As I type this I am about 100 metres from the surf. The only thing between me and the beach is a swimming pool! I’m living in a place where most people come on holidays. The reason I mention that is that I spoke to one of the other couples here this morning, and they reminded me about the difference between employees and business people. Let me explain that.
They told me about several local businesses that operate a ‘closed shop’ business. What that means is: they no longer accept new clients. They deal only with their existing clients. I have no problem with being ‘exclusive’, but that is not good business unless you deal with a very high profit business, and you have considered all the options. Let’s look at some different perspectives now.
First, the most obvious one is – clients do not stay forever. They move home, they change jobs, they get married or divorce, and they retire. There are many major life events that will change their needs. They no longer need the latest fashion clothing, maybe now they need baby clothes? Perhaps they no longer need a sports car, they need a practical family car?
Having a closed book of clients means that over time your business will die, unless you can attract the right client at the right time. And that’s not always possible. Is there an alternative?
Of course, there are always alternatives. The right alternative will depend upon why the business owner closed their books in the first place, but let’s use the example that they only want to work three days a week.
Do that, buy all means. If that’s what you want to do, then the very best of luck to you. Just hire or ‘JV’ with someone for the remaining days a week. That way the business is open when and attracting new clients when it needs to be, and the owner gets a supplementary income. It doesn’t matter of the second person isn’t quite as good as you, as long as they are competent they will operate a suitably successful business. They don’t have to be as good or better than you – it could be that if they are they might steal business from you!
That gives you the option of working three days a week, and of opening another outlet. So, maybe one or two days in the original location, and the remainder in the new location. Use your reputation to attract new clients at the new location, and when the time is right add a second practitioner there too. That allows you to work maybe two days a week, and still retain the earning capacity you had when you opened for only three days, all your own efforts and in the one location.
Where one business is discouraging new clients the second model is much more welcoming, and therefore much more long term.
Now some will be thinking “exclusivity”. I have no problem with being exclusive. Many successful brands are exclusive. Rolls Royce, Ferrari, Aston Martin, and Gucci, YSL and all the others are very exclusive. They still open every day someone wants to buy, though.
Employees think that they will do just enough not to get fired, and normally that are paid just enough so they don’t quit. That is not a good mind set for a business owner.
A business owner has to think “How else can I best serve the needs of my client”, not “How do I get this person to spend their money and go home as quickly as possible?”
One mind set is tuned in to expansion, the other is tuned in to minimal levels.
Let me just ask you a question – which business would you rather do business with? The one that considers you a disruption or the one that truly wants to serve you?
Send us the answer to that question, or ask one of your own, or just give us a comment – use the tag at the top left of the screen to login (or register) and tell us what you are thinking.
Many advisors tell us to look at what the best guys are doing and copy that. I have advised against doing that for years, since it automatically puts a limit to your success. By doing what someone else does you naturally cannot do better than them! If you want to do better than your competitors you have to do something else. Here is the solution.
What you have to do is be better than the other companies. I’ve already written on how customers leave a company over time (Refer http://bit.ly/hUdS6J), and how this means that to just maintain your position in the market you have to be/do better each year.
It means that to improve your position you have to do much better every year, and that means that you must do much better than your immediate competitors, and that means doing something different (and much better) than them!
“Harvard Business School professor Michael Porter distinguishes between strategic positioning and operational effectiveness. Operational effectiveness means a company is better than rivals at similar activities while competitive advantage means a company is performing better than rivals by doing different activities or performing similar activities in different ways. Investors should know that few companies are able to compete successfully for long if they are doing the same things as their competitors.
Professor Porter argues that, in general, sustainable competitive advantage gained by: A unique competitive position
Clear tradeoffs and choices vis-à-vis competitors
Activities tailored to the company’s strategy
A high degree of fit across activities (it is the activity system, not the parts, that ensure sustainability)
A high degree of operational effectiveness”
That does allow you to take inspiration from your competitors, as long as you remember that what they are doing is only the starting point. You must put your own stamp on it, and improve on what they do (And remember – they are probably doing the same to you, so be prepared to make it even better by this time next year).
So how does your offering differ from all others? In what way are you unique in the mind of your customers (and potential customers)? What are you prepared to do differently to achieve your targets and goals? Is everything you do aligned behind your business targets? What about your staff? Does every part of your business support the overall aims of the company? Can you get better at what you do?
When you have positive answers to each of those questions you will be well on the way to attaining all of your business targets and the associated lifestyle!
Do you have any ideas that you’d like to share? What experience have you had with a company that is (or isn’t) aligned? Just click the ‘Comment’ link below this article and let us know!
You also need to look outside your industry, and in your industry in other geographies where perhaps there are innovations that you can use.
Increase your profit without any additional expense – starting tomorrow morning!
This means that you have the remainder of today and tonight to start using `The 5% Rule’ and increase your profit by up to 35% per year.
By simply focusing on 3 aspects of your business you can easily increase your profit and this includes putting your prices up!
I came across this method some years ago and can not remember who needs to receive credit for the idea. Having introduced The 5% Rule to many small businesses in the past, significant changes have returned extra profit for the owners or managers that have implemented this concept. At first they found it hard to believe that you can do this and to get away with putting their prices up but you will shortly find out that this is not as bad as it seems.
(To some degree this concept can also be adapted to service based businesses).
What you will need
You need a printout of your expense accounts relating to:
You will also need a clear and creative mind. Be prepared to talk to your staff for their ideas as well and especially if you are struggling to come up with some simple options by yourself.
How does it work?
What you will do is:
You may not be able to reduce the first 2 by 5%, you may initially only find 3 or 4% but that is better than not at all.
Some ideas to get you started…
Reducing Cost of Goods
Where else can you reduce your costs?
Do you use too many biros in a year? Do they all seem to disappear into a mysterious black hole?
Buy all your staff a nice but bottom of the range Parker pen and inform them that there will be no more plastic biros. If you lose this one, you buy the next one.
You will suddenly find that firstly they feel just that little bit more important and professional using a `nice’ Parker pen. They will not lose it and they will definitely ensure that customers do not suddenly walk out the door with `my’ pen.
Use printing paper that usually goes into the shredder and turn it into note pads, rather than buying pads.
Are you giving your employees free personal calls, on your phones?
Its a nice gesture but those calls are not increasing your sales and profit. It is actually unnecessarily adding to your expense and most people already have their own mobile phones now. If you have given employees a work mobile, do they use them for personal calls? This costs you even more.
Can you reduce your electricity costs?
Turn off unnecessary lights and computers overnight or at the least put your computers on the hard disc hibernation setting. Turn off the electronic cash register, appliances and anything that definitely does not need to be on after hours, including anything on standby power.
[Start some lateral thinking about your expenses. One business that I worked with complained that within the last 3 months their sales had quickly dropped off, for no apparent reason. They had filled their street-front windows with display boards to show their new clothing lines. Passing foot traffic started to slow for 2 reasons. The display boards showed clothing to a narrowed consumer taste, deterring shoppers from looking further into the shop. The display boards also meant that passing trade could not even see into the shop. The owner removed the display boards from the windows, allowing shoppers to see the entire range of clothing and accessories as they walked past. Sales increased but they also found that by removing the display boards from covering their front windows they only needed to use one third of their internal lights, as they had now let all the light back in through the front windows. They also unexpectedly found that their electricity cost had now reduced dramatically.]
Can you improve the effectiveness of your yearly advertising/promotional strategy so that you pay less for improved exposure or for better targeting of your market?
(See other articles on this site for new strategies)
Now go through your business and start looking at where you can reduce both your overheads and your cost of goods, each by 5%. If you can make it even more than this figure then all the better.
Increase your sales profit margin by 5%
Most people will immediately panic at the thought of just arbitrarily increasing their prices by 5% but what you are going to do is actually increase only the profit margin by 5%. If you do the maths on your products you will find that increasing the profit margin hardly increases the retail price by that much at all. In fact it is usually hardly noticeable to even the discerning regular customer unless your products are extremely price sensitive.
For example, this means that with an item retailed at $123, the price may only increase to $125 (inc GST).
But you have increased the profit margin on all items on every sale by 5%… get out the calculator and see how much additional income you have just created across 12 months.
Combining the savings from the Cost of Goods and from your overheads to this price increase and there are quite a few thousand dollars extra in your bank every year. The reduced costs have converted savings to your bottom line but also stopped eating into your profit margin and actually become additional profit.
Find the motivation for this exercise
To see how much extra profit you can have , use last year’s financials and start working that calculator. See how much more profit you will have by subtracting 5% from last year’s overheads expenses and subtracting 5% from last year’s Cost of Goods expense.
Now add 5% to last years gross profit.
What is your total extra profit and is it worth aiming for this over the next 12months? Some small businesses have reported back an additional $20-50,000 the next year and now they try to find additional cost savings every year.
If you have employees and you want to reduce your overheads, involve them with a push to be much more environmentally friendly and start reducing the wastage. Get their ideas on cost savings as well and then reward them with a bonus from the additional profits.
Maquette (a game by Hanford Lemoore, who retains all rights) is a game based on recursion, where the player is in a world where the only visible items are a smaller version of this world, with an even smaller version visible inside that. Think of the view when two mirrors are placed in front of the other or when you first look at your screen capture program. So how does that help your business?
The concept in Marquette is, I’m told, to move things in the ‘middle’ world and watch them move in the other worlds. In other words the real world is controlled by manipulating a representation of it.
In business we have the real world and our plan for the future. The parallel between the smaller world and the plan is obvious, but t hat’s not the real lesson here!
Recursion is defined as “ the process of defining a function or calculating a number by the repeated application of an algorithm”. The point for business owners and managers is that sometimes you don’t get it 100% right the first time.
Often you need to “try that again” with an improved feature – maybe a different close, or a different headline for an advert for example.
Once the new concept works the way you want it to you can implement it and bank the rewards, until then be prepared to revise and try again, measuring each iteration of course, and then selecting the one that performs best.
Then you only need consider any improvements that can be made over time to maintain your place in the market. That just means that you take more time between revisions!
Do you already review and improve your business on a regular basis, or do you avoid any change at all? Tell us about your experiences in improving your business results.