3 Things Business Schools Teach that Every Owner Should KnowYou don't need to go to B-school to run a business, but it pays to learn these three key lessons.
Of course it doesn’t take formal business school training to start or run a business. Like all business owners, I know well how much of what it takes doesn’t come from a classroom.
Still, here are three things I learned in business school that have helped me a lot during decades of starting, growing and running my own business.
Profits aren’t cash in the bank
On the surface it seems simple: Sell something for more than it costs to make, and you make money. Standard accounting calculates profits by taking sales and subtracting direct costs and operating expenses.
That, however, is dangerously simple for running a company.
Profitable companies go under all the time. Watching profits alone ignores the impact of factors that can kill cash flow, including spending on inventory, waiting for clients to pay invoices, paying your own bills too soon, repaying debts and buying assets.
The fact that profits aren’t the same as cash in the bank is one lesson way better to learn in a classroom than on the front lines, with business survival at stake. Do some reading, take an online course, dedicate an hour or two to understanding the workings of cash flow. Make sure you know how rapid growth can suck up working capital and leave you missing payroll, and how to watch key ratios for inventory, Accounts Receivable and Accounts Payable.
Real target marketing
We all think we know what target marketing means. But real target marketing, what they teach in business school, is way more powerful than what we’re all usually thinking.
Trying to please everybody is a classic mistake. So target marketing starts with pinpointing one or more kinds of standard buyers (call them personas) and getting to know their type extremely well.
It’s almost like writing a character in fiction: You give your ideal target buyer age, gender, favorite media, purchasing power, career type, and even preferences in food, transportation, music and entertainment. And you keep that persona in mind as you customize not just marketing message, media and channels, but also the product or service offerings themselves.
Are you really applying target marketing to your business? Test yourself. Can you immediately tick off kinds of buyers who aren’t in your market? Can you immediately cite features of your product or service that appeal to target market personas but not to everybody? If not, you might want to do reading or take online courses to find out more about real target marketing.
Simplifying complex decisions
We business owners often jump into problems too fast and too far without the benefit of putting them into larger context or considering carefully when is the best time to act. The much-maligned MBA mentality of looking at decisions structurally can be very helpful at times.
For example, despite how much we all honor decisiveness, sometimes the best move is to delay a decision. They teach that in business courses. When more information is coming and there is no penalty for waiting, the smart move is to hold off. That’s hard on most of us but a good lesson to keep in mind. And it illustrates the kind of structural approach they teach in school.
Quantifying problems can shed light on solutions. I once had a controller propose we require faxed signatures for all orders from outside the United States. She wanted to solve the problem of chargebacks, related to credit card fraud, which were twice as likely with the international orders. However, when we restated the problem in numbers, the international fraud problems were costing us a few hundred dollars a month, while international sales were running at more than $30,000 a month. We would have seriously hurt that $30,000 sales stream to solve a $600 problem. And that could be a classic business school case.
Editor’s note: Tim Berry is a business plan expert and blogger. He is founder and chairman of Palo Alto Software, founder of bplans.com and author of business planning software and books including “Lean Business Planning.”