4 simple truths I’ve learned in 10 years
By Andy Milligan, Founder, The Caffeine Partnership
10 years ago, Caffeine opened its doors to stimulate growth for its clients. In that decade, we have worked with impatient leaders from companies of all sizes and sectors, have interviewed many others for several books we have published and, of course, run a business which has in its own humble way grown steadily since we started.
It is fair to say we have learnt a lot from witnessing and experiencing ‘those two impostors’ of success and failure over that time. Here are the four most important lessons I have learnt. They will not surprise you but they are no less valid for that. They are my 4 Cs of Success.
1. Cash. Never run out of it. The business guru Jim Collins says that the most successful businesses keep a cash reserve around 3 x the value of their assets. As a co-founder of a strategic consultancy, whose principal asset is our people, I’d say that rule matches my experience. You need that cash buffer because at any time trouble can hit you. A bad creditor, a market downturn, a war, a change of government, a change of personnel at your customer or client, or a trend in consumer behaviour you did not spot. You never know what is around the corner. I conducted a consulting project for a then stock exchange darling. It was growing rapidly, had a pristine balance sheet, was profitable and its regular reports to the city were glowing. But, in truth, it was running out of cash. It operated in the contracted services market and much of its business was from government contracts which were highly competitive. It started making bids that seemed too low to be profitable, began recognising the value of some contracts before work had begun and before the client was actually paying it money, and even reported a loan as operating cashflow. It might have got away with it but when a new government came in and cut back or cancelled key contracts, the company went bust. It simply had no cash to sustain it. Crazy as it sounds, cash is more important than profitability. Amazon has been more unprofitable than profitable through all the years of its life. But it has always been able to find cash from investors inspired by its vision and growth. There are many reasons why cash is king but the most obvious one is that without it, you simply can’t do anything. You can’t pay staff, you can’t buy inventory, you can’t rent offices, you can’t produce marketing material, you can’t invest in R&D, you can’t pay your bills. Lack of cash remains the ultimate reason many businesses fail. Conversely, strong cashflows are what ultimately appeal to investors. Remember this mantra: Revenue is vanity, profit is sanity but cash is reality.
2. Culture. Protect and nurture it jealously. When I was starting in business, I heard a few management gurus talk about culture. One of course said “culture eats strategy”. I really didn’t know what they were talking about. That is because it is a ‘nebulous’ subject. As one of the great exponents of business culture, the legendary CEO of Southwest Airlines, Herb Kelleher said, culture is “like the Supreme Court’s definition of pornography, you know it when you see it but it’s hard to define”. For the last 15 years, since I co-wrote my first business-book, Uncommon Practice, People who deliver a great brand experience, culture has been something of an obsession of mine. It is that remarkable interplay of personal ‘chemistry’, competence and commitment inside an organization which propels performance and compels people to go beyond the limits of their contract. And it is the cussed, immoveable and invisible force that makes the best laid plans of MBAs and CEOs ‘gang aft agley’. Hard though it is to define, you need to write down what you want it to be. What are the characteristics of the people you want representing your brand? What is the environment you want to create for them? What is the experience you want to give them and your customers? And then develop the principles and policies to hire, fire, retain, develop, empower, reward and recognize that will distinguish you. Create a culture that gets talked about. Find ‘rituals’ and a distinctive language to dramatise the culture making it easier for people to explain what is different and special about you. Like Pret-A-Manger’s practice of getting store staff to vote on whether a potential employee is hired or Zappo’s offer of $4,000 to first-week recruits to leave. And be super selective in whom you hire. Southwest Airlines look for ‘a warrior spirit, a servant’s heart and a fun luving attitude’. It is apparently statistically harder to get a job at Southwest Airlines than it is to get into Harvard University.
3. Customers. Make them the centre of your decision-making. The very best businesses we have worked with or studied, are profoundly customer-centric. That does not mean that they have a slogan that says ‘customer first’ somewhere in an important-looking document. Nor does it mean that they just have a good customer services department. It means that they organize and operate so they can think about, anticipate, listen and respond to customer needs and trends. Their leaders spend time with customers, whether it be Harley Davidson managers spending time riding with HOGs (the Harley Owners Group), the CEO of Procter & Gamble visiting consumers’ homes, John Lewis senior partners having ‘buddy stores’ or the CEO of one of the world’s largest advertising agencies spending time in the hub centre of his client, a global logistics business.
They prioritise strategies and investment around the customer experience often taking bold decisions that demonstrate their commitment: O2’s transformative use of its sponsorship with AEG of the O2 Arena, Amazon investing in drones, Premier Inn investing in premium beds and modern air-con in all its rooms, are just a few of the many examples of businesses showing genuine commitment to their customer. Every great business understands this basic rule of business, eloquently stated by Joseph Cyril Bamford, the founder of JCB: “our customers can live without us, we can’t live without our customers”. No customers mean no cash.
4. Cause. Have one. You need a higher purpose to inspire people in your business. I don’t mean a CSR programme. I mean a sense that you are there to provide something of value that helps your customer and the world in which they live. And that sense of purpose has to be reflected in the way you handle your relationships with all stakeholders, including your suppliers as well of course as your own people. The very best purposes have a congruence between customer delight and societal insight. Like Lego and their purpose to invent the ‘future of play’ or IBM’s to use ‘information technologies to benefit mankind’ It does not have to be explicitly environmental, or democratizing or quasi-political, it can be implicitly human, serving and caring just by its desire to do something for someone else i.e. your customer. Make your guests feel brilliant by guaranteeing a great night’s sleep, may not sound like it’s changing the world but it’s making the people who stay and who work at Premier Inn feel much happier and that is a good thing in life.
So, we are left with these four: Cash, Culture, Customer, Cause. But the greatest of these is…well they are all equally important because no business can be successful if it is not focused on all four. But the most important place to start is with your Purpose, your Cause. The logic of your business ultimately flows from the reason you started it in the first place. The why you get up and go to work, the why you do a great job for customers, the why you build a great culture and the why you make sure you are earning and keeping the cash you need to grow, invest in and yes reward yourself and your people. Start with your Purpose, and stay On Purpose. That’s what I’ve learnt. It might not sound much but it contains the wisdom of a world of business.
Originally published at thisiscaffeine.com on April 4, 2017.