Bob Bethel is a living legend. Over the span of 52 years, Bob has brought 77 businesses back from the brink of bankruptcy using the principles he outlines in his new book, Strengthen Your Business.
If you are a business owner, then this episode is definitely for you. Bob Bethel offers his battle-tested solutions for how you can avoid running your company into the ground, and how to keep your creditors happy.
Listen in as Bob Bethel uncovers:
- Why your greatest business strength may also be your biggest weakness
- How using last month’s financials to chart your course could spell disaster
- What it takes take a business from near-bankruptcy to soaring profits in any industry
What’s the #1 takeaway from Strengthen Your Business?
If you’re an engineer, you may come up with a great idea for a product or a service, that’s going to be your strength, but as is often the case, a person’s greatest strength is also their greatest weakness because they are not familiar with all of the other pieces and parts that are needed to run a business, things like sales, marketing, and accounting.
Then day one, suddenly that great engineer can’t be an engineer all the time because he’s going to have to be involved in other parts of the business, in accounting, banking, and finance.
It’s something that I’ve seen now for 52 years of doing this. That one strength, that one uniqueness that drives a person to start their business, can very well become their downfall.
That’s the key idea in my book and I think it applies equally to all businesses.
How can we ensure our businesses succeed?
Typically if someone excels in one area, say marketing, they’re going to avoid having to deal with accounting and finance at all costs. They’re not going to like these other aspects of running a business because they’re not familiar with them, they have no previous experience with them.
But the reality is that you must be familiar with all of the pieces and parts of your company.
Here’s a quick example:
Let’s say you go out and cut a deal with some huge company to handle their marketing. You’re going to have to hire people, you’re going to require services that are external to your company’s core service, and you’re going to have to pay those people, well where’s that money coming from?
If you haven’t negotiated partial payments or payments every 15 days with your client, you’re going to come up short. Suddenly you’re going to be in front of your banker saying “Gosh, we’re doing all this work for this huge company and I don’t have the money to fund it.”
Everything comes to a stop.
My point is that in order to be profitable and in order to stay in business, no matter what industry you’re in, you must become a general manager.
I don’t mean that you have to manage every aspect of your business yourself, but you must be familiar with all the aspects of your business and have an understanding of all of the processes that are going on in each department.
I go so far as to have key people in each department explain their systems to me so I can measure them.
Because if I can’t measure it, I don’t know if we’re being effective.
Where do most businesses run into trouble?
For all of the businesses that I’ve taken over and saved from potential bankruptcy, I always start by askingthe owner, “Do your employees know the condition of the company?” Every single time, I’ve been told, “Oh God no, If they knew, they would quit.”
Employers hide information, and not just in failing businesses but in most small and medium sized companies too. The employees simply don’t know what’s going on.
So the first thing I do when I take a company over is I call a meeting with every employee in the company and I tell them everything that I know, the good, the bad, the ugly.
I’ve never had any employee quit.
Most of the time, what I’m told by the employees is that first, they really appreciate me telling them where the company is, and second, that they already knew that the company was in trouble. And that’s a scary position to be in. Fear without knowledge is a horrible thing for anyone.
People aren’t stupid, so if you think you can hide information from your employees, they’re going to find out regardless.
The next thing I do is say, “We’re going to come together and we’re going to create a plan” and you immediately see a rolling of the eyes and everyone thinks Harvard Business plan.
I then explain to them, “No, this is like a football game plan, we’re going to lay out who is going to do what, to whom, when, and for how long, for the next 90 days. Then we’re going to break that into 30-day day increments, and then we’re going to break it into weekly increments so that we can measure where we are.”
Not once have I gone into a failing business that had a plan that was created by employees and managers together.
But here’s the thing, the employee is the best person to ask what is needed in their individual department or their particular job. I keep the hurdles out of the way so they can focus on what they do best and I teach them how we’re going to measure their impact.
In essence, businesses run into problems when they don’t have a plan that’s shared by every single person in the organization.
What types of businesses have you helped in the past?
I’ve taken over automobile dealerships, truck dealerships, electronic manufacturers, research and development companies, a chain of restaurants, manufacturing firms that have manufactured plastic products, welding robots, oil and gas transmission equipment, marine pipeline equipment, the list goes on.
There have been a number of companies that have been in excess of $300 million a year in sales.
It doesn’t really matter what the business model is or what industry it is because the company team knows the business.
All I need to do is measure the processes and put together a plan that we can measure and monitor on a daily basis. I call it headlight accounting and I teach that.
Can you tell us more about headlight accounting?
Most companies operate on a monthly profit and loss basis, meaning that they plan business activities around how well the business performed the previous month. The problem with that is that it can take a week or more before you have your end-of-month financials in order.
What if someone in your company started making a huge mistake on January 1st and you only came to realize that 40 days later on February the 10th?
I refer to that as tail light accounting.
If it’s important to your business, you shouldn’t be looking into the past to get an idea of where you need to go.
That’s what my plan addresses using headlight accounting. It tells us where we are today so that we can see where we’re going. It’s as simple as that.
The most important thing I can stress about the turnarounds I’ve been involved with is that I have never brought in new people and I have never brought in new money. Everything that was needed to fix these companies was already in place.
How can the principles in Strengthen Your Business help healthy businesses?
Just because your business is healthy now doesn’t mean that it’s immune to failure. Many of the business I’ve been involved with were really successful companies before hitting a rough patch. Strengthen Your Business, as the name suggests, is about implementing the strategies and procedures I use to save companies at the edge of bankruptcy as a form of failure insurance.
This book isn’t for failing businesses, it’s for those that are perfectly healthy.
But it’s also for anyone just thinking about starting a business.
“It’s my hope that someone about to start their own company reads this book and thinks, ‘My god, I didn’t realize there were all these pieces and parts to running a successful business. Maybe I’ve got to wait and learn.'”
Here’s an example to really illustrate why the principles in my book are so important:
Two ladies had worked at a bakery for 20 years and they told me they had always wanted to have their own bakery. I said to them, “If I can be of any help, please let me know, I’d be glad to help you with your business plan.” They thanked me and that was the end of that.
They then went to the bank, took out their personal savings and a loan, opened up their bakery, and found themselves broke in less than 12 months. Why?
Because the only thing they knew how to do was bake.
“People need to understand the components of running a business before they jump in.”
How do you get into the business of helping to fix failing companies?
I grew up in the automobile industry in Nashville where my father ran a dealership, so by the time I started my own automobile business at the age of 21 I thought I knew it all. I was gung ho and aggressive and the business just did super. I also had farms and raised cattle with my father which had done well, so I was making really good money.
One day when I came into the bank to pay off a loan the banker said, “You know, I’d like to work with you on some of this, be your partner, I’ll provide the money.”
We split the business 50/50, but I could literally write a check for any amount and he’d cover it.
Well, this went on for a couple of years and my businesses were doing great, but then we had a recession. I was 23 years old and I quickly realized how ignorant and lacking in overall general management experience I was.
To make things worse, about the time this was happening, my partner fell over dead with a heart attack.
Here I had massive loans for real estate and not enough cash to cover the payments.
I crashed and burned.
“At age 23, I went from having a very decent three-quarters of a million dollars to zero net worth.”
This was in 1970, so that would probably be around three or four million dollars today.
I fell on my flat on my face, but a friend of my parents who was a very wealthy business man in middle Tennessee had recently retired, so he came to me and said, “I’m going to make you my partner and let you take over all of my businesses and clean them up because I think you learned a very valuable lesson.”
So, for the next three years I lived on a shoestring budget while turning around this family friend’s businesses and when I was done, and after I had repaid all of my debts from my previous failed company, I started getting calls from banks, “Would you like to take a look at this business?”
They called me because if a business borrowed three million dollars and was close to filing for bankruptcy the bank realized that they were only going to get a million dollars if they moved against the collateral. They were going to have to write off two million dollars.
Well, I offered them a better option in that I would try to turn the business around and pay back all of the debt in the process.
How did you find the resilience to keep going after losing $750,000?
I was raised by depression-era parents that were very optimistic, very aggressive, and my mother used to tell the story about a man and his son walking down a dirt road on their way to church and the little boy slips and falls into a mud puddle and his dad looked down at him and said, “Now what are you going to do?” The little boy said, “First thing I’m going to do is get up.”
I think that has always stuck with me.
“You know, I never have had time to be a pessimist. Anybody can be a pessimist, it takes guts to be an optimist.”
But I also have more practical strategies. Even in today’s world of wonderful computers and all of the tools that they provide, on my desk for 52 years has been a day planner, and each afternoon before I leave the office I write down what I am going to do tomorrow so that I can measure my progress.
I was very, very fortunate early on to realize that I wasn’t as smart as Barron Woods going through school, getting my MBA. But I also realized that I have a lot of endurance, and if I used that endurance to plan, I could pass a lot of the people who I knew to be a lot smarter than me.
So you’ve got to have a plan, you’ve got to know your limitations, and you’ve got to have optimism.
What business are you most proud of saving?
I took over an international engineering company working in deep water pipelines worldwide as well as being a primary subcontractor for Weston House Nuclear Corporation. In addition to that, this company was on the brink of an invention for robotic welding technology, but the company owed a group of banks several million dollars.
These bankers came to me and told me they would give me 30 days to go in and see if I thought that I could turn it around. When I first looked at it, I thought there was just no way on earth this would work.
I started looking at the contracts that they were working on and it turned out the previous owner had lied to everyone, the employees, customers, suppliers and vendors. It was a mess.
But I thought I would at least try. So the very first day after having looked at the contracts, I told the employees that they were going to have to create a 90-day plan in the next 24 hours for how they would run a profitable company.
I then called three major customers, one in Italy, one in France, and one in Saudi Arabia and I told them I was coming to see each of them.
I flew to Italy first and sat down with the managing director and showed him my plan, showed him a list of bankers that I had worked with on turnarounds in the past, and told him I needed him to advance us a million dollars on his contract. He sat there and stared at me for a few minutes and replied, “I hope to God you can pull this off.”
Five minutes later, I had the money.
I went to France and Saudi Arabia and did the same thing.
Next, I went to the companies we owed money to and told them that all incoming cash would be used for operations while any amount above that would go directly to our payables accounts. So if we pulled in $100,000 and your company was 10% of our payables, then we’d write you a check for $10,000.
Now that’s a hell of a lot better than they would have gotten in bankruptcy court and all of them agreed.
The point of this story, and the reason that I’m most proud of having turned around this company, is that if you’re going to run a successful business you have got to get rid of the ego.
I don’t have any problem at all going to suppliers and vendors and saying, “Look I know that our terms are net 30 days but for the next few months, could you give us net 60 days to help us improve our cash flow?”
“You have to be comfortable asking for help and you have to rely on your team.”
I take maybe 5% of the credit for my success. The other 95% is the team.
What parting advice would Bob Bethel give to aspiring authors?
Anyone writing a non-fiction book should address their own experiences more than anything else. You won’t find any ratios or concepts or theories in this book, it’s all practical application of my own life experiences.
You are the only one who can write about your own life events as you experienced them. So stick to what you know and what you’re knowledgeable about.