cash flow risk increases when macroeconomic headwinds are present.
• Protect your IP. Be it trademarks, copyrights, or patents, protecting your IP will save you from headaches down the road.

Again, we could go on about the best ways to create value, but it can all be summarized under the obvious principles of:

• Sustaining revenue by focusing on your core customers
• Managing costs by being focused and targeted in your spend, always looking at the long-term over the short-term gain
• Reinvesting in the business, especially when growth opportunities present themselves, which may mean taking outside capital or borrowing
• Derisking your cash flows by creating recurring revenue streams, diversified customer bases, and maintaining good people
• Finally, streamlining your operations can allow you to focus on the more complex areas of your business (working ON the business and not working IN the business), knowing that the standard things are being taken care of through automation frees up time to focus on the future

Every business is different and only you can know how to transform these principles into every day actions, but driving without a map, or worse driving without a destination, is a recipe for disaster.

Remember, sometimes focusing on what NOT to do, gives you the best guide for what you need to zero-in on