How to Build Good Credit for Your Business

Today we offer the latest edition in Larry Chiang’s long-running series on “Things They Don’t Teach You At Stanford Business School,” which he is turning into a book. (A list of Larry’s earlier posts is below.) This month’s installment is about how to build good credit for your business in a recession.

April is financial literacy month and it’s meant for kids — but we entrepreneurs can learn something too. Surprise! None of these tips are taught in business school. Credit isn’t a class taught inside such Ivory Towers. (I think maybe because we’re supposed to be too good to worry about our FICO scores?) But then, again, credit rules are archaic, so its understandable that Stanford GSB doesn’t school its kin in such minutiae. But I plan to, because especially right now — as we teeter into a recession — a lot of founders are going to learn just how powerful good credit can be.

My 9 Tips for How to Build Credit for Your Business…

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Recession-Prep: Don’t focus on cost-cutting. Focus on growth.

moran.jpg These are turbulent times: Bear Stearns, tough credit, long returns, and everyone worried. A time when everyone is once again, focused on cost. What can we cut? Where are there some savings? Are there any heads we can let go?

My experience is that cutting costs is not that hard. As a consultant, I once had a client ask me to only get paid for costs I could cut. I thought to myself, “This could be my biggest payday yet. I will cut all costs. I will get expenses down to zero.” I didn’t say that and we came to an agreeable compromise but it is a good reminder that cutting costs is not hardest part of organizational transformation – growth is harder. Growth is what makes an organization successful, it is what keeps people in their chairs and it is the hardest thing to do.

Don’t believe me? Here is a scenario that has taken place in a thousand conference rooms in the last three months. Read More about Recession-Prep: Don’t focus on cost-cutting. Focus on growth.

Off Topic: Bear Stearns Bailout — It’s the Prime Brokerage, Stupid

By now you all must be up on the news about Bear Stearns being sold for $2 a share to J.P. Morgan Chase. That’s roughly $236 million for an 85-year-old investment bank that was worth $20 billion only a few weeks ago. If you read the top dailies today — The Wall Street Journal, The New York Times and The Washington Post — you will get a 360-degree view of the crisis.

However, the big question is why did the Federal Reserve decide to underwrite $30 billion of its less liquid assets in order to get J.P. Morgan to buy Bear Stearns? It’s a big risk the Fed is taking, and I want to know why. After all, it’s the American taxpayer who would be left holding a bag of rocks if things go sour. Read More about Off Topic: Bear Stearns Bailout — It’s the Prime Brokerage, Stupid

Eliot Spitzer: Leadership Has No Sacred Cows

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“Never write when you can talk. Never talk when you can nod. And never put anything in an e-mail.”Eliot Spitzer, (then) Attorney General, New York State.

This is what New York Governor Eliot Spitzer had to say in late 2005, the year before he became NY governor, when I asked him for a contribution to Business2.0 magazine’s annual My Golden Rule feature, a collection of “life lessons” from admirable leaders worldwide.

Spitzer’s contribution was popular with my B2.0 editors — playing, as it did, off the raft of corporate criminal trials taking place across the country at that time (Martha Stewart, Frank Quattrone, Tyco, Worldcom, Adelphia, Enron).

Now The New York Times has broken the story that Spitzer has been linked to a high-end prostitution ring. People were expecting a resignation yesterday, bringing to a cataclysmic end what was — only a few years ago — one of the most respected legal and political careers in the country. The great irony here: Spitzer was caught in the FBI’s dragnet thanks to some taped phone calls and a few unseemly text messages authored by, none-other-than. Read More about Eliot Spitzer: Leadership Has No Sacred Cows