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Evolution Bookshelf: 3 Books Every Small Business Owner Should Read

3 Books Every Business Owner Should Read

 

Entrepreneurs and business leaders face similar hurdles throughout their careers – personnel conflicts, undefined business paths and financial woes. Industry leaders have analyzed these common issues and have come up with a variety of solutions – often filling the pages of books with their insights and lessons learned.

While there are many educational resources at your fingertips, the following list of books are our top choices for small business owners. While aligning with our process, The 5 Pillars of Business Freedom℠, these authors focus on unique approaches to deal with typical small business challenges, but more importantly, they offer solutions! Creating a more efficient, collaborative and overall successful business.

 

1. Simple Numbers, Straight Talk, Big Profits! – Greg Crabtree

Throughout Simple Numbers, Straight Talk, Big Profits!, Greg Crabtree highlights the most common financial errors committed by small businesses and how to avoid them. He gives his readers insight on how to manage business through numbers in, what reviewers say, is an easy to follow, step by step process. “Greg’s book taught me what to measure, when to measure it and what to do with the measurement,” writes Amazon reviewer, Robert Wagnon.

When it comes to measuring your business’ success, Crabtree says the key indicator is looking at how much you paid in taxes that year. Typical business owners spend money to save on taxes, but Crabtree explains this is not what you should do with your hard earned profits. You can only build wealth from “after tax” income, therefore every attempt to lower taxes lowers the company’s ability to create wealth. He implores companies to embrace paying taxes and keep what’s most important: the profits.

“The number one thing that moves cash flow permanently is profit,” explains Crabtree in our podcast, The Seven Simple Numbers for Business Success.  Crabtree tells us he has never had a problem getting a company financed that is profitable with receivables.   This, he says, is because profit is permanent and banks are aware of that when considering financing your company.

To measure your company’s success, you need to know the right data and how to interpret it. Crabtree presents four factors that can influence results when using numbers to measure success.

Crabtree’s 4 Keys to Unlock Business Potential

  • Owner’s Salary

An owner’s compensation can distort company data. In his book, Crabtree refers to co-owners celebrating a net income of more than 20 percent in sales. However, the co-owners were paying themselves a very small salary and taking distributions out of the business. “After I added their salaries and distributions together and treated this number as if it were a true market-based wage,” Crabtree writes, “They were actually only making 5 percent before taxes.

  • Profit

According to Crabtree, 10% is the new breakeven. If you are not making 10% in profits, you do not have enough after tax cash flow to fund debts to leverage business growth. “You need that 10% to get through a bad market,” Crabtree writes. In the eyes of Crabtree, 5% or less in pretax profit puts your business on life support, 10% means good business and 15% means great business.

  • Labor Productivity

Hire employees who are productive enough to justify their numbers. In his book, Crabtree writes that the key to measuring labor productivity is “gross profit per labor dollar,” or labor efficiency ratio (LER). “After you model your target for your LER, you will find that it is the most critical indicator for your profitability,” writes Crabtree.

  • Cash Flow

Set the right priorities to create a solid foundation for your business. The four core cash-flow forces are taxes, debt, core capital and distributions. Crabtree’s rule of thumb is that your core capital target should be two months of operating expenses without using your Line or Credit.

Crabtree focuses most on the Financials pillar of The 5 Pillars of Business Freedom℠. Incoming cash flow is the first thing business owners should focus on when setting company priorities. That includes, knowing when to expect customer payments; reporting daily, weekly and monthly finances accurately; and looking at key performance indicators to predict future spending and saving. Knowing this financial data will help business owners make better decisions for the future of their companies.

 

2. The 5 Dysfunctions of a Team: A Leadership Fable – Patrick Lencioni

In his book, The 5 Dynamics of a Team: A Leadership Fable, Patrick Lencioni focuses on creating a “healthy,” productive team dynamic in a workplace to achieve success in your business. He isolates five causes of politics and dysfunctions on a team and outlines the keys to overcoming them.

5 Causes of Politics and Dysfunction

  • Absence of Trust: Team members feeling vulnerable prevents building trust within the team.

  • Fear of Conflict: The desire to preserve harmony among the team prevents productive conflict.

  • Lack of Commitment: Lack of clarity or obligation prevents team members from sticking to their promises.

  • Avoidance of Accountability: Wanting to avoid interpersonal conflict prevents team members from holding each other accountable.

  • Inattention to the Rules: Focusing on individual success takes away from collective success.

“Great teams do not hold back with one another,” writes Lencioni. “They are unafraid to air their dirty laundry. They admit their mistakes, their weaknesses, and their concerns without fear of reprisal.” To have a successful business, Lencioni implores you need to have a great team.

A successful, high-performing team needs to:

  • Be comfortable asking for help

  • Take advantage of each other’s skills and experiences

  • Avoid discussing same topics over and over again

  • Make higher quality decisions to accomplish more in less time

  • Organize team around common objectives

  • Retain the best employees

These properties of a functional team lead to increased productivity, happier employees and a positive work environment. Readers agree, this should be a goal for every business owner. “I welcomed this book with open arms because I found it to be very useful and readily applicable,” writes Manny Hernandez, a reviewer on Amazon, “Now, comes my challenge in putting it to use.”

Lencioni focuses most on the People pillar of The 5 Pillars of Business Freedom℠. He agrees business owners should work to attract expert talent; choose teams that share values, vision and passion’ and have stakeholders who provide opportunities and share resources.

 

3. Traction: Get a Grip on Your Business – Gino Wickman

In Traction: Get a Grip on Your Business, Gino Wickman explains ways to run a company with more focus, growth and enjoyment. Ideas that appear to be simple to accomplish on the surface, are oftentimes difficult for business owners to achieve in the scheme of things. Readers say Wickman gives them the tools to succeed in taking control of your business’ success. “Traction is incredible in its simplicity,” writes Mike Kotsis on Amazon, “The tools and process laid out in this book are essential for EVERY entrepreneurial business to embrace on their journey of growing their business.

Wickman starts with the common hurdles among industry leaders: lack of control, people problems, money, hitting the ceiling and nothing working. Wickman lays out 6 key components to any business, called the Entrepreneurial Operating System (EOS) Model.

6 Components of the Entrepreneurial Operating System Model

  • Vision: Set core values that are principles that guide your company’s culture and primary focus.

  • People: Put the right people in the right seats and take advantage of your employees’ skills.

  • Data: Boil your organization down into a handful of objective numbers.

  • Issues: Strengthen how you solve problems and come to a solution quicker.

  • Process: Identify and document a core process that defines the way you run your business.

  • Traction: Bring discipline and accountability to your company.

“To the degree you focus on strengthening these Six Components as leaders and managers, everything will fall into place. That will move your business into the top 5 percent,” writes Wickman.

Wickman focuses on the Accountability & Transparency pillars of The 5 Pillars of Business Freedom℠. Wickman agrees that to achieve success business owners have to set a path for their company, aligning and focusing on those set goals, and including all stakeholders in the planning process.

We hope you find these books helpful in your pursuit to create a stronger, more productive and collaborative work environment. Check out additional titles here on our bookshelf.

 

Want to learn more about growth strategies for your small business?

Contact Evolution Capital Partners at (216) 593-0402 or by using our online contact form.

Posted by: Brendan Anderson

A co-founder and managing partner at Evolution, Brendan has spent the past 20 years as an investor and manager of businesses ranging from manufacturing to financial services. @Brendan_Andersn

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