"Read odd stuff. Look anywhere for ideas." Tom Peters
Norm Brodsky had already launched seven successful businesses by the time he began writing the Street Smarts column in Inc. magazine with Bo Burlingham in 1995. The column has twice been a finalist for a National Magazine Award. In 2008, it received a gold Azbee award from the American Society of Business Publication Editors, for a ten-part series, "The Offer," about Brodsky's attempt to sell his companies. His first business, Perfect Courier, was a messenger service that he started in Manhattan in 1979. Within a few years, it was a thriving enterprise with offices around the country, landing on Inc.'s annual listing of the 500 fastest-growing private companies in America for three consecutive years. But as fax machines began appearing in more and more businesses, Brodsky realized that his company's prospects were limited, and he began looking for other opportunities. A request from a customer looking to store some boxes prompted him to call several records-storage facilities in the area. Their responses convinced him that the industry offered great promise. He proceeded to launch CitiStorage out of a rented warehouse in Long Island City, N.Y. He later moved to the Brooklyn waterfront where he began building warehouses of his own. Today those warehouses contain more than 3.5 million boxes. In 1999, Brodsky launched a secure document destruction business, U.S. Document Security, as an adjunct to CitiStorage. In December 2007, he sold both those companies, plus the delivery business, to Allied Capital for a reported $110 million. The combined entity is still run by the management team that Brodsky and his wife, Elaine, developed over the years, while he and his erstwhile partner, Sam Kaplan, work on acquisitions.
Bo Burlingham is an Inc. editor at large. He is one of our Cool Friends and the author of Small Giants: Companies That Choose to Be Great Instead of Big.
Norm Brodsky is coauthor with Bo Burlingham of the book The Knack: How Street-Smart Entrepreneurs Learn to Handle Whatever Comes Up.
tompeters.com asks ...
Norm, you've become a mentor to businesspeople. How did that happen?
NB: About 15 years ago, a friend of mine was fired from his job and he wanted to go into his wife's home business. His name was Bobby Stone and he was a salesman. I guess the overwhelming percentage of people who start businesses are. But he and his wife had no concept of how to really run a business.
They asked me if I would help them. That turned into me helping six to eight people a year, pro bono, either start, build, or save their business.
The idea of helping people spoke to you?
NB: Yeah. I think God gives us all this information and if we don't pass it on, what good was it in the first place?
That's true. Your father was your first mentor. What did you learn from him?
NB: My dad was a custom peddler. That's a person who sells door to door on time. That doesn't exist anymore. He sold everything door to door: dresses, refrigerators. In those days, there were no department stores to speak of, and there was no credit or credit cards. So he would sell things on time.
I learned so many lessons, some of the great ones, from my dad. I once asked him how to price stuff. He said, "Well, it's real simple. Whatever it costs you, try to double it." I've kept that philosophy most of my life.
He taught me things that I didn't understand until I was a lot older. For example, I used to ask him, "What am I going to do when I grow up?" He would say, "There's a million dollars under your shoe." I never understood it, but now I do. He meant that there are so many opportunities out there; you just gotta keep your eyes open.
He also used to say, "Don't worry twice," when I was worrying about failing a test that was coming up. When I asked him to explain, he said, "Why worry about something that hasn't happened? Chances are it isn't going to happen. Why not wait until it happens to worry about it? That way, you won't worry twice."
One of the most important lessons was, "Never make a decision until you take a shower, and always take a shower in the morning." I thought, "What? Am I dirty?" But I figured it out. Now, when someone asks me to make a decision, that's what I tell them. It allows me to think about it overnight. I've lived by these principles most of my life.
NB: Yeah. They were brilliant from a guy who was a door-to-door salesman. He understood the basics of life.
Very interesting. How did you end up doing an advice column in Inc. magazine? I'm guessing this book is a bit of an offshoot of that column. Is that right?
NB: Yes, that's right. It goes back about 15 years. I was friendly with the editor of Inc., George Gendron, and Bo Burlingham at Inc. had done a piece or two on me. I went to lunch with George and Bo, and I mentioned that I was helping this couple, pro bono, with their business. George and Bo decided it would make a good story. Bo interviewed me and Bobby Stone and his wife, Helene, and wrote the article.
It was a cover story, and it got one of the biggest responses of any article Inc. had ever published.
NB: Tremendous response, oh yeah. A couple of months later, Bo came back to me and said, "The magazine wants us to do a column every other month. It would be in your voice." I agreed, but insisted that we write for the people I thought were really reading the magazine—not the Inc. 500 founders and CEOs but people who wanted to be in the Inc. 500, or wanted to start their own business. There wasn't too much written for them, in plain language that they would understand. If you read the stuff that Bo and I write, you'll find that it's really basic.
And I guess I was right about the audience because the columns got a tremendous response, so they asked us to write it monthly. I didn't realize what it would take to write a column every month, but we agreed. We've been doing it for 13 years. I think in the first five years we took off a month each year, but since 2001, we haven't missed an issue.
Of all the things I've ever done in my life, I think that those columns have probably been the most gratifying. It allows me to pass along the information I have to a large audience.
The story of the couple that you mention—they were featured in Inc. and your book—is a story about a salesman. Tom Peters has written a list of sales tips, and some of our other Cool Friends have written about sales [Paco Underhill, Stephanie Palmer]. We seem to have a sales-oriented culture here in America. Yet, you point out what's wrong with the sales mentality when you're going into business.
NB: First of all, I believe that the majority of businesses are started by a salesperson. Every time I speak to a group of entrepreneurs, I ask how many people come from sales. Seventy-five percent of the people in the room raise their hands.
When you're selling, the only thing you're interested in is making the sale. Everybody around you takes care of everything else, making sure the gross margins are okay, the overhead is contained. There's a lot more to running the company than sales.
So, if you're a salesman and you start a business, the sales mentality can get in your way. Most salesmen will sell to the lowest price if you have a range of prices. Why? Because they want to make a sale. They don't understand what's behind it. They don't understand what gross margins are. They don't understand what cash flow is.
The sales mentality is to make the sale at any cost. They say to the boss, "I know we're only charging $5 for this, and our going rate is $6.50, but don't worry about it. We're going to make it up in volume." That's a little inside joke. It costs you $5.50 for the product or service, but the guy wants to sell it for $5, and he says, "We're going to get 100 of these service jobs," or something like that.
That's like the first Internet bubble, "We'll make it up in volume."
NB: Exactly. We wrote a column that predicted the bubble would burst in 12 months, and it burst 11 months later. Take Urbanfetch as an example. They hired a bunch of bike messengers in New York. In those days, bike messengers were earning about $7 an hour. They were paying them $11.50 an hour. And then they charged nothing for the delivery. So, if you ordered a quart of Haagen-Dazs ice cream and it cost $7, they'd deliver it to you for $7.
NB: Yeah, they went through hundreds of millions of dollars, and their strategy was to make it up in volume. They thought that eventually, the guy who buys a $7 item is going to buy a $50 item, and it'd only cost them $25. They went bust. The guys who started that company had the sales mentality.
The truth of the matter is, you have to make money on almost everything you do. You can't give away your service or your goods. You can't do it with the hope of keeping customers. There are different levels of customers. A customer who is a very sharp shopper will always look for the rock bottom price. He'll never pay more for another item because he's going to find that rock bottom price somewhere else.
I know a woman who has a fancy clothing store here in Boston, and she says the biggest problem in retail is that people have been trained to shop for sales.
NB: It's true. But there is a market for her stuff if she has exclusive goods and she gives phenomenal service. That market may be small. You gotta know who your customers are. In our shredding business, for example, our sales people have said, "We have to lower our prices by 50 percent. This other company is offering shredding at 7 cents a pound, and we're doing it at 14 cents a pound." I said, "Well, that's a one-horse shop. They have one shredding truck. The owner drives the truck himself. His wife answers the phones at home. That's not our competition. Let them have their market. We want the people who want reliable service. They know if our truck breaks down, we're going to supply another truck. They know that we're going to be there with uniformed people." You have to know your marketplace. There are going to be people in the marketplace that sell for a lot less than you, but they offer a different type of service.
NB: That's exactly it. I look at it a little differently by saying, "Everybody is not your customer. You have to define who your customer is." That's when the sales mentality becomes a hindrance. If you can balance it with the other things you have to do in a business, that's what makes a businessperson.
That's the classic story of needing to have a person who has strengths that counter your own, like a number cruncher.
NB: Yes, except a lot of people don't have the luxury of having that type of person when they start a business. This is a learned skill, and that's what The Knack is all about. Anybody can acquire these skills. The book tries to show people how they can acquire some of them.
The couple we mentioned earlier, you write about sitting down with them and going through the numbers with pencil and paper. Why is that so important?
NB: Most people buy these canned computer programs on how to do a business plan. They think they need $200,000 to start their business. They plug in the numbers, and the program shows that they need $300,000. They don't have the ability to raise $300,000. So what do they do? They just go in and change the numbers. What have they accomplished? Nothing. This happens 100 times out of 103.
If you sit down and do this with pencil and paper, you start to understand the relationship between the numbers. "My gross margins are 40 percent and I want to take on more people. How much in sales do I need to accomplish that?" You start to understand the workings of the business. A business is run by numbers, period. It's important to understand that.
Too many people don't figure that out until it's too late. That's what caused my first downfall. I had the sales mentality. I took a business from zero to $100 million.
What business was that?
NB: A delivery business. It was an Inc. 500 company. It made the list three times. It made the Inc. 100 list once. It took me seven years to accomplish that. And then in seven months, I took it from $100 million to zero.
I learned a lot of my lessons from that. I focused on sales and figured everything else would take care of itself. It doesn't. We weren't like IBM with unlimited funds to buffer us when we made a mistake. That was a painful lesson for me.
That brings to mind one of your quotes, "It took a long and painful trip through Chapter Eleven to make me realize the dangers of becoming consumed by the business. Looking back, I could see that I had gotten in trouble in part because I had lost perspective. My business obsession had clouded my judgment and kept me from asking important questions about what I was doing and where I was going."
NB: That's life experience. I learned that business was just the means to an end. The question is, what kind of life do you want? You want to better your life for yourself and your family. I missed my first daughter's childhood, and I swore that I would never do that again.
I discovered through helping somebody that I had to have a life plan before I made my business plan. A young guy named Michael came to me. He had a business that was doing about $1.2 million. When I asked him why he came to me, he said, "It's simple. I want my business to do $20 million over the next five years. I'm only making $60,000. I want to double my salary. Last year I took two days off. I want to take a couple of weeks off. I want a bigger house for my family. I have two kids."
I told him to go home, talk to his wife, and find out what she wanted. After he did that he told me, "My wife wants the same thing, but she wants it in a little different order. She wants me to spend more time with the kids and have a vacation. It'd be nice to have more money and a bigger house, too."
Michael was in a local trucking business. I said, "If you want to take your business from $1.2 million to $20 million in five years, you'll spend all your time doing that and you'll lose your wife and kids. Sure, your salary will double, but you won't need a big house because you won't have a family. Why don't we look at what you really need to accomplish your goals?"
What he needed was to build his business to about $4.5 to $5 million to accomplish his life goals. I showed him that he could pursue the business goal of going from $1.2 million to $20 million, or he could pursue the life goal, but if he went after both of them, he'd fail at both of them. By setting his life goal first, we could then figure out what the business goal had to be, and it was more reasonable and achievable.
That night I went home and I said to my wife, "You know what? We don't have life goals." We worked on them together, and I built my business goals around them. It's amazing. I did it because this guy came to me for help.
The first goal I had when I went into business—the business that went into Chapter 11— was to have a $100 million company.
You picked an arbitrary, big number.
NB: It was a huge number at that time. Don't forget, it was in the '80s. The second time around, I built a business that did about $25 million in sales, but I built it right. I built it with great gross margins, and I just sold it in December for $100 million.
Look at the difference. I was trying to achieve my life goals, which weren't about money. And yet I achieved something that I would never have expected to achieve.
Right. You were older and wiser. You have more perspective now. I think it's hard for somebody Michael's age. He picked $20 million, as an arbitrary number, also.
NB: Exactly. That's the purpose of the book: they say that a smart man learns from his mistakes, but a wise man learns from other people's mistakes. I was a smart guy my whole life, and hopefully we can create some very wise people from reading the book. The objective is to have people think about where they're going. You can't guarantee success. I don't care how good your idea is or how much money you have. But if you understand some of the basics of building the business, the chance of success is greater. Businesses basically all make the same mistakes.
What's the biggest mistake?
NB: The biggest mistake is the improper use of cash. If you use your cash properly, you have a better chance of success. Cash is very hard to borrow. Most people start out with what I call Rolodex financing. They borrow money from friends and family, then they waste that cash. They buy new office furniture, hire people to do logos and fancy stationery. It's ridiculous.
One of the first articles we wrote was about a software company in California that came to me for help. They were just getting started and said, "We have to have an image." They rented a beautiful office suite, furnished it magnificently, and sent out invitations to potential clients across the country.
Now, who's going to go to California for the opening of a software business? I mean, think about it.
NB: Well, it's funny to you and me because we understand these things.
Branding has gotten so much play that people are just blinded by it.
NB: Exactly. You have to make money first, then you can spend it. Save a little for a rainy day, because rainy days happen all the time. None of this stuff is new. We just put it all in one place.
Throughout the book, you keep coming back to the basics about money, and how important it is to keep an eye on the money.
NB: Nobody's going to give it to you, and it's easy to lose.
Right. So many people have gotten into so much credit card trouble, you'd think by now, as a culture, we'd realize that it's much harder to pay back money than it is to borrow it.
NB: We all have a tendency to repeat our errors time in, time out. Call it the Groundhog Day Syndrome. When something happens that is detrimental to you or your company, sit down, take a moment, and think about why it happened. Take responsibility for it. Don't blame it on anybody else. And make sure that mistake never happens again.
People have this tendency to repeat the same mistakes over and over and over again.
Because they blame others or circumstances for what happened?
NB: Exactly. I'll give you an example. Our record storage business has a standard contract with an evergreen clause. That means that at the end of five years, if you don't notify us 60 days before the end of the contract, it rolls over. Fabulous, right? We decided to be ostriches, put our heads in the sand, and wait until the contracts rolled over to notify the clients, "Your contract rolled over, and we're increasing your prices." Pretty neat, right?
A few years ago, a fax came across my desk saying our biggest customer was now leaving us. I tried to reach my sales manager. It was a Friday afternoon during the summer, so it was impossible. I was ranting and raving.
I went home, and my 12-year-old asked me what was wrong. I told her she wouldn't understand, but she said, "Try me." So I told her the story, and she said, "It's your fault. Think about it."
I thought about it. That Sunday I told her she was right, but that I wanted to know why she thought it was my fault. You know what she said to me? She said, "Because, Dad, you're in charge." And she was right. I had a staff meeting Monday morning and everyone was waiting to get their heads chopped off. I said, "I made a mistake, and that's why we lost this customer. It's never going to happen again. Here's what we did wrong. We shouldn't put our heads in the sand. We should write our customers a year before the contract's up asking if everything's okay, letting them know that we are going to renew the contract, and asking if there is anything we can do." Because we did this and I took credit for the mistake, we found four or five things we were doing wrong. We had a whole year to correct them before the customers' contracts were up. So that's what I mean about taking responsibility for your acts.
That was a great lesson.
NB: From a 12-year-old.
[Laughter] Where's Art Linkletter when you need him? It seems that there's a cultural zeitgeist about getting back to basics. Perhaps it's the downturn in the economy.
NB: In 100 years, I don't think the basics of business have really changed. The way you do business does. My father ran his business the same way 50 years ago. He didn't use the words gross margins. Yet he knew enough that he wanted his gross margins around 50 percent. He didn't make rash decisions. He waited until the next day to make decisions. He knew that there was so much opportunity out there. You had to keep your eyes open for it. Has that changed? It hasn't. Sometimes people lose sight of those things, but those are great lessons.
What business are you in right now?
NB: I'm cleaning up a business that I sold in December and I'm looking for new opportunities.
What business did you sell?
NB: We sold the box storage business, and along with it, a shredding business. All our businesses are mundane. I have three criteria when I look for a business. The business idea has to be over 100 years old. I don't want to have to educate people, that's too expensive. Everybody knows that if they need to store a box, they call up a box storage company. Storage has been around as a business for more than 100 years. That's the first thing.
I look for a business that's somewhat antiquated, so I can bring it into the 21st century. That's the second thing. And I look for a niche in the business itself. That's the third thing. So if I can find those three criteria, that's the type of business I go into.
So what was your niche in the box storage business?
NB: Iron Mountain is probably the biggest storage business in the United States. Real estate, in the early '80s when Iron Mountain was starting to boom, was very expensive. They moved their buildings 40 miles outside of town. People who needed deliveries in a rush were forced to use the moving and storage companies with buildings close to town. But the building and storage companies weren't modernized like Iron Mountain was. Real estate collapsed in the late '80s, if you remember—
NB: So, when I started this business in 1990, I was able to buy relatively cheap real estate in town. I modeled the way I did business after Iron Mountain, but—because we were in town—we could get all the business from the moving and storage companies, whose business practices were antiquated. We drove that niche, and it was a phenomenal niche.
Interesting. It's been a real pleasure.
Email: brodsky13 (at) – aol.com
Slide show on Inc.com to accompany The Knack: 10 Things Every Entrepreneur Needs to Know