This BUSINESS guide breaks down the process of business into its various components and provides further insight into how best to conduct each.
We will also look at the reasons why you might not be getting the results you wish from your business, covering both motivational and productivity difficulties.
If I were to roll up what a business does in one sentence it would be
“Provide value that people will pay for.”
Another interesting quote I came across, which expands on the above description, comes from Josh Kaufman and pretty much covers all the bases is …
“Very successful business (1) creates or provides something of value that (2) other people want or need (3) at a price they’re willing to pay, in a way that (4) satisfies the purchaser’s needs and expectations and (5) provides the business sufficient revenue to make it worthwhile for the owners to continue operation.
Value can’t be created without understanding what people want (market research). Attracting customers first requires getting their attention, then making them interested (marketing).
In order to close a sale, people must first trust your ability to deliver on what’s promised (value delivery and operations). Customer satisfaction depends on reliably exceeding the customer’s expectations (customer service). Profit sufficiency requires bringing in more money that is spent (finance).”
So let’s break the first paragraph of this quote down, to look at what each part means
- Create and provide value (check out our post about adding value)
- That other people want or need
- At a price they’re willing to pay
- In a way that satisfies the purchaser’s needs and expectations
- Provides the business sufficient revenue to make it worthwhile for the owner
We can sum this up by saying we should … Provide value that people will pay for, which provides a worthwhile profit.
The big question is “How do you provide value that people want?” (find out here)
The second part of the quote has the following components …
- Must understand what people want (market research)
- Must first get attention and make them interested (marketing)
- Prospects must trust in ability to deliver what’s promised (value delivery and operations)
- Customer satisfaction depends on reliably exceeding customers expectations (customer service)
- Must bring in more money than is spent (finances)
Lets look at each of the areas highlighted:-
The main point of market research is to find what NEEDS or WANTS your target market has, and how best to deliver a solution that is valuable enough that customers are willing to pay for it.
Sometimes entrepreneurs come up with a solution first and then try to find a market for it afterwards, but this can lead to a great deal of frustration and wasted time. It’s effectively doing it the wrong way round.
If you’re just starting off a business, try to target an expanding market, otherwise you’ll find you have to work harder each year to make the same level of profit, and secondly if you’re looking to take advantage of a trend make sure you’re ahead of it, not behind it.
There are a number of sources for information you may be able to take advantage of, for your market research;
Existing Customers – If you’ve been in business for a while, learn from existing customers. Ask questions and listen carefully to what they tell you.
- You can ask them in your face to face interactions,
- Send a one or two question email to your mailing list,
- Analyse your own customer records to find out more about your customers,
- Research your strengths and weaknesses via customer satisfaction questionnaire – Find out your strengths by asking your customer “what is the best thing about our …” and use this strength to market on.
Watch what your competitors are doing – via the internet and local marketing strategies. If they have been doing something regularly for a prolonged period of time, it’s likely giving them a sufficient ROI (return on investment), so might be something you could consider doing yourself. The beauty about marketing is it has to be visible to be effective, which makes spying on competitors rather easy.
Getting general info from the web – The Internet Advertising Bureau (IAB) is the UK trade association for digital advertising, representing the UK’s leading brands, media owners and agencies and provides useful market research data. Or you can try the Interactive Media in Retail Group (IMRG) for retail sales data. If you’re on a budget, go to Google and type in “internet access” or “on-line shoppers” or more specific “on-line shoppers market size”. Do more specific niche based searches to fine tune your focus, you might be surprised what you find.
Getting media data – Check out the Audit Bureau of Circulations abc.org.uk for data on magazines, national and local newspapers and exhibition visitors, www.abce.org.uk info for electronic media, www.barb.co.uk for TV, www.rajar.co.uk for radio, www.postar.co.uk for outdoor media such as posters
Tapping into government resources – The Office of National statistics is a great source of information for population statistics.
Value Delivery and Operations
These are your core business activities, the process where you aim to deliver value to your customers. It’s the processes you employ to add-value to whatever raw materials/input you use.
Key resources allow businesses to create and offer a value proposition, reach markets, maintain relationships with customer segments, and earn revenues. They can be physical, financial, intellectual or human. They can be owned or leased by the company or acquired from key partners.
Ask yourself what key resources your Value Propositions require?
- Distribution channels?
- Customer relationships?
- Revenue streams?
Types of resources include:-
- Physical – manufacturing facilities, buildings, vehicles, machines, systems, point of sale systems, distribution networks.
- Intellectual (brand, patents, copyrights, data)
- Human – skills, labour, expertise
- Financial – lines of credit, cash i.e. Ericsson borrows from banks and capital markets and uses a portion of proceeds to provide vendor financing to equipment customers, thus ensuring that orders are placed with Ericsson rather than competitors.
Customer service is all about managing customers’ expectations. You do this by communicating exactly what the customers will be getting in exchange for their money (value exchange).
If there is a gap between what you are able to deliver at any particular price point and what the customer expects to receive, you have a problem, which is usually manifested by getting customer complaints and bad reviews. Ask yourself the following questions;
- What are customers’ expecting?
- Is this realistic for the existing price point? If not why not?
- Can customers’ expectations be met if more is paid – premium service upgrade?
It is much better to under promise and over deliver than doing what most businesses do and over-promise and under-deliver, which is generally the reason for customer dissatisfaction.
One of the best pieces of advice I can give is to “Go the extra mile” by providing even better service, and better solutions than the customer could ever hope to expect.
The main point of business is Profit, it should be a far bigger consideration that Turnover. Remember the old adage “turnover is vanity, profit is sanity.” Turnover is known as the top line figure on a profit and loss statement and profit is usually found on the bottom line.
One of the most important figures to pay attention to is Cashflow. It is the life blood of any enterprise and without it, even if you are trading at a profit, your business is dead, because you won’t have the money available to trade with, when you need it. We will be linking to a finance related post in the near future.
Longer term Strategies
Protect against competition
- High switching costs that prevent customers from dropping one company’s products for another. Such as difficulty finding an alternative product, or locking customers into multi-year contracts
- Pricing power or Price advantage or economies of scale, allow a firm to cut costs more than its rivals. Using size to get good prices from suppliers (the bigger the firm relative to its suppliers), having good distribution networks to keep delivery costs low.
- Competitive rivalry low – the fewer peers a firm has the better,
- Product differentiation – strong brands, and integrated products into a particular lifestyle, Coca Cola, Gillette are both able to charge a premium price to their competitors.
- Ability to lock out competitors, perhaps by holding a patent (pharmaceuticals) or license (TV broadcast rights, train franchises, which give a company a monopoly for a period of time).
- The network effect – the large number of users make the business difficult to break (Ebay), the more users the stronger the business becomes and the harder it is for competitors to break into their dominance.
Evolving your business model (more about business models here)
One of the main qualities you will need to run a successful business, is the ability to adapt. The business landscape is rapidly changing and if you, as a business owner or entrepreneur, are not prepared to stay nimble and adjust as required, you will get chewed up and spit out. Even some big institutions have fallen foul of not being adaptable enough, big brands like Woolworth’s, BHS, and Blockbusters were once high street favourites, but are sadly, no more. There are a number of strategies you can use to stay adaptable;
- Evolve your product mix. For example HMV moved into live events and the ticketing market (by buying venue owner MAMA group) in reaction to dropping CD sales.
- Transfer skills into another field. For example electrical engineering into installation of solar panels.
- Utilize assets for another purpose. For instance, use farmer’s field as a shooting range, or a car sales lot used as a hand car cleaning centre, change a struggling pub into a restaurant, or use an unrented shop as an advertising display (large window ads). A local example that I know about is Leigh spinners changing from making domestic carpets to making artificial grass.
- Reduce debt and strengthen financial position by selling off under-performing assets and under-performing business activities.
- Sale and leaseback of assets
- Lower prices on some ranges in response to customers saying you need to offer better value, offset this by introducing a number of premium range products.
Releasing equity from assets
- Property can be sold off and leased back (freehold property),with the money that is raised, put back to increase dividends or a share buyback programs launched.
- Real estate investment trusts.
- Asset disposals – recycle cash raised into acquisitions in fast growing emerging markets.
- Increase debt leverage
More focused business model
Drop non-core businesses to concentrate on prime business activity
- Diversify – but be careful of going into unfamiliar markets/products.
- Avoid accepting extra contractual liabilities in areas such as product warranties and recall costs, or getting involved in desperate bidding for contracts – and the subsequent cutting of corners on quality and safety to keep the contract viable,
- Vertical expand along supply chain otherwise known as upstream/downstream expansion
- Horizontal expand with more branches.
- Growth can be done via takeover, merger, new start, franchise, partnership, licensing.
- Recondition the business – refurbish stores, upgrade your internet offering to take advantage of weaker competitors.
- When expending into foreign markets it is often best to franchise, and use local knowledge and expertise to run in that country, as they will understand that market better than you.
- Transfer skills into another field i.e. electrical engineering into installation of solar panels.
- Beware the extrapolation trap – because you make a profit on a small operation doesn’t mean that it will still make one on a larger scale. For example a game swap website offering to check the condition of games between buyers and sellers ran into trouble as it was being scaled up, because labour costs escalated beyond the narrow profit margins it operated under, making it unviable.
- Don’t over complicate your business from the point of view of your customers. If you’re thinking about branching into related support services, like an hotel starting to taxi guests around, think of your business more along the lines of being a holiday business rather than a hotel and taxi business. Think about what your customers will see your business as and try to keep it simple for them to understand. BP are not an oil company but better described as an energy company.
Start planning early for your exit.
In an ideal world, you would have possible exit routes in mind when you first set up the business. But at the very least you should start planning a few years ahead.
Planning lets you get your business into the best possible shape for an exit.
Identify a particular year, level of sales or other objective. For example, if you plan to retire at 60, you might want to start considering your exit at 55. You can always change your plans later if you need to.
Exit routes include:
- Trade sale – usually the best way to get a good financial exit,
- Liquidation – bleed the company dry. Take all the spare money out of the business for personal use, rather than reinvesting it into the business. Just stop trading,
- Buyout – employees, managers,
- Family succession,
- Management buy-in – funded by venture capitalists,
- Business being acquired – bought out by a rival,
- IPO – float on the stock market,
- Merger – this will not really give you an exit, but you may be able to retire soon after.
So we’ve tried to keep this guide as concise as possible, but there is much more to running a business that you might initially realise. Having covered most of the bases, we will now have a look at some of the personal issues you might encounter as a business owner, that might be holding you back.
Reasons for not getting results
If you’re doing much of the above and still not getting results, it’s important to look for the possible reasons for this. Each situation will have its own particular issues in play, but I have included some general points to consider. Try to find the answer to the following question “Why am I not getting results?.”
You might be experiencing some underlying fear, which you should look within yourself for signs of. This could include fear of :-
- Success – having to work all the time with no room for personal life
- Failure – the embarrassment or financial impact of thing going pear-shaped
- Debt and loss – losing any money invested in the venture
- Overwhelmed – having so much to learn-on-the-job
- Not having a reliable income
- Hurting others – Not wanting to hurt people (laying people off etc)
You may lack commitment or be resistant to having to put in the effort to take action, such as having to learn new skills, or having to take action/carry out a large number of tasks, you might even experience overwhelm in doing so.
Conflicted – You might be experiencing a Want versus should conflict, torn between Wanting regular, dependable, predictable income that you probably get with a regular job, versus a feeling you Should be trying to seek a better life through having your own business, and enjoying the benefits that are perceived with that situation, such as having more freedom of choice when working, being your own boss, reaping all the rewards of your efforts for example. This often results in not taking action, or not giving a new business sufficient time and effort to get off the ground and instead sticking at a job that pays the bills but offers no real fulfilment.
Lacking a goal to aim for– how do you know if you have succeeded if you don’t have an end goal in mind, or a way to measure your progress towards it. Goals help focus attention and action towards a common target.
Check out our motivational guide for more about improving your motivation.
Lack knowledge – A common problem people struggle with is not knowing what the next best action to take is (uncertainty in what to do). This may result in you doing nothing at all, or doing something and having to backtrack later because you needed to do something before you started. The path ahead is like a maze and without a map, how do you know which way to turn?
Procrastination – paper shuffling and not doing what should be done next, to be most effective. You might know what action should be taken but have some fear stopping you (check fear section above).
Lacking resources – Having a perceived or actual lack of necessary resources, including, knowledge, skill, people, money, equipment etc.
Check out our productivity guide for more information about improving productivity.
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“The customer may not always be right, but they are always the customer.” – unknown
“A need is a need until it’s met.” – Seth Godin
The One Thing by Gary Keller
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It is one of the best books I’ve had the pleasure of reading. It focuses you on the important business priorities, and is a real practical business essential.
The 4 Hour Work Week by Tim Ferriss
Forget the old concept of retirement and the rest of the deferred-life plan – there is no need to wait and every reason not to, especially in unpredictable economic times. Whether your dream is escaping the rat race, experiencing high-end world travel, earning a monthly five-figure income with zero management, or just living more and working less, this book is the blueprint.