Business Book Review

Saturday, November 04, 2006

Thinking Inside The Box - by Kirk Cheyfitz - About the Author

About the Author

An award-winning reporter and successful businessman, Kirk Cheyfitz has built the world’s first and largest global custom publishing network for McCann-Erickson WorldGroup, the world’s largest advertising agency. After only four years, The Publishing Agency International has full-service companies in New York, Amsterdam, Brussels, London, Madrid, and Seattle. Cheyfitz was a Pulitzer finalist for investigative work at the Detroit Free Press and won the prestigious Sigma Delta Chi Bronze Medallion for investigative reporting, among many national and regional journalism honors.

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Thinking Inside The Box - by Kirk Cheyfitz - Reading Suggestions & CONTENTS

Reading Suggestions

Reading Time: 5-6 hours, 272 pages in book

Using his subtitle, “The 12 Timeless Rules for Managing a Successful Business,” the author organizes his book around the twelve rules, with one chapter devoted to each fundamental rule, each being a plank “in the box.” Although the rules, and therefore the chapters, are somewhat sequential (he begins with the fundamentals of profits, cash flow management, and expenses, proceeds through customers, marketing, and growth strategies, concluding, logically, with exit strategies), it is possible to read any of the chapters without reading previous chapters.

We recommend reading, at minimum, the introduction, “Read This First: Don’t Do Anything Stupid,” followed by Chapter 1, “The Basic Box: Some Things Never Change.” At the beginning of each chapter, the author presents the rule—usually in one sentence—that is detailed in the chapter, and at the end of the chapter, he provides a numbered summary of the key points, making it possible to read through the book selectively. However, Cheyfitz’s book is written with such wit and humor, that although readers might be attempted to skim, they will, very likely, find themselves reading each chapter.


Chapter 1: The Basic Box: Some Things Never Change
Chapter 2: The Jack in The Box: Profits
Chapter 3: The Money Box: Cash Is Everything
Chapter 4: The Bottom-Line Box: Knowing What Can Be Controlled and What Can’t
Chapter 5: The Box Top: Customers Are the Boss
Chapter 6: The Marketing Box: Unifying the Whole Business
Chapter 7: The Getting-Bigger-Faster Box: If You Can Buy It, Don’t Start It Up
Chapter 8: The People Box: Hire Smart or Manage Hard
Chapter 9: The Treasure Box: Secure the Real Assets
Chapter 10: The Ends-Over-Means Box: Results Are More Important Than Process
Chapter 11: The Renewable Box: Nothing Lasts Forever
Chapter 12: The Houdini Box: Have an Exit Strategy

Thinking Inside The Box - by Kirk Cheyfitz - Remarks


Cheyfitz was prompted to write Thinking Inside The Box after observing the corporate scandals of the business world during the 1990s and in the first few years of the 2000s, a time period during which, Cheyfitz says, the business world essentially lost its head. These errors in business practice were largely based on the erroneous assumption that the foundations of business had been radically and fundamentally altered by technological and social change. His thoughts hearken back to the great twentieth century economic thinker Herbert Simon and his classic 1947 work, Administrative Behavior.

Simon wrote, “Human organizations, quite large ones, have been with us for at least four thousand years. Although the physical technology a modern army employs is wholly different from the technology employed by the armies of Nineveh or Egypt or X’ian, the processes people used in these ancient armies to make decisions or to manage people appear quite familiar to us and largely unchanged over the centuries.” (In fact, on the occasion of the fiftieth anniversary of the publication of Administrative Behavior Simon declined to make changes to his book saying that in the half century that had passed people, and the way they make decisions, had not changed.) Cheyfitz’s book, like Simon’s work, is based on sound historical documentation to illustrate that there is, indeed, nothing new under the sun. The fundamental rules of commerce have not changed since the Middle Ages—so don’t try to change them.

His observations on innovation, change, and technology are central to the premise of the book. “If you listen to most of the business gurus,” according to Cheyfitz, “there’s a business revolution every minute, each one driven by technology.” Robert Sutton, the noted Stanford expert on innovation and organizational psychology believes that excitement about building better products and companies sometimes makes us forget that most new ideas are bad and most old ideas are good. By no means are Cheyfitz and Sutton saying that companies shouldn’t innovate. “Creativity,” as Sutton points out, “is largely about seeing old things in new ways. And being creative requires detailed knowledge of old ideas so those ideas can be adapted to new uses and directions.”

It is important to note, finally, that the author does not deny that there is such a thing as “thinking outside the box.” However, the first step to “thinking outside the box” is to think “inside the box,” and this is the step—a big step and a basic step—that many forget.

Thinking Inside The Box - by Kirk Cheyfitz - Nothing Lasts Forever

Nothing Lasts Forever

One of the fundamental functions of a business is to keep an eye fixed on the future, not the distant future, but the immediate future. When Peter Drucker suggested that marketing and innovation were the two basic functions of business, he would subsequently define innovation as “purposeful innovation.” He advises following three straightforward guidelines, regardless of the type of business: 1) keep it simple; 2) concentrate on the needs of today, not some imagined future; 3) look for clear opportunities and avoid big risks. Businesses must be dynamic, and companies have to change. Any company that fails to renew itself ensues its own doom. But that does not mean that businesses should be constantly undertaking fundamental change. The key to renewing a business is to make it an evolutionary process. It is in actuality a process that is more responsiveness than revolution, an essentially conservative process.

Companies must always remain sensitive to changes that could affect their growth, profits, and results. Drucker writes that success comes to those who systematically analyze the sources of innovative opportunity, then pinpoint the opportunity and exploit it. Conservative, meaningful change usually comes from one, or a combination of four sources: technology (which can have direct and indirect effects), government policy (in the form of changing government subsidies, taxes, and regulations), changes in customer needs and lifestyles (how they live and what they need are what drives business), and competitors (new competitors or new initiatives by established competitors). Success—and even survival—depends upon the response to the opportunities afforded by change. Response—renewal—is therefore a constant process that goes on every day in every business sector. Successful companies are those that keep a single-minded focus on the problems of day-to-day management along with the application of imagination and vision as to what will happen in the near future. The challenge of both operating and renewing a business each day is to regard all conditions as both passing and permanent.

Risk and uncertainty are always part of the picture no matter how well a company is managed. Many businesses steer a course through trouble that inevitably lies ahead, and others will not be able to do so. It is important to understand when it is prudent to get out of the business. For public and private companies, strategies to exit business are similar: sell publicly, sell privately, break-up (spin off a division or a part of a larger company as a separate business), merge (acquire or join with another company), refinance, or write-off.

The way to accomplish the best exit possible is to plan for it. The best time to plan on getting out of a business, in fact, is before getting into it. Arriving at a good way out depends a great deal on established markets for the business being exited. If there is a strong history of M&A activity in a given business, if there are widely accepted methods of valuing the business, if banks are in the habit of lending money to such businesses—all of these are important signs that favorable exits will be available under most circumstances. Failure to secure a profitable exit renders all the other rules of business retroactively meaningless. Generally speaking, it is simply impossible to succeed in a business where there is no good way to get the money out of the corporation and into its owners’ pockets.

Just as important is the rule that exits have to be fair to everyone involved; powerful insiders cannot be allowed to exit and leave everyone else behind. Conduct of this sort, as has been observed all too frequently in major corporate scandals of 2001 and 2002, has led from bad feelings to lawsuits to congressional investigations, criminal prosecutions, stock market crashes, and what the author describes as a general breakdown of our economic system. The legitimate end of all corporate activity is to enrich the individual members of the ownership community; giving everybody in the community fair access to the exit is at the center of management’s responsibilities. Understanding, of course, that rewards have to be related to the contributions made and the real risks taken by each group of members. Most good exit strategies are very straightforward sales, involving some variation on the theme of a business is developed and then sold, either to the public or to a larger firm in the same business. Other exits are more complex, involving complex transactions that move companies from high-risk businesses to lower-risk ones, stabilizing the entire corporation and setting the stage for an orderly exit.

Endnotes by chapter and a subject index are provided.

Thinking Inside The Box - by Kirk Cheyfitz - The People Box

The People Box
Successful corporate acquirers make M&A a core business activity; they master it and execute it based on a tried-and-true process.
Empowered employees can and should take control on the job; management and non-management employees should collectively act as if they were all in command together. Employees who are most likely to do the right thing are those who work with a previously formed consensus, who work in small units with well-defined goals, who have been taught to understand their mission, and who have the incentive to do the job well. They also need freedom in deciding how to perform their duties, and they must take collective responsibility for getting the goal accomplished.

It is impossible for managers to be everywhere at every moment making decisions for people and supervising every detail. No manager has the time, energy, knowledge, or judgment; further, talented, capable employees do not need to be micromanaged. Further, micromanaging reduces the chances of building a constructive relationship between managers and employees. In a Gallup research study conducted over a twenty-five year period, the single most powerful discovery was that talented employees needed great managers, and that the single greatest determining factor in employees’ longevity and productivity was their relationship with their immediate supervisors.

The primary question, then, becomes how to find and keep the best people. William C. Taylor, founding editor of Fast Company, once said, “Hire for attitude, not skill,” an opinion echoed by Cheyfitz. It is more important, when evaluating a prospective employee, to look at personal intrinsic personal qualities, such as intelligence and honesty, than to rely solely on a resume of past jobs. A person’s knowledge can be increased and broadened fairly quickly. A person’s basic human qualities and characteristics usually cannot be changed greatly. The success of Southwest Airlines, one of the world’s most successful companies, can be directly attributed to its single-minded focus on finding employees with certain fundamental personality traits, traits that ensure that Southwest keeps its commitment to making flying “fun” for its customers. Southwest has consistently earned the top rank as the U.S. airline with the smallest number of customer complaints.

Hiring good people—people who are well suited to their jobs—is only part of the equation. The other part is providing the environment necessary to enable these people to do what needs to be done. This includes providing pleasant places to work, creating units small enough to function cohesively, and making sure that management does not get in the way—in short, to treat people decently, for its people and their expertise, are, very often, one of a company’s greatest assets.

At first glance, a company’s real assets should be easy to identify. The key assets, in many cases, however, turn out to be unique, abstract assets that can include the company’s structure, its expertise, reputation, and its relationships—all direct results of its employees and management. If anything happens to these abstract assets, the hard assets lose their value rapidly. Recent examples include Enron and Arthur Andersen, which prove that even very large corporations can be victims of damage to their reputations. These two highly publicized corporate scandals, combined with other smaller, less well-known scandals, have, without doubt, had a negative impact on the public perception of corporate America to such an extent that they affected the stock market in the early 2000s, and therefore the entire U.S. economy. This occurred even though the only assets being impaired were abstract ones of reputation and trust. No ‘real’ assets were destroyed.

The idea persists, however, that hard assets (factories, real estate, equipment, machinery, etc.), are somehow more important than abstract ones and hold absolute value that endures no matter what happens to the company. Particularly in knowledge-based industries, where the real assets are always abstract, hard assets can quickly become worthless if they are separated from the moneymaking ideas or relationships. However, the same can also be true for industrial ventures. Take, for example, Samsung’s disastrous entry into the auto manufacturing industry in the 1990s. Samsung’s state-of-the-art manufacturing plant turned out to be essentially valueless without the design expertise to create marketable automobiles, the reputation and goodwill of a strong dealer organization, and trusting relationships with customers.

All companies should, on an annual basis, review each major segment of their business and identify the true sources of their revenue. This analysis will point to the key assets that produce the company’s revenues and profits. Once key assets have been identified, a plan can be created not only to best exploit the asset long-term to increase profits, but also to protect these key assets.

Management theory holds that it is a good thing to have processes—established ways of doing things. Processes exist, or should exist, to help ensure some degree of management control over results. For it is the end result that really matters. Processes that become detached from results tend to produce no results. Processes can become detached for several reasons: when needed results are not clearly defined, or when the company fails to exercise control, and to measure results. The results a company achieves are more important than how it got there. Adhering to this fundamental rule, Cheyfitz has discovered, is an essential part of success, while ignoring it leads inevitably to disaster.

Focusing on results is, in essence, the endless repetition of a five-part process: first, determining a goal and defining it precisely; second, creating a plan for achieving the goal; third, creating measurements that will tell management what progress has been made toward the goal and when the goal has been reached; fourth, capturing and reporting the results regularly so that progress can be continually assessed; and finally, starting over again with new goals once the a goal is achieved. Measuring results, or outcomes, is all about improving performance. Research confirms, according to Steven Kelman, a professor at Harvard’s John F. Kennedy School of Government, that giving people a goal improves their performance by serving as a motivator.

It is often a tough task to get companies to focus on results rather than on processes. Because processes are internal and familiar, they are controllable. Focusing on process is very attractive for an organization. Results, on the other hand, involve interacting with the world beyond an organization’s walls, so results are never completely controllable and are always seen as involving risk. To shift the focus from processes to results, the author counsels setting goals that can be measured—goals that are ambitious, but achievable, explaining both the results needed and the measurements that will be used to measure progress, and paying and promoting employees based on results.

Thinking Inside The Box - by Kirk Cheyfitz - UNIFYING THE WHOLE BUSINESS

The primary rule of The Marketing Box is that, without a sale at the end of the rainbow, all is lost. So every business had better be selling all the time, or else.
Marketing, for many, has become for many a synonym for advertising. However, nothing could be further from the truth. Marketing, in fact, encompasses all management, and has no end point. It is the single discipline that embraces and unites virtually every aspect of business activity. Marketing guides production by defining what products will be produced. It governs distribution by determining the most effective ways to price goods and services, and then placing them in front of customer prospects, and delivering them. Marketing defines exactly who the target consumer is and what will be communicated to each prospect and customer to attract their attention, achieve a sale, maintain their loyalty, and create future sales from the same customers.

To accomplish the marketing function, companies must meet customers’ needs and expectations in ways that create and maintain trust. Trust is, and has always been, the basis of commerce. Trust is important when things go well. The crisis that is created when things go wrong can still produce a loyal customer if there is a basis of trust, and if the response to the problem is fast, relevant, and satisfying.

Marketing is not simply a department or something provided by an ad agency, it is, rather, the process of putting the customer at the center of the business. Management sage Peter Drucker has written that business’s only purpose is “to create a customer,” and that marketing and innovation are the two basic functions of business. Marketing, for Drucker, is a central dimension of the entire business. It is the whole business seen from the point of view of its final result, that is, from the customer’s point of view.

Corporate history is littered with examples of companies that failed to see new products from customers’ point of view, among the best known of which are Ford’s Edsel automobile of the late 1950s and the more recent “New Coke” of the mid-1980s. Conversely, often good products and services fail for lack of appropriate distribution and promotion. The only way to improve the odds for the launch of a new product, or to improve the performance of an existing product, is, according to Cheyfitz, to reach inside the lives of prospects and customers to increase the opportunities for a sale and to make sure there is a strategy in place to take advantage of every selling opportunity. Selling is always the end result of marketing.

Communicating with the right people in the right words—personally and directly addressing the consumers most likely to buy the product or service promoted—is the final fundamental of marketing. Technology, particularly interactive technology, provides marketing with an important tool. Contacts with prospects or customers can be documented and retained, thus increasing companies’ knowledge of the people they are communicating with. Stan Rapp, the founder and CEO of MRM Partners Worldwide, has said that in marketing the straight-line progression is from mass to individualized marketing. Marketing can, today, as a result of technology, consider the lives, the wants, the needs of individual consumers, not as huge, undifferentiated groups, not even as well-defined niches, but as individuals. Thus, technology-enabled marketing returns the business world to the kind of personal interaction that was once the norm.

To create market power, as well as to improve efficiency, provide diversification, and extend a company’s core business to new geographic markets, most companies find that they can grow faster and more efficiently, and with less risk and less uncertainty, by buying companies rather than by starting companies. Many successful entrepreneurs began their business ventures with the acquisition of an existing company, not with a start-up. Starting a business means having no operating history to work from. Buying a business, on the other hand, means acquiring something that is already working (with assets, an established stream of revenue, a share of the market, a list of customers, distribution and sales channels, and experienced managers and workers). Because established businesses have assets and cash flow, banks will, generally, lend money at reasonable rates for acquisitions. Using borrowed money to finance an acquisition reduces the need for equity investment, so it increases returns on equity. Great wealth has been created and consolidated through smart acquisitions. Although no formula works all the time, growing by acquisition, done right, works for everyone from huge conglomerates to small, family-oriented entrepreneurs.

The primary question, then, is not whether to acquire, but, why, when, and how to acquire so that the odds in favor of making the merger work, are as high as possible. The author outlines five timeless rules for successful mergers. First, begin with a good reason for buying; ask, “Why am I doing this?” Second, shop around. Look at everything. Get a feel for what’s available, what the prices should be like, how good management operates in the industry, and how competitors stack up against one another. Third, understand what the sellers want from the deal. This creates a competitive advantage if a bidding war breaks out. Fourth, take due diligence seriously and make certain that operations people are involved to help answer critical questions about day-to-day management. Finally, remember that closing the deal is not the end—it’s the beginning. Once the deal is completed, the real work begins: running the acquired company.

Like many business tactics, mergers and acquisitions go in and out of favor with analysts and academics. Studies indicate that mergers come in waves, clustered by industry, indicating that a sizable portion of deals in any given decade are driven by changes in the circumstances of an entire industry. The biggest driver of mergers in the 1990s was not technology or the Internet, but deregulation of the telecommunications, broadcasting, and banking industries.

Thinking Inside The Box - by Kirk Cheyfitz - KNOWING WHAT CAN BE CONTROLLED AND WHAT CAN’T

Second only to the new economy in its power to disappoint and mislead, the customer economy rose to erroneous and expensive recognition as yet another “brand new” phenomenon—another sign of relentless technological change in business—in the very late 1990s. It was as if customers had just appeared on the scene as the twentieth century was fading to black.
When all is said and done, there are only two components to any business: revenues and expenses. Revenues cannot be controlled; expenses, generally speaking, can be. Or, said another way, it is much easier for a business to know how it will spend its money, than it is to know how its customers will spend theirs. Often, managers allow themselves to be lulled into the belief that their revenues are going to do well no matter what. They allow expenses to increase in anticipation of projected higher revenues (budgeting for growth), or they let expenses overall grow faster than revenues (investing in the future), or they fail to downsize their operations when sales fall off (preserving the business). It is a manager’s priority to know what can be controlled, and to control it as closely as possible, and to understand what is beyond management control.

To increase revenue means remembering the old slogan that “customers are the boss.” It has never been truer. Successful business owners and managers have always known that the customer, not the CEO, is at the top of every organization chart. No business gets anywhere without knowing, listening to, and talking to its customers. Technology has not changed this. The underlying principles of paying attention to customers are not technological. Rather, they involve the challenges of communicating with other human beings, a traditional process that is an art, and not a science.

In his 2001 book, Good to Great, author Jim Collins found that technology, in fact, was not a significant factor in boosting companies’ performance from good to great. It wasn’t that technology had no role to play in a well-managed company; it was just that human factors were always far more important. “You can give two companies the same technology, but you won’t see the same results. Technology by itself is never a primary cause of either greatness or decline,” Collins concluded.

Customers are the only source of truly meaningful information about a company’s products and services, which products and services need improvement, what future products and services may be needed or desired, and how customers want to be approached, and through which media, to learn about a company’s products. Customer relationship management (CRM) has often been considered the state-of-the-art solution to building and improving relationships with customers. Worldwide, businesses have invested billions of dollars for advanced CRM software and hardware systems and for CRM consultants. Most of these billions, however, have failed to produce results.

What CRM failed to address was the real basics of customer relationships, which are providing products and services that meet customers’ real needs, together with a plan to make each customer contact and each transaction comfortable, easy, and rewarding for the customers. As the author points out, what is important is learning what customers really want, and then giving it to them, and to making sure they have plenty of choices—in what they buy, where they buy, how they buy, and how they pay for it all. Along with making sure customers have plenty of choices, it is also important to address them personally, talk to them honestly, and treat them well every step of the way. Discerning differences among customer groups, along with a plan to exploit those differences for greater profit, are together, the most critical part of customer relationship management.

Maintaining customer loyalty is a further critical component, for without customer loyalty, what does a customer do? They go somewhere else. “The customer is always right,” was first uttered by the now legendary John Wanamaker of Philadelphia in the l870s. This is a statement that is obviously untrue at least some of the time, but it does sums up an understanding of the customer’s supreme position in business. Paying attention to customers and giving them what they want is a critical plank in “the Box,” but it is not the entire “Box.” Business owners and managers also need to pay the right kind of attention to customers. The airline industry is frequently cited as an example. The frequent flier program of most airlines does a good job of recognizing and rewarding good customers with first-class upgrades, shorter lines, and faster baggage handling. But the airlines still deliver—on a day-to-day basis—an exasperatingly uneven level of overall customer service.


While rockets and broadband will revolutionize movement and communications, they will not fundamentally alter the economy or the notions of exchange that underlie the economy.
“When CEOs ask, ‘What’s the secret to venture capital?’ I say, ‘Not running out of money.’ Don’t get cute with capital. Presume that you’ll never raise another dime, and run your business accordingly.”
--Robert H. Lessin
The basic rules for business-building, the rules that form the operating framework that Cheyfitz calls “The Box,” do not change much, not in weeks or months, not even in years, and not significantly over decades or centuries, or even over millennia. These basic rules as outlined by the author are 1) Know the difference between what will change and what will not, and pay attention to the former; 2) The first business of business is making money; 3) If cash is not managed, there will not be anything to manage; 4) It is far better (and more certain) to cut expenses than to pray for sales; 5) Give customers what they want, not what the business wants to give them; 6) Sell all the time; 7) Businesses should follow the example of virtually every big company in history and buy their way to “bigness” (at reasonable prices); 8) When it comes to people, managers can hire smart and get out of the way, or they can run themselves ragged micromanaging; 9) Businesses need to find their real assets (the ones that generate the profits) and exploit them for all they are worth; 10) Remember that the end result is what really matters; 11) Business should always be ready to renew their basic business; and 12) Make a plan to get money out of a business, and keep the plan updated and handy.

The “new economy” of the 1990s (a bit of historical research reveals that supposed “new economies” have surfaced periodically over the course of centuries) was much touted by the press, by Wall Street, and even by Alan Greenspan, to explain what was then viewed as an unprecedented, fundamental change in economic reality. The result of the belief that economics had been fundamentally altered by massive technological growth was the dot-com disaster of the 1990s and, close on its heels, the disastrous collapse of the telecommunications industry in 2000 and 2001.

These disasters occurred because absolutely nothing had changed about the economy; indeed, it cannot change, a lesson that history and social science teaches. Although technology is important, and shapes the way business is conducted at any given time, technology does not fundamentally alter the way economics works. Therefore, it is critical to know which things will change, and which will not—and to know the difference between what is coming next, and what it will always be. This is the essence of the author’s first plank—“the basic Box”—understanding the unchanging nature of the fundamental rules that make business work, while appreciating the constantly changing nature of the factors that influence all businesses. Businesses should, then, focus their efforts on how their customers’ lives are changing and how they can serve their emerging needs with new products and services, delivered using tried-and-true business models.

The primary rule of economic activity is that making a profit is what it is all about—a rule forgotten, and even derided, in the 1990s. The business of business is making money. In the 1990s, in the white-hot frenzy of the “new economy,” many of the new high tech start-ups took the position that while profit was thought to be an important future objective, its necessity in the near-term was not absolutely necessary and that other metrics, such market share or penetration of ‘new markets’ or undercutting competitors, were more important. Fred Smith, the founder of FedEx, undeniably one of the great success stories of twentieth century American business, has always been an advocate of the measurements that all business plans must include: revenue, expenses, projected profits.

One of the more notorious examples of a business that did not follow Smith’s counsel is the ill-fated, the Web-based pet supply retailer. Following the conventional wisdom of the day—establish the brand and profits will follow— chose the high-cost strategy of heavy ad spending to establish the brand across America with its Sock Puppet. The puppet raced around in a delivery van, explaining that delivered “because pets can’t drive.” The Sock Puppet was a nationally recognized and loved character, and it did establish a brand personality. While was building its brand, however, it was also losing phenomenal amounts of money. In mid-1999, the online retailer was losing money on every sale, without counting other expenses, because it was selling merchandise for about one-third of what it cost to buy the goods, and it had failed to calculate the high shipping costs for delivery of heavy, low-margin items. The company also spent nineteen times its total revenue on marketing. The traditional wisdom that “you can’t lose money on every customer and make it back on volume” is exactly what tried to do—with predictable results. As the author notes, was not just a failure of execution, it was a failure of thinking—a failure that could only be achieved by ignoring the fundamental idea that profit always matters.

At FedEx, on the other hand, Fred Smith had focused on reaching the necessary critical mass for profitability. He had a disciplined approach; he researched the market for overnight air freight, validated his financial assumptions, and came up with a business plan to achieve profitability. Profits are the product and the progenitor of all corporate creativity, and they have to be achieved as quickly as possible, or the possibility of achieving them goes away forever. By disregarding profit, the author notes, took roughly $300 million and turned it into nothing—no jobs, no assets, and no productivity. On the other hand, by executing a profit-focused business plan, Fred Smith took roughly the same amount of capital [adjusted for inflation], and turned it into $16.4 billion in market capitalization and more than 200,000 jobs.

As critical as profit is to a business, it is, theoretically at least, of no concern whatsoever as long as the business has access to an infinite supply of cash. Profit is paramount because it is the sole supply of cash in any business. Thinking inside the box is about sticking to fundamentals, and next to profit, there is nothing more fundamental than cash. Surviving in business is not simply arranging things so that more money comes in than goes out, it’s making sure that the money coming in arrives in the right quantities and at the right times to cover all operating expenses on time.

Cash flow problems can be the result of several different causes: lack of profitability, as well as a profitable company that is growing very fast, or businesses with large investment needs (such as technology or machinery). Also, companies that have borrowed heavily in the past, perhaps at a time when credit was easy to obtain, and that now face big loan payments, are also especially vulnerable to cash shortages. Once a company finds itself in a cash crisis, the number of options are few: borrowing money or selling stock (or finding some new source of capital); speeding up collecting money that’s owed to the company (reducing receivables); slowing down bill payment (increasing payables); postponing spending on capital projects; cutting operating expenses; and selling all nonessential assets. As business history shows—particularly very recent business history—companies can make up stories about profits, but they can’t make up cash. The most famous recent debacle, of course, is Enron. The lesson of Enron, and many before it, according to the author, is “don’t lie (to yourself, at least) about profits and don’t plan on being rescued by new financing, because it might not materialize.”

Thinking Inside The Box - The 12 Timeless Rules for Managing a Successful Business - by Kirk Cheyfitz - Introduction


“Thinking outside the box” may be the most frequently, and freely, dispensed piece of advice in American business circles in the last decade. It is not necessarily bad advice. However, according to journalist and self-taught media entrepreneur Kirk Cheyfitz, many managers and business owners cannot “think outside of the box” because they do not know how to “think within the box,” nor do they truly know what “The Box” is. A look at business past and present reveals the existence of certain unchanging, timeless rules—“The Box.” The corollary to this premise is that managing a business requires neither genius nor constant invention. Rather, good, and therefore successful, business management is largely the result of paying attention to history and to present reality while applying hard work and prudence.