Walter Hill Jr. is an entrepreneur and a notable leader in the brand marketing industry. In this episode, you will learn what are the red flags in a business and have the intuition that can identify potential problems which will give you a plan to prevent them before they happen.
Walter Hill Jr. is a second-generation entrepreneur from Petersburg, Virginia, where his father owned three small businesses: an auto body shop, an ESSO service station, and a fuel oil delivery service.
After working with his father and attending the University of Maryland, Walter moved to Los Angeles, where he became a notable leader in the brand-marketing industry. The companies he led were recognized by both customers and the industry for exemplary service, ethics, and value to customers.
Walter founded Icon Blue in 1998, and within its first few years of operation, the company earned the Macy’s Star Supplier Award and American Honda Motor’s Tier One Supplier Award. His business achievements have been noted by The Wall Street Journal, Advertising Age, Counselor, Advantages and other magazines. He is the recipient of Counselor’s Marvin Spike Lifetime Achievement Award and the Greater Los Angeles African American Chamber of Commerce Lifetime Achievement Award.
Narrator: Welcome to Cracking the Cash Flow Code where you'll learn what it takes to create enough cash to fill the four buckets of profit. You'll learn what it takes to have enough cash for a great lifestyle, have enough cash for when emergency strikes, fully fund a growth program, and fund your retirement program. When you do this, you will have a sale‑ready company that will allow you to keep or sell your business. This allows you to do what you want with your business, when you want, in the way you want.
In Cracking the Cash Flow Code, we focus on the four areas of business that let you take your successful business and make it economically and personally sustainable. Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he's learned through his 40 years of owning, running, planning, and thinking about what it takes to make a successful business sustainable and allow you to be free of cash flow worries.
Josh Patrick: Hey, how are you today? This is Josh Patrick. And we're with Walter Hill. And you're at Cracking the Cash Flow Code. And we're going to have a whole lot of fun talking about red flag movements today, and what red flags are, and Walter’s business that he had which he sold three years ago, and all the stuff that he learned along the way. He's even older than I am which is hard to believe anybody is but there's lots of people out there. And not only is he older, but he's going to become my new hero because he's so active and involved in life. So, instead of me yammering on about Walter, let's bring him on and we'll start the conversation.
Hey, Walter. How are you today?
Walter Hill Jr.: I'm fine, Josh. I'm fine. And how are you?
Josh: I'm great. Thank you for asking.
Walter: Good. Thank you for inviting me on your program.
Josh: Oh, it’s my pleasure. I'm looking forward to the conversation. So, let's start off with red flag movement. What is a red flag movement?
Walter: A red flag is something that - I always kind of define it as it's an ability to use your intuition and your foresight to project ahead in a project or a business that you are involved with and identify potential problems by asking, you know, what‑if questions, so that you can--
Josh: Oh, my favorites.
Walter: --yeah, you can develop a plan to prevent them before they happen. So that, you know, it's not overstated in business, as you know, because you've been in business for some time. You don't need to resolve everything in advance. It's only those issues that can cause a major problem to your cash flow in your business are you trying to identify and prevent before they happen. In other words, you shouldn't have to learn everything from experience.
Josh: That's absolutely true.
Josh: So, how do you find those red flags?
Walter: Well, you know, it's something that goes way back. I think most people have the ability to red flag. It starts early on in childhood. If the objective, when I was living in a small town, and my goal was to walk to school, because you walked everywhere when you were a kid in those days, there are certain things that had to be done in order for me to complete that task successfully. I had to (1) know the path - have some understanding of what path was going to lead me to my goal - to my school. I had to, along the way, beware of traffic because, if I cross streets without looking both ways, I could end up harmed, not getting to my school. So that's a very elementary way of describing red flagging which is simply projecting ahead to know I have to walk at a certain pace, if I leave at this time, to get there on time. I have to stop at street corners to make sure I don't get harmed by an automobile and things of that nature.
You know, fast forward that into adult business life-- and I gave that example to show that everyone red flags. Everyone knows how to red flag. It’s just developing that understanding of how to apply that to a business situation. It’s basically--
Josh: Can you give us a business example?
It's basically the same. As you develop a business plan, you would want to take a look to see, “What exactly are the tasks that I need to do?” First of all, identify those tasks that you must get right in order to succeed. That's not everything. You can make mistakes in business but there are some things that you can't afford to get it wrong. What are those?
I have experienced entrepreneurs in the past, over the years, where they would come to me with an idea, for example. And I'll give you an example. There were some young men that had a new product that they developed. And it was a rim and a pole. And it was to be used as a practice tool for basketball players.
And the idea was, it's just like the rim and the same height as a rim on a court, but it didn't have a net and it didn't have a backboard. So, if you practice shooting at this thing, just in space, it would increase your accuracy for scoring. So, they got excited, because they know that high schools, colleges, pro football teams - huge market for this product. They got excited and forged ahead. And they ignored the advice that they were given - to market test the product. In other words, to validate the product.
And the one thing that was overlooked that a lot of entrepreneurs do, and not only novice but experienced, is not validating the product. Does the product do exactly what you say it's supposed to do? Does it deliver the value to the customer that you are charging them for? And that's like a very elementary beginning point.
If you're going to have a service to offer, Can I offer the service at the level as it is described in my mission statement? And if I can do it, how will I go about doing it? And in my business, we always made sure that we had a way to validate that we were doing what we promised we're going to do because, you walk into any company, everyone talks about service, customer is everything, the commitments. And all my big clients, they have banners up about customer service. But the issue there is how do you how do you validate that? You know, am I doing what I promise I would do?
A lot of these things, Josh, individually, won’t to have as much of a negative impact on a business as what happens collectively. What happens if you don't get the service right? What happens if you don't deliver the product that you promised that you would deliver? You start putting enough of those together. And then, you join the 20% of businesses that fail within the first two years.
Josh: It’s more than 20. It’s more of like 80.
Walter: Is it more than 20? Yeah, it’s more like-- 80? Wow.
Walter: Oh, SBA was saying 20 in the first two years and 45%--
Josh: The first five years-- I rarely know what the numbers are now but it’s--
Walter: Yeah, it's like 45 or something.
Josh: It’s pretty darn high.
Walter: Substantial number, yeah.
Josh: Yeah. And the truth is most of those businesses fail because they run out of cash.
Walter: Mm-hmm, yes.
Josh: Not because they don't have great ideas or they don't know what they're doing. They just don't price their products properly and they don't understand that growth has cost.
Josh: So, they may be growing their business, but they don't have the cash to grow the business. And since, you know, growth costs cash, they run out of cash.
Walter: Yes, absolutely.
Yeah. So, what you're saying is accurate. There are numerous reasons that we both know that businesses fail. That is one of the primary. That is the primary reason is that lack of cash.
But, quite often, there was a survey done that showed that even though a lot of the businesses did have the capital, that enough of those other factors that they did not question, that they didn't red flag, if you will, in order to bring attention to them. And, basically, all red flags will do is draw attention to a particular aspect of your business that needs to be addressed, that you must get right in order to have success. That's the purpose of red flagging. It is not a five‑step method to success. I don't have those. There are books--
Josh: So, I have a question for you, Walter.
Walter: Mm-hmm. Okay.
Josh: How many red flags do you think a businessperson can actually handle, that they're paying attention to? I think you have a really cool idea here. And it's critical, in my opinion, to identify those areas of your business that could cause you some major problems. How many areas do you let somebody you're working with focus on?
Walter: Oh, it depends on what their job task is. You know, it depends on what they do.
Josh: You're the CEO of the company. You're the owner of the company. And one of the things that you have to do is you have to focus on the critical areas of your company.
Josh: How many critical areas do you have folks focus on at one time?
Walter: I don't think we ever had. I don't think we've ever had a number. You know, incidents-- you see red flagging is a way of thinking. It's a thought process. It's not a five‑step process.
Josh: Well, I understand. I understand it’s a thought process.
Walter: Yeah. When you approach a project and you want to have a successful outcome, you can identify, as we did. We were in the print business, the promotions business. I imported millions of products from all overseas, United States - not imported United States, but we manufacture here and overseas. We had less than half percent error rate because the entire team was, I would say, indoctrinated - was coached in a process of how to think, how to look at the task, and determine where the weak points might be.
For example, if you're doing a project overseas, we first understand and they, all my team, was taught that you have-- even though they speak English, if you're in China someplace, they speak English but it's a second language. So, the communication has to have a caution point to make sure you're communicating to them exactly what you want.
And then, as, you know, our former great president, Ronald Reagan once said, “You trust but verify.” So, the red flag process is, I believe they got it right but let's validate they got it right because the end result is you could get two containers of goods. And if you're a small business and you got $200,000 worth of goods coming in, and you open the container, and it's not exactly what the customer expects - most small businesses can't survive those kinds of losses. So, you do everything you can to prevent that.
Another red flag is you ask the question, “How can I be sure that when those goods arrive to the ship, to the port, that those goods are exactly what I expect? Where are the points along the way that this thing can go wrong that could cause me harm?”
Josh: So, what you're talking about sounds a lot like scenario planning to me--
Walter: Mm-hmm. Mm-hmm.
Josh: --which I'm a huge fan of. I mean, I love scenario planning. I just think it makes sense because if you start thinking about the three to five things that can ruin your business and you actually do some planning around that, hoping it doesn't happen, but wanting to be prepared if it does, sounds a lot like what you're talking about.
Whenever I talk to members of the team and it started with the leadership - the president of our company, Eden McClellan, was excellent. She taught the process and it was reinforced. We had many occasions to reinforce it. I mean, someone would say, “We have this rush project and it has to be in Florida by X date.” And we say, “Well, right away, that's a red flag because you can't afford one single error to meet a deadline of three days.”
For example, we had a project once where we had to deliver 600,000 products to movie theaters, in 287 locations, in seven days. Seven days. And I emphasize that because that is that is not the norm of requests in our business. That is an exception.
Josh: Right. Yeah, it was so not.
Walter: Yeah, that that is an exceptional one.
But our process, because we understood the first thing that has to be done is I have to get off to the right start. I have to make sure that the graphics that this studio - their legal department is approving that those graphics are properly printed in the right color on the product or they will reject all 600,000 products. So, that's a flag because that means your project fails if you miss the first step.
So, the first thing we ask ourselves is, “Okay. Where can this go wrong?” It can go wrong if we don't get the exact colors, the exact right. So, we placed time to it. So red flagging is not an answer to everything. It's a thought process that allows you to question it, raise it, and then use your own intelligence to resolve it before you go forward.
Josh: You know, that sounds like-- that makes a lot of sense to me. I mean, if you're asking questions before you do something, you're likely not to screw it up.
Walter: Exactly. Exactly. So--
Walter: Go ahead. I'm sorry.
Josh: And it sounds and a bit like using methodologies like the Theory of Constraints or Scrum can be very, very helpful with that, where you're doing some planning and you're saying, “Okay. Here's what we want to produce the next two weeks. And here are the things that we can do. Here's the time it's going to take. And every morning we have a little stand‑up meeting to talk about what's going to happen.” It seems like a pretty good way to handle red flags.
Walter: Yeah, absolutely. I use the term red flags and introduce it to myself because it's a common term. It means a caution point. You know, a railroad crossing is a red flag. I mean, there's a caution point there.
Walter: Crossing the street is a caution point. It means beware because this is a crucial step in the process, so beware of it. If that goes wrong, then everything else ripples through and fails.
So, the team was taught and coached on how to think that way because you can't-- because of the different variables, in different businesses, I can't try to tell everyone exactly how to red flag their business.
However, if they came to me and, you know, all the specifics but, generally, we can show people how to develop that skill themselves. And that's why I wrote Think Red Flags: A Proactive and Profitable Approach for Your Small Business. That's why it was written. It’s to share that information. We give a lot of examples.
And that project that I referred to, we were effective at delivering. I think we have the approval on the art and everything by-- got the order by Thursday. Artwork was done by that Friday. The legal people looked at it. It was fine to go. Used a local printer. We printed the first 250,000 by Monday, over the weekend, and shipped them. And the logic was, “Okay. We'll ship everything to the east coast first because it takes longer to get there.” That's not rocket science. That just makes common sense. So that's what we did. And so, the closer - the one's closer in, we were shipping by Tuesday. We shipped 600,000 pieces in seven days, to 287 locations, without one single error.
Now, what that lends itself to is not the recognition that we want for not making an error. That is what translates to profit. We didn't lose any money in processing the order. We were able to bill the client, and collect our receivable, and walk away with a profit. That's what red flagging is designed to do - make companies more profitable.
Josh: Okay, cool.
Walter: Yeah. That’s what it is about.
Josh: So, what else would you bring to the party besides saying, “Okay. Here are potential problems that we have” to help companies get and stay profitable?
Walter: To help companies get and stay profitable. I don't try to advise on all the different aspects. There are so many things. As you know, there’s cash flow management. There’s keeping an ample reserve. There are things. There are flags like the receivables. You know, we've experienced companies that, if you're billing - if you're not in a cash business and you have to bill, having a slow billing cycle and then not having validation of receipt of your invoices, so you know the client is processing it. Things like that. When you go for 30 days, and you find out the client, oops, didn't get the invoice. You know, those are the things, the smaller issues, that if you don't get enough of those right, so the collective result is positive, then it’ll result in failure because it can cause a nagging cashflow problem.
Another thing we experienced was billing clients in 90 days. Large companies, you know, the big boys, some of them pay 90 days, some of them 120 days. Your suppliers expect you to pay them in 30. So, you see, that math doesn't work. Your output is greater, in that 30‑day period, than your income because the cycle does help. And if you have a large enough company.
My book addresses small business, not the Amazon’s. You know, not people at that level. That's a different equation for running a business that size. It's for small business owners because that's my experience and how to make a small business profitable was my experience.
So, you have to first recognize those issues, what you're going to do about it. And then, you develop ways to approach it. Because, you know, we had a very large minimum limit on a credit card. If we had a client that was paying in 60 days, we could wait 30 to 40 days max and then pay the supplier on a credit card. And then, the next 30 days the credit card is due, but the client is paying now. That's in 60 days. Those are the things that--
In other words, I didn't try to--
There are some suggestions in the book. But what I tried to do is help entrepreneurs recognize those issues and know that I need to do something about this before it becomes a problem.
Walter: That's the purpose of it.
Hey, Walter. Unfortunately, we are out of time so I'm going to--
Walter: Boy, time flies.
Josh: It does. It's only 20‑some odd minutes, so it's not all that much time.
I'm going to assume some folks who are listening may want to take a look at your book. So how do they find it? And what is what's the title again?
Walter: Well, it's Think Red Flags: A Proactive and Profitable Approach for Your Small Business. And we're on Amazon. You can just go on Amazon and order the book. That is one of the things that I've always recommended when people say, “Well, how do you learn to do this? How do you learn to red flag?” You read. You have some experience. You draw from your own experience. And then, use mentors. Have as many mentors in your life, people that have done what you want to do, or at least something similar so that you can tap into that resource of knowledge.
Well, thank you so much for that. That's really good advice right there.
And I have two things I would like you to do. First, after every show, I always ask this, please make sure you go to wherever you're listening to this podcast and give us an honest rating and review. If you love us, say you love us. If you hate us, I hope you don't say that. But you can say you hate us and give us a crummy review, but I hope you don't.
And the second thing, which is kind of exciting for me is, a couple of weeks ago, my new book came out in the in the wild. It’s called The Sale Ready Company. And I'm selling it for half price in my website because I really want to get a whole bunch of books out in the world. So, for $7.95, you can get a copy of The Sale Ready Company by going to www.salereadycompany.com. And there you'll have a chance to buy our book for $7.95. You can even buy my first book for $7.95 while you're there. And you get access to our resource center which will give you seven or eight pieces of content that are going to tell you exactly how to implement what we talk about in our parable, The Sale Ready Company.
So, this is Josh Patrick. You're with Walter Hill Jr. We're at Cracking the Cash Flow Code. Thanks a lot for stopping by. I hope to see you back here really soon.
Narrator: You've been listening to Cracking the Cash Flow Code where we ask the question, “What would it take for your business to still be around a hundred years from now?”
If you've liked what you've heard and want more information, please contact Josh Patrick at 802-846-1264 extension 102, or visit us on our website at www.sustainablebusiness.co, or you can send Josh an email at email@example.com.
Thanks for listening and we hope to see you at Cracking the Cash Flow Code in the near future.