How much money do you need to start a business? Projected? Projected x2? I would say you need to factor at least a 25%-50% cushion. I know this from building an endless amount of forecasts for clients and comparing the original forecast to actual results.
What do you think? Please comment below!
This and other good thoughts were In the June 2011 issue of Spirit Magazine. These tips are designed for those looking to found a business or just wanting to look brilliant. Below I have listed the 40 tips, I hope you enjoy! Click here to view the article in Spirit Magazine.
And don’t forget to contact me for a free consultation if you need help with building forecasts, tracking actual results, or raising financing!
40 Lessons to Learn from Southwest
Whether you’re founding a company or just want to look brilliant, take some cues from this airline.
1. Keep the idea simple enough to draw on a napkin.
In 1966, Rollin W. King sat with his lawyer, Herb Kelleher, in San Antonio’s St. Anthony Club and drew a triangle on a cocktail napkin. And lo, the napkin begat an airline. Rollin, owner of a money-losing commuter airline, wanted to start an intrastate carrier so the airline wouldn’t fall under the aegis of the Civil Aeronautics Board. Hence the triangle. He labeled the corners “Dallas,” “Houston,” and “San Antonio”—The Golden Triangle of Texas.
2. A legend is an asset.
That cocktail napkin became a whiskey-stained version of the Magna Carta. It summed up the infant Company’s personality: informal, pragmatic, and a little bit naughty. Imagine if the airline had been formed by a dozen lawyers in a Manhattan boardroom. Not the same thing. More important, Rollin and Herb recognized the drama. Here was the stuff of legend. Now all they had to do was form the most successful airline in history.
3. Hire a good lawyer.
The good news was, they already had a top-notch lawyer in Herb. A graduate of Wesleyan University and New York University Law School, he kept a law office in San Antonio. Herb was no stranger to litigation, which was a very good thing: he was about to face the litigation storm of his life.
4. Raise more money than you think you need. Now double it.
The partners—now four men, including Rollin’s brother-in-law and a businessman-politician named John Peace—figured they needed a quarter-million dollars just to start the Company. Herb decided to raise twice that amount. That was prescient; the lawsuits would ground the airline for another four years.
5. Crazy is no liability.
Not always, anyway. If an idea immediately sounds good, chances are someone—many people—thought of it already. Rollin had no idea how to raise the capital for his new airline. “Rollin,” Herb said, “you’re crazy. Let’s do it!”
6. Find Executives who look like they walked off the set of ‘The Expendables.’
The Company’s new president, Lamar Muse had worked for four airlines before joining Southwest. He and Rollin went out and recruited senior veterans of Braniff, American Airlines, and Trans-Texas Corridor. Naturally, people called them the “Over the Hill Gang.”
7. Target the overcharged and underserved.
Southwest began as a short-haul airline, offering a low-fare, high-frequency alternative to driving. That’s what the napkin was for. People had to drive for hours to get from one point of the triangle to another. Rollin’s napkin would provide a solution—and, just maybe, a profitable business.
8. Be the good guy.
The day after the Texas Aeronautics Commission gave Southwest permission to fly to the three cities, three airlines got a restraining order to ground the new competition. They claimed Texas wasn’t big enough for another airline. “The public took our side as the underdogs, and the character and vehemence of the opposition gave us all kinds of esprit de corps,” Rollin said later. “And that, finally, was what kept us from going under.”
At the trial, a representative from Allstate insurance, Southwest’s biggest investor, took the witness stand to be interrogated by a lawyer from Braniff. “Can you please speak up?” the lawyer asked.
“Sorry, but my shirt is choking me,” the Allstate man said. “I had to borrow it from Rollin King. Braniff lost my luggage.
9. Two strikes is one hit away from a home run.
The lower court ruled against Southwest. So did the appeals court. Herb took the case to the Texas Supreme Court, offering to do the lawyering for free and to pay his own expenses. That court overturned the findings of the two previous courts. And on December 7, 1970, the U.S. Supreme Court rejected an appeal by Southwest’s opponents. The only problem was, the new airline was broke.
10. Recognize your luck.
“One thing you see time and time again throughout Southwest’s early history,” says Brian Lusk, a communications manager at Southwest and the airline’s de facto historian, “is how lucky it was. Herb was this lawyer who happened to have the exact skills Southwest would need later. Boeing was having trouble selling planes in the recession, just when Southwest needed planes. Purdue Airlines went out of business, releasing pilots just when Southwest needed them.”
But have you noticed how well luck and attitude go together? Sure, Southwest got lucky. But its managers knew when fortune smiled. The rest of us probably get lucky pretty often. We just don’t know when.
11. Lack of money makes you frugal.
Actually, Southwest was less than broke: With $142 in the bank, the Company had outstanding bills totaling more than $80,000. Lamar raised $1.25 million through promissory notes and got a bargain from Boeing: a huge price break on three airplanes, with Boeing financing 90 percent of it. That’s the equivalent of buying a house at a discount and having the owner hold the mortgage. The recession of the early ’70s had been especially tough on Boeing, which had overbuilt aircraft it couldn’t sell. And all of a sudden, Southwest had a fleet.
Meanwhile, Donald Ogden, a flight operations exec at American, hired 17 Pilots from Purdue Airlines, a charter company owned by Purdue University. The Pilots included several Cubans who had fled the Communist regime. (One of them, Emilio Salazar, went on to pilot Southwest’s first flight.) Having no training facilities of its own, Southwest sent the new Crew to flight school at United Airlines.
12. Gain talk equity.
That means free advertising. Southwest leaders developed a “personality description model” to craft the character for the airline. Free spirited, maverick, irreverent, sexy—the sauce was sauciness.
13. Promote from within.
Gary Kelly boarded a plane for the first time when he was in high school, flying brand-new Southwest Airlines from his hometown, San Antonio, to Houston on a college football recruiting trip in 1972. The 122-seat plane was carrying a total of three Passengers. “I thought, Boy, this airline’s not going to be around very long,” he later told USA Today. Thirty-two years after that flight, he was the airline’s CEO.
Graduating with an accounting degree from the University of Texas at Austin (the football thing didn’t work out), Gary went to work for Arthur Young & Co. in Dallas, where one of the clients happened to be Southwest. He spent a few years at a computer-services startup, then joined the airline as controller. A promotion to CFO came a few years after.
When Herb Kelleher’s immediate successor, Jim Parker, retired in 2004, Gary took the slot. It was a good match. Today, Gary is ranked the No. 1 airline CEO by Institutional Investor magazine, which surveyed 1,700 investment pros at 475 of the world’s leading financial firms.
We don’t have to tell you that the job is demanding. Rising fuel costs threaten the profitability of every airline, and Southwest has been in the black since 1974. Then there’s the gargantuan merger with AirTran Airways. The man barely has time to play his beloved electric guitars in the evening.
But the only time we’ve seen him truly miserable was at one of Southwest’s Halloween extravaganzas a few years ago, when he squeezed his size 13 feet into a pair of pink high heels. He dressed that year as Edna from “Hairspray.” After a full day of tottering around in those shoes, he sighed, “This gives me renewed respect for women.” Then he smiled again.
14. If the zeitgeist works for you, use it.
Many people who lived through the ’70s apologize for it. I can’t believe that hair! Those clothes! Most corporate dress codes tiptoed around the ’70s as if the decade were a mud puddle that might mess their Gucci loafers. Southwest dove into the ’70s, orange outfits and all.
You have to remember, Southwest began in a day when people donned coats and ties to fly. Flying was a high-class activity. Airlines didn’t discount, and airline “hostesses” didn’t wear hot pants. More than one American thought those first Southwest uniforms—short shorts, big white belt, go-go boots—heralded the collapse of civilization. Many other Americans thought those hot pants were pretty hot.
Baby, that was one sexy decade, and Southwest did all it could to live up to the racy side of LUV. An ad recruiting Flight Attendants read, “Dear Raquel Welch: We’d like to offer you the position of a hostess with Southwest Airlines.” Ms. Welch didn’t apply for the 40 open positions, but 1,200 other women did.
Southwest was breaking rules even for the do-your-thang ’70s. After all, no other airline offered a bottle of Chivas Regal or Smirnoff with a $26 plane ticket. Like most of Southwest’s crazy-brilliant marketing schemes and pricing strategies, this one originated in a crisis. Braniff cut its fares to $13, hoping to kill its rival. In response, Southwest matched the fare. Customers willing to pay the full fare—many of them business travelers on expense accounts—got a bottle of booze. The liquor cost the airline less than $13, so Southwest lost less on the fare discounting than Braniff did. In this dogfight, you almost feel sorry for the overdog. That was 1973, the first year Southwest made a profit.
15. Invent your own Culture and put a top person in charge of it.
The person behind Southwest’s unique culture is Colleen Barrett, the airline’s former president. A native of tiny Bellows Falls, Vermont, and a graduate of Becker Junior College, Colleen (no one calls her “Ms. Barrett” and gets away with it) was Herb Kelleher’s legal secretary when Southwest got its start. She started as the corporate secretary in 1978, rose to VP of administration in 1986, and became president and chief operating officer in 2001. By the time she stepped down in 2008, she had crafted the tone and SPIRIT that defines Southwest today, from the legendary annual Halloween party to the way a gate agent treats a Customer.
Sporting a long white ponytail, she looks more like a sweet grandmother (actually, she is a grandmother) than a corporate titan. But anyone who acted against the Southwest way of doing business—who, in other words, behaved in a way that seemed less than heartfelt—were immediately set right.
Heartfelt. If one word defined Colleen and the Culture she worked to create, that’s it. We love that Forbes rated her above Queen Elizabeth II in its 100 Most Powerful Women ranking in 2005. She didn’t make No. 1., but only because Forbes doesn’t grade people by the size of their hearts.
16. A Culture has its own language.
Throughout this feature you’ll see some unusual wording, spelling, and capitalization: pilots are Pilots, passengers are Customers, and love is LUV. That’s all part of Southwest’s focus on its internal Culture. These people and that LUV are too important for ordinary spelling. Call it the Southwest dialect. It’s a meaningful thing.
17. The legal part is never over.
Just when Southwest was about to take to the sky, the competition took their case to the Civil Aeronautics Board and a Texas court in Austin, claiming that the new airline was about to violate federal law by carrying interstate Passengers. Some of them, the argument went, were hooking up with other airlines to fly away from Texas. Therefore, the Passengers were interstate and under the jurisdiction of federal law. The federal board threw out the complaints, but the Texas court issued a restraining order.
Herb Kelleher flew to Austin from Dallas—on a Southwest 737. Though the airline wasn’t permitted to fly as an airline yet, it was required to do dry runs on all the routes without Passengers. Herb told the Pilot to drop him off in Austin—a town that had never seen a 737. A crowd met the airplane and watched as a lone man came down the steps onto the tarmac. Herb hadn’t been able to change clothes for days, and he hadn’t shaved. And so Austin was denied a high-class historic moment.
Herb went straight to the Texas Supreme Court building, where his appearance won the sympathy of Judge Thomas Reavley, the man who had written the 1970 opinion that had won Southwest the right to exist. The judge ordered the entire Supreme Court to show up first thing the next morning so that Herb could plead his case. And Herb pulled another all-nighter to prepare. The next day, the Texas Supreme Court overruled the lower court. Just in time, too: Southwest was scheduled to begin Passenger flights the day after.
Herb phoned Lamar Muse to tell him they’d won the case. Lamar suggested that the sheriff was likely to show up at 7 the next morning, since it would take a while for the court opinion to reach the authorities.
“Lamar, you roll right over him!” Herb replied. “Leave our tire tracks on his uniform if necessary.”
The sheriff’s uniform remained unspoiled. On June 18, 1971, the three planes took off, carrying Passengers to Dallas, Houston, and San Antonio.
18. Have a recognizable home.
Southwest’s founders made Love its home. Dallas Love Field, the airline’s home base, was built as an Army air base in 1917 and named after a heroic young officer named Moss Lee Love. Not every
Company would make Love its whole tone, its mood, its … ethos. Newspaper ads run by the airline in its first year mentioned “love” 18 times. After 1977, when the New York Stock Exchange made Southwest’s ticker symbol LUV, the airline insisted on giving “love” a ’60s-mod spelling: It’s all about LUV, man. But originally it was about a military base. Swords to ploughshares.
It wasn’t an easy home to keep. Another legal dogfight began in 1973, when the Dallas City Council tried to kick Southwest out of Love Field. Dallas/Fort Worth International Airport was the new home for all the other airlines serving Dallas, and those airlines would absorb any financial losses at DFW. The lawsuits over Love continued through 1977 and went to the Supreme Court, and each time Southwest won. But it lost in Congress, which passed the Wright Amendment in 1979. The new law limited interstate service from Love Field to bordering states. The law is still in effect, with many modifications. It will finally expire in 2014.
19. A crisis can contain the germ of a big idea.
Yeah, that’s a fancy way of saying “Necessity is the mother of invention” or, as Ralph Waldo Emerson put it, “A weed is a plant whose virtue has not yet been discovered.” Southwest had to pull up its own weed on May 13, 1972, when a court ruling forbidding out-of-state charters forced the company to sell its fourth aircraft. That plane had been used for regular flights as well as charters. With only three planes to serve 29 daily flights, the airline devised the 10-minute “turn”—getting each plane to pull into the gate, perform maintenance, stock supplies, load Passengers, and push back in just 10 minutes. The industry average at the time: 30 to 40 minutes.
20. Simplicity has value.
In the fall of 1972, Southwest introduced the two-tier fare system. Regular fares were $20 to $26, and “Pleasure Class” fares—offered on weekends and on weeknights after 7 p.m.—cost just $13. To this day, the fares are simple. No extra fees.
Simplicity extends to equipment. The airline chose to buy 737s for most of its fleet. This concentration on one kind of plane makes maintenance more cost-effective and allows more efficient training for Flight Crews and Ground Crews.
21. It doesn’t hurt to look like a toy.
If you want to seem playful, add value by making people think of playing with your products. Look at the most successful tech gear: toys. Southwest took that notion a step further in the ’80s by making planes irresistible to a gargantuan kindergartner. In 1988, dignitaries including Herb, the chairman of SeaWorld of Texas, and the mayors of Dallas and Houston dressed as penguins and boarded the maiden flight of Shamu One, a Boeing 737-300 painted like a whale. There are now three Shamus flying Southwest Customers.
22. Remember your chief mission.
Don’t let the onboard jokes fool you. Southwest’s official No. 1 priority is Safety. The airline continues to sit at or near the top in that category in rankings by the International Airline Passengers Association andother industry surveys.
23. Instead of whining, give a lollipop.
In 1988, the federal government banned smoking on flights of two hours or less. If anyone had a reason to cry, it was Herb, a man who likes his cigarettes to this day. The standard response to any new law is to complain about it—it’s the American way—but Southwest instead handed out 200,000 lollipops to nicotine-deprived Customers.
24. It helps to have an extroverted Leader.
Throughout much of Southwest’s history, Herb earned millions of dollars’ worth of free publicity through a studied hamminess. He began appearing in television commercials in the 1980s, wearing a sack over his head out of “embarrassment” over his airline’s ridiculously low fares. Another spot showed a plane proving Southwest’s fast turnaround time by closing its door and pushing back without him. He posed on the cover of Fortune (“America’s Best CEO?”), showed up at a company-wide event wearing a straitjacket, and even appeared in a rap video.
25. Get into fun advertising wars.
As Herb proved, controversy can extend your advertising budget. One print ad read, “WE’D LIKE TO MATCH THEIR NEW FARES, BUT WE’D HAVE TO RAISE OURS.” Southwest took its competitiveness to its advertising as recently as this year, when it sent real Employees after rival airlines’ planes to “arrest” them for charging bag fees.
26. Take your business, not yourself, seriously.
In 2005, Chief Executive magazine ranked Herb third behind Jack Welch and Bill Gates as one of the top CEOs of all time. We would rank him as the funniest. During the toughest legal battles Southwest fought against its many corporate rivals, Herb won the media’s sympathy through self-deprecating humor. At one public meeting, an ex Marine asked a question and added, “I don’t want any B.S.” (He didn’t use initials.) Herb replied, “Then I’ve been rendered mute.” Our source makes the quote significant: We heard it from current CEO Gary Kelly, whose own humor has a self-deprecating flavor. It’s a tone that works, especially after your company has risen from underdog to big dog.
27. See your business as a cause.
Southwest’s mission is Freedom to move about the country. Before Southwest, only 15 percent of adults in the United States had flown on even one commercial flight. By the end of the century, 85 percent had taken to the skies. A prime reason is the “Southwest Effect”—the phenomenon in which the entrance of Southwest into a market lowers the average fare on other airlines while dramatically increasing the number of Passengers.
28. Put the worker first.
It may surprise you to learn that Southwest is the most unionized airline, with 85 percent of Employees in unions. Yet the airline has a reputation for amicable relations, and its work rules are remarkably flexible; it’s not unusual to see a Pilot help clean a plane to ready it for its next flight. What’s the deal? “Lemme put it this way,” union leader Tom Burnett told the Wall Street Journal in 1992. “How many CEOs do you know who come in to the cleaners’ break room at 3 a.m. on a Sunday passing out doughnuts or putting on a pair of coveralls to clean a plane?” Southwest was also the first airline to offer a profit-sharing plan, in 1974. Employees now own 13 percent of the airline.
Employee relations lie behind the secret to Southwest’s Customer relations. Well-treated Employ-ees translate to well-treated Customers. No wonder Customer Satisfaction ratings have led the industry for years.
But the biggest proof of Southwest’s capital-E Employees-first value came after 9/11, when other airlines laid off thousands of workers. Instead, at the request of Southwest Employees who wanted to show their appreciation, the Company allowed Flight Crews to donate a trip (or salaried Employees to donate 1-to-32 hours of work) as a way to help the Company. The airline closed out 2010, after the worst decade in aviation history, without having furloughed Employees.
No wonder it received 143,143 résumés in 2010 (it hired 2,188 people). The place doesn’t just feel like a Family; to many, it’s literally a Family: 2,416 SWA Employees are married to each other.
29. Sweat the small stuff, but try not to lawyer it.
In 1992, Southwest got into a tiff with Stevens Aviation. Both companies were using the slogan, “Just Plane Smart.” The typical way of settling an issue like that is to take it to court. Instead, the CEOs of the two companies arm wrestled for the right to use the slogan. Calling the match “Malice in Dallas,” they gathered cheerleaders, employees, and professional wrestlers for a publicity-happy extravaganza. The money saved in legal fees went to charity. Herb lost.
Oh, well. Plenty more marketing puns where that came from.
30. Beware of imitators, but take them as a compliment.
As soon as people stop making fun of your idea, they’ll start imitating it. That took the airline industry a while, in Southwest’s case. In the mid-’90s, four major airlines attempted to steal the Southwest plan with United Shuttle, Continental Lite, Delta Express, and US Airways’ MetroJet: all low-fare divisions of legacy airlines that attempted to copy the operation and business philosophy of Southwest in many of the same markets.
They failed.
31. The Web ain’t cool, it’s a tool.
Southwest was the first airline to establish a home page. By 2010, Southwest.com boasted more unique visitors than any other airline, and ranked as the second largest travel site.
32. Set and renew noble expectations.
Every Southwest Employee gets a set of expectations that include aspects of the “Warrior Spirit” (be courageous, display a sense of urgency), “Servant’s Heart” (follow the Golden Rule, put others first), and “Fun-LUVing Attitude” (don’t take yourself too seriously; celebrate successes). Okay, lots of corporations put out expectations like that. The thing is, Southwest Employees can recite them to you.
33. Increasing size should make you a force for good.
Three thousand, four hundred flights a day. Almost 35,000 Employees. Eighty-eight million total Passengers carried in 2010. Net income half a billion. Five hundred forty-eight Boeing 737 jets. A danger of rapid growth is that people will no longer sympathize with you.
Southwest has tried to use its size to its advantage, partnering with an increasing number of causes as it grows, helping to fight cancer, diabetes, AIDS, muscular dystrophy, and other illnesses. The LUV Classic golf tournament has raised more than $11 million for the Ronald McDonald House Charities since the event was first game in 1985.
It’s no accident that Southwest was the only airline named to the annual ranking of the Top 50 Most Socially Responsible Companies in the United States by the Boston College Center for Corporate Citizenship and The Reputation Institute. And the Company received a near-perfect score on the Human Rights Campaign Foundation’s ninth annual Corporate Equality Index Survey, which grades U.S. employers on categories such as nondiscrimination policies, training, Employee benefits, Employee support through diversity councils, and marketing.
34. Get green.
People will happily consume products and services and then blame the producers for the environmental consequences. The answer is not to blame the Customer but to embrace conservation and to be open about environmental impacts. Southwest was one of the first companies in the United States to produce an integrated report with a triple bottom line: Performance, People, and Planet. Harvard wrote its first case study on integrated reporting based on Southwest and taught the case in its business school in October 2010.
Southwest found itself ranked in the top 150 in Newsweek’s 2010 Green Rankings of the largest publicly traded companies in America, and was named Greenest Airline by the nonprofit group Climate Counts in 2011.
35. It’s about Customer Service, not “scalability.”
SWA has consistently received the lowest ratio of complaints per passenger boarded of all major U.S. carriers since the Department of Transportation started keeping track in 1987.
36. Listen to advice, then celebrate it.
For years, Michael Levy, the founder and former publisher of Texas Monthly magazine, bugged the Southwest brass about the fuel-saving advantages of putting winglets on aircraft—those little triangles on the ends of wings. In 2003, Southwest took the suggestion. For a month, a set of the new winglets bore Levy’s picture.
37. Pick your peaks and stick to them.
Southwest started out aspiring to be the No. 1 low-fare airline, the No. 1 airline for Customer Service, and the safest airline. It has tried to lead the large airlines in on-time arrival and baggage handling. And it has led in all these categories year after year. It now also boasts the world’s largest all-Boeing fleet, and the most domestic Passengers of any airline. Oh, and it gets repeatedly ranked among most admired companies in the world by Fortune (4th in 2010, and the only commercial airline among the top 50). Finally, it’s recognized as the Best Domestic Value, Best Luggage Policy, Best Check-in Experience, Top Website, and Best Consumer On-Time Estimates in the 2010 Airline Survey conducted by Zagat.
38. Manage permanence.
Business pundits talk about “managing change.” Equally important is knowing what not to change, and how to keep what you want to keep. CEO Gary Kelly has managed for permanence in the essential qualities of Southwest: low fares, Customer Service, simplicity, and FUN. This Company changes like crazy. And it stays the same like crazy—in ways like, say, being crazy.
39. Never rest on your laurels or you will get a thorn in your, um, butt.
We stole that almost verbatim from Herb. (Being Herb, he used spicier language.) Southwest continues to take that wisdom seriously. The just completed $1.4 billion purchase of AirTran gives the combined airline a powerful presence in Atlanta’s Hartsfield-Jackson International Airport, the world’s busiest. The acquisition also expands Southwest’s operations at Ronald Reagan Washington National Airport, New York’s LaGuardia, as well as in Charlotte and Memphis. Plus Miami, Des Moines, and Wichita. Southwest will enter 38 new airports, and is working to open AirTran’s international routes to its network.
The merger will fly more than 100 million Customers each year to more than 100 airports.
So much for resting on laurels.
40. It’s OK to be unprofitable for a year.
Just be sure to be profitable for at least the next 39.
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