Thursday, October 18, 2007/
Ah, the power of leverage: it lifts Australian companies as easily as English cars!
Lift above your weight
The other day I was reminded of a little episode in my life when I was a young Government lawyer in Canberra. I bought a car from the Japanese Ambassador, a Humber Snipe.
I drove it to Darwin and smashed the rear springs. In those days, Darwin was not equipped to repair springs for expensive English cars so I faced the prospect of living in Darwin with my car in dry dock.
My fiancé’s sister-in-law knew people in Sydney who manufactured springs and her brother worked for Qantas so we arranged for the springs to be made in Sydney for peanuts and to be flown to Darwin courtesy of employee benefits.
Believe it or not I was teaching an English guy English and he was a maintenance man. He offered to help me fit the springs on this great big Humber and explained how you could lift the car by using a long plank pivoted on a wooden block and used as a lever. One afternoon’s work and the car was back on the road.
What does this have to do with growing a company? Well, you see, what reminded me of the story was a guy who wanted to borrow money because his business had a “cash flow” problem. Whenever I hear that terrible phrase I worry that the problem is a symptom that the business is travelling poorly and is not generating enough money to pay the bills.
So I said to this guy: “How are you going to leverage the funds if you are able to borrow them?” He didn’t know what I was talking about so I told him the story that I just recounted.
Growing your business is about leveraging every resource at your disposal. There is no point in borrowing money if you can’t see that it will leverage your financial strength to produce more cash. If you want to elevate the rear of a Humber Snipe, you have to leverage your strength otherwise the two tonnes will kill you.
When you think about getting the car back on the road two thousand miles (which was the measurement used in those days) from civilisation, I was able to leverage my relationship with my future wife, her brother and the relatives of her sister in law.
I was able to leverage my relationship with a maintenance guy who needed to learn to write an essay. In the end, I didn’t need much money, just the ability to identify the resources that I could leverage to get the job done. I grew something that was way beyond my own resources by leveraging the resources of others.
Forgive this seemingly irrelevant diversion, but when I told this guy the story we sat down and worked out why he needed money and the real reason was to help him pay the bills. So I said that to do that would be the equivalent of me trying to lift a two tonne car by myself.
I would contribute enormous energy and waste every gram. The car would still be fixed to the ground and I would run the risk of causing myself serious damage. This means that before we borrow money we really need to know how we are going to leverage that money and if the answer is that we aren’t; then it would be foolish to borrow.
The real problem with the business turned out to be inadequate sales. The business needed to generate more sales revenue. In fact, when we looked at it, a 10% increase in sales would turn the business into a cash flow positive operation.
“Let’s look at what other resources we can leverage?” The guy couldn’t think of any. “What about your customers?” I asked him how often he communicated with his customers and he replied that this only happened when they came back with a fresh order.
To cut what is becoming a long story short, it turned out that he had a customer list but had never kept his customers informed of any developments in his business or of any new products that he had brought to the market. Hell! A simple newsletter to all of the customers on his list bringing them up to date with what was going on in the business coupled with a discount scheme; brought people back who had thought the business no longer existed.
It was a bit more sophisticated than that, but he learnt the lesson of leveraging. In this case, he didn’t need to leverage his money. He needed to leverage the relationship he had built up with his customers over many years.
Sometimes, if you just let your customers know you are in business and you need them to tell others about you, it is amazing the leverage you get. Sometimes, if we spend just a little bit of time thinking about the problem we will get many ideas of the resources that are there to be leveraged.
To read more Louis Coutts blogs, click here.
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