SUPER MOVE #19 – Incentivize cost-saving strategies by team members
Reward your staff for saving money. Any time a member of your staff saves you money on a recurring expense, I would recommend that you make it standard policy to give them a bonus of 10% of the savings, paid out one time. Southwest Airlines has created a culture where the members of the team are so focused on cutting costs that it has become almost legendary.
When Southwest Airlines flight attendant Rhonda Holley was helping to clean up the plane by collecting all the empty cups from the cabin of the Southwest Boeing 737, she discovered that the Southwest logo was being printed on the trash bags. When she saw this, she had two quick epiphanies. 1 – Passengers knew what plane they were on whether they saw the logo on the trash bag or not. 2 – Trash bags are always immediately thrown away after use and no passengers see them again. She wrote into the Southwest leadership team headed up by Colleen Barrett to see how much money it was costing the company on an annual basis to print the logos on the trash bags. Colleen Barrett called her and famously said, “You’ve just saved us $300,000 a year. We’re not going to be printing logos on the trash bags anymore.”
SUPER MOVE #20 – Use variable based and merit-based pay systems everywhere
You want your expenses to go up as your revenue goes up and down when your revenue goes down until you know your unit economics well enough to not lose your shirt by overpaying for everything. Whenever possible, don’t pay people a flat salary. Pay your people based upon their weekly performance. When people get paid bonuses based upon their weekly performance, the small details matter and most people work hard to earn their bonuses. When you pay somebody a flat amount or an hourly amount, you will find them cutting corners to go home early, to extend their breaks, and to invent incredibly creative ways (also known as lying) to justify the insane pay sheets they are turning in.
Unit Economics – the direct revenues and costs associated with a particular business model expressed on a per unit basis. For instance, in a consumer Internet company, the unit is a user.
SUPER MOVE #21 – Set a good example for your team by not buying crap that you don’t need
In the world of business, everyone judges you based upon what you do and not based upon what you say. So when you, as a leader, sit down on your golden throne and sip the most expensive alcohol you can find from your golden chalice, it becomes very hard for people to take you or your cost-cutting initiatives seriously. By flying coach when possible and taking your staff out to eat on business trips at Outback and not a super-high-end steakhouse, you will set a powerful example for your team.
Notable Quotable: “You can’t build a reputation on what you are going to do.” -Henry Ford
(The famous entrepreneur who revolutionized the automobile industry with the creation of Ford Motor Company and the mass use of the assembly line concept of production)
SUPER MOVE #22 – You must become obsessed with incrementally improving your margins as you grow your brand
Over time, you will find that customers will become increasingly loyal to your brand and when they do, you want to reap the harvest from the sweat equity you’ve put in over the years by incrementally raising your margins. I am going to drop three knowledge bombs on you that will blow your mind when you realize the power of a well-maintained brand backed by incremental pricing increases. Get ready.
This comment infuriated Jay-Z and he began looking for a new champagne to rap about (and a company that he could own behind the scenes). Later that year, he featured a bottle of a new type of champagne that no one had ever heard about in one of his trend setting rap videos, “Show Me What You Got.” Over time, this new brand of champagne called Armand de Brignac, nicknamed Ace of Spades because of the large and very prominent logo on each bottle, was introduced into the marketplace. The people at Cattier, the company that produces the champagne, said of the new brand, “(Armand de Brignac) making its North American debut this year, after enjoying success as a premium, high-end brand in France.” Although the brand was later discovered to just be a rebranded version of the $60 per bottle Antique Gold that Cattier had discontinued in 2006, it is still flying off the shelves – at $300 a bottle.
Once this revered rapper who is worth approximately $550 million (according to Forbes) told the world they should be drinking a $350 bottle of champagne, the world began to buy the champagne and actually felt good about it. This, my friend, is proof positive of the value of incrementally raising the margins of something based upon the perceived value of the brand.
In 1986, Dre met O’shea Jackson whom most people know as Ice Cube and began collaborating with him on songs for Easy E’s record label, Ruthless Records. Soon they formed an iconic gangster rap group called N.W.A., which that lasted until 1991 when Dr. Dre decided to leave the group at the peak of its popularity. After he left, he founded Death Row records with his bodyguard at the time, Suge Knight. Death Row records produced hit after hit for Snoop Dogg, 2Pac, Dr. Dre himself, and countless other artists.
After leaving Death Row, Dre started his own label called Aftermath Entertainment. He signed Eminem to a recording contract in 1998 and 50 Cent to a contract in 2002. As a Grammy-winning recording artist who has stayed relevant for nearly three decades and as someone who is known for having a great ear for music, I believe that Dre is justified in pricing his headphones for $300 per pair if people are willing to buy his brand. In fact, so many people bought his $300 headphones that Apple ended up buying up Beats Audio for $3 billion dollars, keeping Dr. Dre on staff in a senior leadership position.
Now despite having been retired for nearly 15 years, Jordan still earns over $100 million per year largely from endorsement income, like the income he derives from the Jump Man image that he co-owns with Nike. He and Nike have incrementally focused on raising margins as they have grown the brand’s perceived value.
“Nike and Reebok produce most of their shoes in South Korea, Taiwan, China, and Indonesia. With their minimal production costs, basketball shoes are quite profitable. The wholesale cost of the $130 Air Jordan is $68.75, said John Ruppe, Nike’s manager for basketball-shoe marketing. The cost of making them is about $30.”
I don’t care whether you are an artist, a bakery, a dentist, or a plumber. You must become obsessed with incrementally improving your margins as you grow your brand.
SUPER MOVE #23 – Focus on profitably creating value for your ideal and likely customers in a profitable way
When I built my DJ business, I actually used to feel guilty if I wasn’t DJing weddings on Saturday nights. I used to feel bad when I didn’t get a chance to personally do sales presentations because I felt like I was worthless. However, once I discovered that I was never going to achieve my financial freedom or my time freedom goals by spending my days and nights DJing and doing sales presentations, I became 100% committed to building duplicable and scalable systems that have the capacity to deliver value to my customers and profits to me and my team.
You must not lose focus of this concept, though it is easy to do so because people celebrate hard working small business owners as if they are the only true non-capitalist pigs in the world and they vilify large businesses as though the owners of these companies wake up each morning wanting to steal ice cream cones from little kids and punch unsuspecting sweet old ladies. It should be your goal to make enough money to achieve financial and time freedom. That is not a bad thing.
Notable Quotable: “Great companies first build a culture of discipline . . . and create a business model that fits squarely in the intersection of three circles: what they can be best in the world at, a deep understanding of their economic engine, and the core values they hold with deep passion.” -Isadore Sharp
(The founder of Four Seasons resorts)