How to Build A Profitable Business with Purpose
How to Build A Profitable Business with Purpose
How should a business owner manage debt in the first five years?
One of the things that I've tried to focus on through the years as a businessperson is thinking like a banker. Bankers love very conservative debt-to-equity ratios. So, it is super simple: a one-to-one debt-to-equity ratio.
If your house is worth $100,000 and you owe $50,000 on it, you have a one-to-one debt-to-equity ratio. Try to keep that balance in mind throughout the years. That principle has served us well.
How can debt-to-equity ratios help secure a business through an economic crisis?
During the economic boom from 1992 to 2006, we capitalized on many opportunities and mistakenly thought our success would continue indefinitely. However, the 2007 economic downturn proved challenging. We had overextended ourselves by acquiring too much land. Despite maintaining a one-to-one debt-to-equity ratio, we faced significant pressures when a banker demanded repayment of loans for 25 models in 25 communities within 60 days. Thanks to strong relationships with bankers and sufficient equity, we managed to survive a period during which about half of the builders in the country did not. This crisis forced us to fine-tune our processes and procedures that had previously been masked by a booming market, ultimately strengthening our organization.
How can business owners incorporate faith and values into their work?
My approach stems from my faith. We are commanded to love God and love others, and I strive to apply this in my for-profit home-building business and the work we do through Hope International. I often reflect on how I would like to be served, considering my humble beginnings on a dairy farm, where I learned the value of hard work and discipline from my father at a young age. Although I didn't appreciate those lessons then, they have significantly shaped my values and work ethic.
How can business owners avoid the unintended consequences of charitable aid?
Flicker's book, When Helping Hurts, discusses the unintended consequences of well-meaning aid. Often in the West, we send assistance with good intentions, but this can sometimes have a crippling effect. For example, a study in Atlanta observed a well-intentioned group delivering Christmas gifts to families in struggling areas. As the volunteers entered homes with gifts, fathers were seen leaving in shame, feeling they should have been the ones providing for their families. This act of giving, meant to uplift, instead led to feelings of inadequacy and embarrassment. It illustrates that our efforts to help can sometimes do more harm than good. We need to love people in a way that empowers them to use their gifts and capabilities, allowing them to meet their own needs and achieve success without external dependency.
Why is it essential to track visible progress toward goals in a business setting?
I'm a firm believer in Chris Chesney's The 4 Disciplines of Execution. Although I didn't have this book in 1992, we followed similar principles. These include setting a Wildly Important Goal (WIG), identifying lead measures to achieve that goal, maintaining a compelling scoreboard, and establishing weekly accountability within the team. Whether it’s building homes, selling cars, or manufacturing products, these principles have proven effective. They not only guide our strategies but also enhance team engagement and work ethic by emphasizing the importance of having clear goals and visible progress.
*This interview has been edited and condensed for clarity.*
