I haven't surveyed the topic, but anecdotally I would think that risk is at the top everyone’s mind when it comes to conducting business, whether you are a startup or celebrating your 40th anniversary at the venture. For each person there is line drawn for what is acceptable risk vs. unacceptable risk. Motorcyclists who pay attention during safety training understand the concept. While the State may require a helmet, a helmet offers no protection for a person’s hide should he take a spill, and skin cannot always be replaced. But a leather coat, gloves and chaps are uncomfortable in the hot summer; so many riders decide that riding without personal protection is an acceptable risk.
Owners make similar decisions involving not just their own hides but also those of their employees and sometimes even their clients. Often especially in a startup there is the temptation to take risks. For example, at window cleaning high rise buildings, there were times when we were hired to do units in condominiums. There is quite a bit of work involved in setting up a counter balanced anchoring system required by OSHA for climbing gear. The circumstances were sometimes tenuous; some of the condos had very expensive furnishings and very little space to maneuver. The right thing to do would is to move everything from the high-rise into storage. But the cost of that scenario is often more than the customer was willing to pay. There is a good chance a company can get away with circumventing the rules. If caught, however it is just as likely that your insurance agency will drop your liability policy; you’ll face steep fines and some ugly publicity.
I definitely wouldn’t want to sound like a business owner encouraging violations, not a good thing. But you may find yourself in a similar situation bootstrapping a business with limited capital. It is best to perform first rate workmanship and maintain a perfect safety record. Cut costs in other ways. You have to. Can you guess why?
Here is the thing: If you do what most people do, you get the results that most people get. That is missed opportunities. Sometimes you have got to step out of the box and figure out how to use the resources at your disposal in the most efficient way you can if you are to reach your goals. But if what you are planning is unlawful it is unacceptable risk.
Another example, when I opened my second pawn shop, I needed a place to shower, so I put one in the building in an area occupied only by me. With the setup I had the shower was set on a pallet so that it was temporary rather than a permanent structure. There is no way I could have gotten a building permit to install that shower permanently. But I found a solution that worked so that I didn’t have to travel away from work to take a shower. I slept on a sofa and cooked using a microwave. These are the sacrifices one (who doesn’t seek investors or partners) makes to keep the cash compounding and the business growing, until you don’t have to anymore.
I consider myself to be a good man, and I believe in Karma, that we reap what we sow. Bad choices boomerang to get us in some other way. For one thing when we do not take the moral high ground we set a less than perfect example for those working under us. You know I started out very young as an entrepreneur (just seventeen) without much guidance from more experienced people. I was a rock back then, little penetrated my thick skull. Over the years I made just about every mistake, and from the lessons of trying and sometimes coming up short I learned to think through the contingencies. The point is I don’t make it a habit to run amok of the rules. If you plan to stay in the game neither should you. Actions have consequences, and it is always safer to take the moral high ground.
Do you believe in the rule of law? I believe in the rule of law, I don’t advise you break rules. But should I be a hypocrite and tell you that I have broke not a single rule? So if you do plan to take a shortcut, however innocuous it might seem I urge you to take a second and third look. Best yet find trusted counsel and discuss it with him or her before you commit. You need to understand the risks and the penalties and moreover be prepared to pay them. If you can’t afford the costs of the mistake, don’t go there! What did I say at the beginning? If you do what most people do you get the results that most people get. I wound up with leading companies in their respective markets. Most don’t it is just that simple.
Most people don’t do without a comfortable living space. When I was starting my window cleaning operation in Las Vegas I had a camping topper on my Big Horn Dodge Pickup and slept in the desert under the stars. I registered my business as a trucking company legally getting around the need to have a physical address to get licensed to do business in Nevada State Government and Las Vegas proper the city. I also picked up licenses for both Henderson and North Las Vegas just to be safe. Again the business succeeded. I also concurrently owned two pawn shops in Michigan at that time. I didn't have to put myself through all of that. I did it to prove that when I told someone that they could make it despite the economy, it was true. That was how I started a company in a major primary market on a budget of only five thousand dollars. Unemployment was 16% in Las Vegas at the time. I set an insane budget and rigorous schedule.
Don't tell me it can't be done, I have done it in good economic times and in the worst times since the Great Depression.
Until I had steady contracts I ate just one full meal each day and even then only if I had revenue that day. There was just one day when I couldn't eat that meal. It was emotional hell going without, especially knowing that I had a debit card in my pocket and could eat anything I wanted with one swipe. overcoming risk is mostly a matter of discipline and strength. It just takes that first little bit of money, and the knowledge to know how to leverage it to start the multiplication process. The same thing (bootstrapping) can be accomplished with even less money given more time. The whole story is in my book Cleaning for Profit, including an email I sent home at my lowest point in the experiment.
More recently in Seattle we rolled out a much bigger operation in a different line, I leased an expensive space from the very beginning, like most people would, made myself and my team very comfortable. We closed the doors a year later when we had burned through our capital. It was a bad market,I know that and I took the risk anyway, I had grown complacent and soft. I tried to do what most other people do, and guess what; I got the results that most people get.
This is why it is so important to think in terms of the Strength, Weaknesses, Opportunities and Threats (SWOT) when it comes to every single decision. I do not like cheaters anymore than the next guy. My personal value system which became my company culture has always been based on doing what I promised to do. I never cut corners on the quality of my workmanship. Customer service has always been my first priority. If I can't do a task well and quickly enough to make money, than I don't offer it to the public. Also I test everything before I hang a open sign. A low Throughput in many businesses is a risk, and the higher your throughput (Start to finish) the more likely you will have satisfied customers.
After passing the Builders exam in Michigan I began to act as the general contractor for other tradesman. I learned a ton about project management from those guys. Everything had to be itemized and specified in our work orders. Progress was reported to Insurance Adjusters and Building Inspectors as well as close communication with the property owners. There are rigorous standards to uphold working in hazardous circumstances with sewage backups, gray water from rivers and freshwater flooding mostly from failed hot water heaters. My initial response and containment crew wore hazmat suits to protect them from water borne and blood borne disease. Once you have seen fecal coliform indicatororganisms under a microscope, trust me you don't want a bunch of Rotifers and Nematodes crawling all over you.
There are numerous potential electrical and gas hazards in wind damaged, fire damaged and flooded homes. The insurance industry depends on prudence and lawful transactions to mitigate their own exposure so I hired only other licensed and insured contractors, those who performed first rate work. Even my cleaning technicians were trained according the standards accepted by the IICRC. You don't treat fire residue which burned plastics the same as one that burned only wood. Those webs you see when you walk into the room are not spider webs, you need to know how to remove them and save as much of structure and contents as possible, we always followed established protocols when handling materials that posed a risk to public health. We built pressure differentiated containment areas in situations where airborne pollutants might escape. In disaster response risk is routine and mitigating risk becomes a way of life. Whether it is a board up or a complete renovation there are protocols to follow which prevent liability. I never had a single lawsuit or a safety violation in nearly twenty years in the cleaning industry.
I lost only one contract and it was when I was on a trip from Michigan to Minnesota picking up equipment I had bought on eBay. My office worker made a bad call and we lost a four hundred dollar a week contract. Her salary fixed the cash flow issue and I began to answer my own calls again for a while. That kind of risk is called “opportunity loss” The chance to get a great deal on carpet cleaning machine was a risk to my operation (which I of course knew something could happen) but I lost on that deal because I didn't assign enough value to the risk of leaving at that point. It was a bad call since the person I left in charge was not able to look after my interests with due diligence while I was gone.
But the biggest risks of my entrepreneurial career were in the pawn industry. Marginalized and desperate people can understandably be disagreeable and sometimes hostile. They aren’t always keen on keeping their commitments. When pawns go past their due dates we had a grace period and a timeframe in which we expected a call from the client should they need an extension on their loan. Sometimes people would show up weeks late and by that time the items had been processed and were either out for sale in the shop, or had sold already. It was unfortunately all too common to have someone yelling and screaming; usually I could explain my side of the equation and calm them enough to get them out of the door. I was always very clear about our agreement. It was in writing and I had creative cartoons explaining the rules right on my countertop in the shop. Other times I had to show people the door with a bit more enthusiasm. But you know the same kind of thing happens at banks and people lose much greater value with assets when they can’t pay for them. That is what I mean by my saying that we all share the same responsibilities for our commitments.
We also had a lot of cash on hand and everyone knew it so I was always on the lookout for armed confrontation. Security was a major priority. Cameras and monitors were just the beginning. You see some real characters in that business and you are always managing the risks. More pawnbrokers are killed in the USA than any other occupation aside from taxi drivers. The risk in pawnbroking is extremely high but then so are the rewards.
The pawn brokers operate in one of the best regulated industries. You don’t see police walking into the vaults to take inventory on Wall Street, (perhaps someone should). Every transaction is documented with pictures, serial and model numbers, the color of the item. People are required to show a valid state ID, furnish their fingerprint and so forth. All of the transactions are numbered.
Pawnbrokers are constantly in contact with Detectives who are investigating thefts and Insurance scams. When you find out that you've shelled out five hundred bucks for a 72 inch flat screen television that turns out to be hot trust me you do not go to your happy place. The item goes into a police evidence room and if the case goes to trial you must then march into Court and point at the thief. The business is not for the faint hearted.
In the instance of finding something you have bought or pawned is stolen, typically someone comes in looking for it ten minutes after you've bought it, the risk is that if you do not immediately report the incident you are guilty of receiving stolen property, a serious crime. It is a no brainer. There are dozens of rules to know and follow in this industry. For instance, if a serial number looks like it has been tampered with, it is unlawful (and unethical) to accept the item as collateral for a loan.
Then there are the smaller risks at pawnshop ownership as well, for example determining the genuine articles from the fakes. It isn’t really like on television where you have the time to call in an expert on every transaction; you have got to know how to tell a real Rolex from a phony one. You have got to know about jewels, gaming systems and a great many items.
How many air conditioners will you need for the summer season? You have an inventory control system and history , but the most accurate statistical forecasts depends on things being the same in the future as were in the past and that is not always the case. When a heat wave hits unexpectedly you will have too few air conditioners to meet demand, if you go in too deep on any particular item you will have an aging inventory. Managing inventory and buying decisions involve other types of risk too. (Topics thoroughly covered in Back Room Pawnshop Deals).
One of the greatest risks to any company is staffing. In “Cleaning for Profit” I share the story of what can happen when you fail in due process to perform a background check. Also what to do to salvage your reputation when you suddenly find out that you have a dishonest employee. I am happy to say that I am one who learns from my mistakes, after the first time I got stung I didn’t stick my hand back into the hive to expose myself a second time. It is better yet if you can manage to save yourself the pain and avoid the first instance. My hope is that my candid articles (and books) will help you to do just that.
The last thing I want to say about risk is this: What is most risky in life is sitting on your money and doing nothing. None of us are getting out of this life alive. At least in business you have more say in the direction your life takes, and you are working to build your own equity and security rather than for someone else. Ownership in my opinion is less risky than winding up old and broke because you simply couldn’t save enough working for somebody else to have a decent retirement.
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