Brodsky on Business - Part 1

Norman Brodsky, a serial entrepreneur for over 25 years, is well-known to entrepreneurs through his “Street Smarts” column in Inc. Magazine. One of his companies was listed three times on the Inc. 500. Brodsky has also dealt with the downside of entrepreneurialism: He’s been through a Chapter 11 bankruptcy. He currently owns CitiStorage, an archival storage and retrieval company, and U.S. Document Security, which specializes in shredding sensitive materials. In addition to helping hundreds of thousands of businesses through his Inc. column, he has provided personal guidance for dozens of small businesses. Brodsky recently sat down with The Report editor Robert S. Levin to share some of his experience and wisdom. This is the first of a two-part interview. Part II will run in the Summer 2004 issue.

LEVIN: How important is numbers crunching when making business
decisions?
BRODSKY: Numbers are my life. I run a business by numbers, period. Probably one of the most important things is knowing your business, and the only way to know your business is to know the numbers. I get reports on all my business every week no matter where I am. After the business is going for a long time, by looking at three or four critical numbers, I can tell you how fast we’re growing, what our needs are, where we’re weak, a whole bunch of things.
In the beginning, following your numbers and tracking your numbers is very important. When I first went into business, what did I track? I tracked the number of calls and the number of sales.

I always tracked top line. Everybody tracks top line. Well, the lesson you learn the hard way, by going into Chapter 11, is that it isn’t really the top line, it’s the bottom line. And to get to the bottom line, gross margins are really important. Crunching numbers is probably the most important thing in running a business. And you don’t have to be an accountant.

For example, in the storage business, the number of new boxes we put away relates to lots of things, not just to the number of boxes. I don’t know what we spent, but there are [key] numbers I looked at. So I know, I don’t have a surprise. If you wait for your accountants, it’s a long time. [Even when statements are prepared] internally, I won’t get final statements until three weeks after the quarter ends. If you want to change something, you’re already three, four, five weeks behind. So I track some critical key numbers so I can make real-time decisions.

LEVIN: So you are analyzing past performance, even if it’s yesterday’s performance?

BRODSKY: Well, you know, past performance is critical to future performance.

LEVIN: Do you do annual planning for CitiStorage?

BRODSKY: We do annual projections. First, we do projections on what we think our sales volume is going to be. That’s important because knowing that, we can sort of decide what to spend. How do we get to that number? That’s real hard. We meet with our sales staff first and we see what their over-optimistic projections are. I don’t know if you’ve seen it, but we’ve got a hat around here with “5504” on it, which means they want to put away a half a million boxes and have 5,000 storage bins in ’04. They’re reaching for the sky. They won’t get it. I hope they do, but they won’t get it. I do my projections not for planning, but for the purpose of pushing my sales department. I call my projections “realistically optimistic.” It’s not reaching for the moon, but it’s reaching for the closest planet. You can almost touch it. And if you get there, everything’s aligned. In 25 years I don’t think I’ve ever gotten there, but real close.

And then I do realistic down-and-dirty projections for sales, marketing, all that. Just for a number’s sake, let’s say I think we can grow 16% this year. That might be my unrealistic expectation, but I know my real number is 12% or 11% sales. I’ll base that on lots of things.

So how do you get sales? There’s a big funnel. And the more you put in the funnel, the more you’re going to get through to get to the sales. You know what you have in your funnel to start with, and you guess how one area is going to be and how the economy is going to be, how it’s going to pick up. It’s not a hard science to do. And you have surprises along the way—good and bad.