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Need a Toolbox of Small Business Techniques?

by Tom Gray | on Apr 17, 2013 |  Comments

A new book offers more than 70 practical ways for small businesses to grow their customers and profits. Run into a new problem? Jump directly to a topic to find a proven solution, explained step-by-step. Return to the book again and again for just the right management technique, like pulling the right screwdriver from your toolbox.

Business Techniques in Troubled Times: A Toolbox for Small Business Success by Thomas H. Gray is a how-to-do-it book for small business owners searching for a trustworthy outside perspective, from planning to marketing to exit. It tells you how to do things: set a price, qualify for a loan, improve your processes, and so on. For more details, excerpts, and reviews, see http://www.businesstechniquesbook.com/

Tired of vague cheerful exhortations when you’re really looking for techniques to solve a problem? Here is a handy collection of bite-size solutions, distilled from decades of experience with dozens of companies.

Use this book to

  • Secure your competitive position
  • Create your business plan
  • Get financing
  • Choose the best pricing
  • Advertise effectively
  • Motivate salespeople with focused compensation
  • Improve profits by improved processes
  • Analyze and control your margins and cash flow
  • And more

This book is especially timely because small businesses produce most of America’s new jobs, and jobs are the one of the biggest issues facing our country today.

After three years, half the new sole proprietorships are out of business. New corporations, usually LLCs or S corporations, do better, with a 50% survival rate after five years. A third still operate after ten years, and a quarter survive at least fifteen years.

Why is the attrition rate so high for small businesses? Maybe it’s because they lack the cash to support the business until it is self-supporting. Maybe it’s because their business planning was incomplete or too optimistic. Poor management decisions could also play a role: pricing too low, family employees without the best skills, too much debt, and so on.

Based on Gray’s weekly blog articles for the past year, the book is designed for “hands-on” owner-managers. It puts effective tools in willing hands. The articles are practical, focusing on how to use the technique to satisfy customers and improve profits.

At last! Practical techniques – clearly explained – proven by experience. “America needs this book!”

Click to here and order yours today.

 

Thomas H. Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Growing with New Distributors and Collectors

by Tom Gray | on Apr 10, 2013 |  Comments

Previous articles explained how to attract a new distributor in the classic sense – a wholesaler, a reseller, one who sells to retail shops for you. See Finding Distributors.

But you can interpret the word distributor more broadly.  You are looking for situations where you can build one relationship to generate multiple customers. Imagine you are seeking “collectors.” For example,

  • A medical practice could attract an independent contractor who brings their own patient base and shares the overhead. That other doctor has already collected his or her patients.
  • The same medical practice could become part of another insurance company’s preferred provider list. That insurance plan has already collected its members.
  • You could build a relationship with a community organization, a church, a fitness center, a team or league, an industry association, a school etc.

All these groups have their own participants. When you are accepted by the organization, you can reach, or be presented to, their members or users.

Your website, blog, Facebook Business Page, and Twitter community are other distribution channels – each enables you to reach multiple prospects by building one capability.

The power of these relationships to generate multiple customers makes them worth an investment in time, personal effort, and financial consideration. This could include discounted prices for resale, commissions, donations, membership fees, and of course the cost/effort to make your website one of the best.

Forming Relationships with “Collectors”

Regarding social media, advice is everywhere. You can even review my two blog articles Tips for Your Website and Tips for Using Social Media to Market Your Business. Key points are: organize the website by type of user; offer valuable information in your social media communications; “repurpose” your content into different social media; build your audience by participating in discussions and blogs.

Regarding other collectors, use a three-step process. Start with your own internal analysis, move out to research, and then reach out with personal contact.

First, decide what you want and what you are willing to pay for it

  • You want:
    • Access to their members: list of email addresses; publication/website for advertising.
    • Opportunity for personal presence, such as participation in an event, speaking engagement, sponsorship, or posting your articles on their website or blog.
    • Status as a preferred provider, such as an endorsement.
  • In addition to your time and expertise, you should expect to offer:
    • Fee to join the association
    • Sponsorship costs
    • Event entry fees or booth fees
    • Pay for each use of the member list for email
    • Pay for ad in website or publication
    • Possibly, a referral fee or sales commission or donation

Second, do a little research to identify a list of potential collectors, and then prioritize them:

  • Are they local enough?
  • Are they large enough in your local area?
  • Do they seem to already have a relationship with a competitor

Third, arrange a face-to-face chat, or at least a phone conversation. Face-to-face is best, because you are building a relationship that depends on your own attractiveness to them! In addition to verifying your research, you’ll want to know

  • Are they willing to meet your needs? How strong would any recommendation be?
  • What would they want from you?

Serious Efforts Take Serious Time

New relationships are a courtship. This is not speed-dating! You must choose the target, get to know them, modify your offer, and then find a way for them to get to know you. Expect to take three to twelve months to see the results. New distributors and collectors will take longer than new customers, but the multiplier effect of makes it worthwhile.

Help our readers! Share your story – how long did it take you?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com

Serious Growth: How to Choose a New Target Segment

by Tom Gray | on Apr 03, 2013 |  Comments

Attracting new customers in your current geographic market need not be “more of the same.” You can expand your customer base by appealing to customer groups who did not realize that your product could be their solution. These groups are also called “market segments.” They are a group who all face a common need.

Serious Growth Efforts: To Attract New Customers, Change Something! suggested growing by targeting a series of new segments successively, one at a time. That article focused on how to modify your offer to appeal to new groups. This article homes in on how to identify promising segments for targeting.

Why bother with segments? Why not pursue the opportunity of the moment, one that just walked in the door, or that just occurred to the owner? Why not chase personal pet projects without comparing them to other possibilities in terms of their value to the business long-term?

You know the answer. It’s about focus. Your resources – time, money, staff – are limited. If you spread them thinly across minor opportunities, your wins will be irrelevant to long-term success. If you spread them across major opportunities, they will be inadequate to succeed. If you focus your resources, you can make a difference. This holds true for business, politics, war, education, and every other endeavor in our world.

Identifying a Potential Market Segment

A segment is a “specific type of customer facing a particular circumstance.” They have potential value to your business if you can describe that circumstance and how your solution is better. Use these questions to prompt your description:

  • What situation do they find challenging?
  • Do they believe existing solutions over-serve, offering options that are too expensive or hard to use?
  • What trade-offs are they making when assessing potential solutions (which frequently include doing nothing)? How well do these solutions rate along a wide variety of performance criteria?
  • What gets in the way of achieving excellent performance today? This may have little to do with a product or service in itself, but be more about the context in      which it is used.
  • What is the value that excellent performance would create?
  • Does the company have assets (such as a brand, sales force, or intellectual property) that would give it unique advantages in serving these customers?

Source: Find and Enter New Markets

Choosing an Attractive Segment

A segment can be attractive if it is big enough to make a difference for your business, you can sustain the value of your solution despite likely competitor reactions, and you can find a way to be heard amid the clutter.

  • Can you quantify the number of these types of customers? You need to know if the segment size is worth pursuing.
  • Do trends indicate this group is growing, not shrinking?
  • Are competitors are unlikely to respond with offers as good as yours from better-known brands?
  • Can you imagine an affordable way to communicate with them about your solution and your company?
  • Can you quickly find some “foothold” customers in the new segment, who can provide testimonials to attract others?

Technology-Based Approach

“Sometimes, a company needs to start from a different place – it has a unique technology and is seeking where to best deploy it or how to generate usage. In those situations, [the] questions would center on the unique attributes of the technology, who would find those attributes most useful, what constrains their consumption, what value the technology would create for customers, and what elements of the business model could be most powerful in unleashing growth. [Be especially conscious of finding] “footholds” – small groups of customers that would readily adopt a technology, prove its utility, and serve as beacons to broader numbers of customers in the future.” Source: Find and Enter New Markets.

Serious Efforts Take Serious Time

New relationships are a courtship. This is not speed-dating! You must choose the target, get to know them, modify your offer, and then find a way for them to get to know you. Expect to take three to twelve months to see the results.

Help our readers! Share your story – how long did it take you to penetrate a new segment?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com

Serious Growth Efforts: To Attract New Customers, Change Something!

by Tom Gray | on Mar 24, 2013 |  Comments

Attracting new customers in your same target market is not just a communications challenge. A little “reinventing yourself” is needed! After all, you’ve been operating in their neighborhood for years, but they haven’t chosen you! Why not? How are they meeting their needs without you? Did your message not reach them, or did they hear it but decide not to be interested?

You don’t control these growth levers like you control your price and your costs. You don’t have a relationship with these prospects, so you cannot build on it as if they were current customers. You cannot make these folks want to do business with you. Instead, you must first get them to notice you, and then get them to appreciate the benefits of your offer. This courtship takes time, perhaps three to twelve months. It’s a serious effort!

First, Find Out Why

First you need to know why they haven’t bought from you already. Do some research:

  • Are they aware of your company? If not, how do you reach them?
    • What media do they use? How could your offer stand out in that media?
    • What search arguments would they enter into Google? Do your site’s “keywords” match what they would enter?
  • Are they aware but not interested? Why not? Do they not feel the need for your solution, or do they feel the need but believe another provider has a better offer?
    • Maybe they feel that buying from you is riskier than continuing to use their current provider.

Second, Change Something!

If they have not bought thus far, whatever you are doing is not working for them. Don’t expect different results from doing more of the same thing!

  • Is your offer different enough to make them want to start solving their problem, or switch solution providers?
    • Consider your differentiation, your benefits statement (positioning), your product offer, your pricing, your accessibility, and your communications of all these.
    • Remember that your benefits statement or positioning addresses the value to the customer of your solution. Express it in customer value terms.
      • For example, “a customer might say ‘I want to protect my family if I die, but my financial circumstances change a lot and I need flexibility.’ Few customers would say ‘I need a universal life policy with a no lapse guarantee rider.’ Source: Find and Enter New Markets
    • One technique is to select a subset of prospects who share the same need/application of your product (“segment”), and target all the changes at them. For example, a special offer for seniors, or families with students, or people with older homes. You could address one new segment every six months. For more, see below.
  • Once you have a great offer, consider your credibility. Why should they take the risk of dealing with a new provider?
    • Build your credibility with a guarantee, testimonials, referrals, free or discounted samples, trials and introductory offers, and being visible helping people in your market area.
    • Visibility tactics include press releases, participation in community associations and their events, and local sponsorships. These build networks and relationships. It’s just natural to feel that “the company I know is less risky than one I don’t know.”
  • The final step to get them to listen is (naturally) communications.
    • Find out what media they pay attention to, and when, and be there then.
    • Make your message stand out from the clutter. Deliver the message using a person they can identify with, solving a problem they share. Use color. Use the Web. Engage them with something interactive, like a free online evaluation, a contest, a video, or humor.
    • Invite a response. Your message must include a call to action. A limited time offer is a  good trigger, but it must motivate them to take some kind of action: call, reply mail, email, website visit, free consultation, etc.
  • The final step to get them to buy is their experience when they reach out to meet you, come to your shop, visit your website, or call for information.
    • Take special care to design this experience especially for the new customer with that special need. Design the process and the tools, and train your people to use them well.
    • Build in a feedback loop. Ask them what made them decide to try out your company. Store that in your customer database, and tweak your offer and your communications to do more of what works!

Serious Efforts Take Serious Time

New relationships are a courtship. This is not speed-dating! You must choose the target, get to know them, modify your offer, and then find a way for them to get to know you. Expect to take three to twelve months to see the results.

Help our readers! Share your story – how long did it take you?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com

Grow Pretty Fast With Current Customers

by Tom Gray | on Mar 20, 2013 |  Comments

Why are current customers a “pretty fast” growth opportunity? You know how to reach them, and you can be fairly sure they will pay attention when you communicate. You know what products, features, and services they like. You know where they like to buy, and how much they normally spend. More knowns means less risk, and less time required for trial and error marketing. Your relationship with these customers offers more “control” than trying to reach new customers.

You want current customers to come back and buy again: repeat purchases. You want them to do that more often. And when they buy, you want them to spend more. How can you make that more likely to happen?

First, you need to capture what you know about these people, in a place and form making it easy to use the information. The tools are a customer database, and the reports it generates. For techniques to design the database and some useful reports, see Customer Data Base: The Key to Unlocking Revenue and Using Customer Data Base Reports. Now you can operate the growth levers.

Loyalty Club: More Purchases; Larger Buys

  1. Tighten your relationship by recognizing their value – the Loyalty Club.

Name the club, define the threshold for membership, and create some offers to show the value of joining. Then promote the new opportunity. When they join, make sure you note it in the database, and make sure your staff has an easy way to recognize their special status when they interact with these valuable folks.

2. Design some offers.

Hold an event just for them. Offer them extras, such as free maintenance or consultation using nonproductive staff time. Enable them to earn value by buying more, such as free shipping, volume discounts, one free for every three bought, or special bundles of extra services.

3. Set up a regular stream of tailored communications to remind them of your appreciation.

Retail Merchandising

If you have your own retail location, arrange the store to show high margin products near the front and staples near the back. This way customers see the high margin items going in both directions. Spend time to make the displays attractive. Train your salespeople to ask customers to buy the current special, or a complementary product or service. Make sure their offer is made as a service — not an irritation –to help customers meet their needs.

Bundles of Services

Package your laundry list of features and services into at least three tiers designed for common needs. Price them as good, better best. Research shows most customers will choose more than the basic offer when three choices are present. The result is a larger buy, because you packaged the complementary services they may not have realized they needed until they saw the bundle. See Product Strategy.

The Special Combination

Use your knowledge of how the customers use your product to create a combination of services they cannot find elsewhere in a single offer. This sets you apart from competitors, cements customer loyalty, and brings then back again and again. Feel free to acquire the extra feature(s) from other suppliers or contractors at a discount – these suppliers will often offer you a discount for the extra business and your new relationship.

For example, the roofing contractor also does gutters and adds attic insulation. He employs the gutter crew, but he subcontracts the insulation to another company.

Lower Unit Price for Higher Volume Package

Your basic product represents only a fraction of your costs. The rest of your costs (overhead, marketing, shipping, job setup, some labor, customer service) don’t change with the size of the package. This enables you to sell a larger package for a lower unit price while maintaining good margins. For example, your materials may cost only 25% of revenue, so you can offer a package twice as large as usual for a 50% higher price and still make a 50% profit on the extra revenue.

Temporary Promotion

All promotions are temporary. Find an offer that generates more revenue than the additional variable cost. The resulting sales margin boosts profits.

Hold an Event

An event gives you something special to promote and creates a captive audience for your sales effort. Those attending feel obliged to buy. The result is a temporary boost in cash, as well as an opportunity to identify more loyal customers.

Promotion is the Key Ingredient

Attractive offers without communications are a waste of time and effort. Like the famous tree falling on the forest when no one is nearby, they don’t make a noise that anyone hears. Communications are the key to successful relationships. Your target customers must hear your communications if promotions are to succeed. This challenge is why building current customer sales cannot be a quick win. It is not totally under your control. But it can still be pretty fast, because these people already have a relationship with you, so they should be listening.

Help our readers! How did you build sales with current customers?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com

Small Nonprofit with Big Ideas: Opening Day for Play Global!

by Tom Gray | on Mar 12, 2013 |  Comments

Do kids in Uganda need to throw fast balls? Do teams in Moldova need catchers’ gear? Play Global! believes they do.  Play Global! is a new nonprofit organization that aims to bring baseball to youth in developing countries and conflict areas. It uses the baseball experience to teach teamwork, respect, and life skills.

The Concept

As a former employee of Major League Baseball in Europe and as a scout for the Pittsburgh Pirates, founder Tom Gillespie has seen first-hand how baseball can impact the lives of kids who have never played it before. Working in communities in Eastern Europe and sub-Saharan Africa, he started to see the baseball diamond as a place where the inequalities that exist off the field don’t matter. While each neighborhood or ethnic group might already have allegiances for familiar sports like soccer, a new game like baseball can bring together participants with cultural, religious, gender, and socio-economic differences.

“I’ve seen the determination that new players have to hit the ball, and the joy in their eyes the first time the ball sticks in their glove,” Gillespie explains. “Even more rewarding is when teammates – who didn’t know each other 24 hours ago – start helping each other to understand the rules or improve their technique. The players are IN that moment. Language doesn’t matter, gender doesn’t matter. Baseball engenders respect and teamwork when it’s taught well, and we want to utilize that in a positive and productive way.”

The Nonprofit Business Model

Gillespie decided to carry on this work outside the MLB umbrella. Considering the lack of resources in host countries who could benefit the most from Tom’s concept, he realized the nonprofit model was the best fit for the mission.

Nonprofit organizations are unique because their revenue source is separate from their clientele. Play Global! appeals to individual donors and foundations to raise money, but relies on personal networks, referrals and the quality of programming in order to connect with host sites.

Living in Hamburg, one of northern Germany’s largest cities, Tom sought out his fellow American and longtime friend Julia McCarthy for her experience in nonprofit administration. Julia lives in Hannover, another northern German city. Together they began to create a business plan.

The Business Plan

Tom and Julia wanted to base the organization in the USA, to make it easy to reach and work with a donor base familiar with baseball.

They incorporated Play Global! as a nonprofit organization based in Illinois but operating internationally. Over several months, they developed a business plan, applied for tax-exempt status with the IRS, recruited a Board of Directors, and refined the model for their programs.

They used the Business Plan process over several months to shape the concept into a reality. “It was like a snowball rolling down a hill,” Julia said. “We started with an interesting idea to take what we do well and bring it to those around the world who could really benefit. We picked a name, drafted our mission statement, and then incorporated in Illinois via the Internet.

“Then we realized that our plan needed to fit the interests of donors as well as the needs of our host countries, so we analyzed the market and developed marketing tactics for both. We also knew that a solid program model would speak for itself and appeal to all our audiences. Once we started planning, our idea picked up speed and grew into an organization.”

Recognizing the need for a strong board of directors, they recruited directors experienced in the US baseball coaching arena, international baseball, and nonprofit administration, plus an SCORE advisor for business startups.

“The board has been very involved from day one,” recalls Julia. “They have helped us to develop the organization’s structure so that we are ready to grow. They really keep us on track.”

Ready for Launch: “Opening Day”

While working on the Plan, Julia developed communication plans and website content, filed for tax-exempt status with the IRS, arranged the donation and banking process, and set up accounting. Tom provided content, coordinated logo design, designed the coaching/clinic methodology, and reached out to host countries regarding pilot programs. Meanwhile one of the Board members found the first major donor opportunity!

By March 2013, Play Global! was ready to launch. Emails, Facebook, and LinkedIn messages hit cyberspace beginning March 7, and the new nonprofit was on its way!

Challenges Ahead

While Play Global! is off to a strong start, challenges lie ahead. In order to solicit grants and make donations tax-deductible, the organization’s application for tax-exempt status must be approved by the IRS. That process can take several months.

While Gillespie and McCarthy recognize that evaluating outcomes is crucial to program success, lessons about teamwork, respect, and conflict-resolution are difficult to quantify. Along with board members, they are working to develop tools to evaluate not only how many people participate in baseball camps and clinics, but whether the experience has helped them learn skills for success in adulthood.

Support Play Global!

Learn more about Play Global! by visiting www.play-global.org and following them on LinkedIn and Facebook. Get involved by donating to their work in any amount. Your donation can help that kid in Uganda learn to throw a better fast ball, and then teach his teammates to do the same.

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.

 

Grow Quick with “Quick Wins”

by Tom Gray | on Mar 06, 2013 |  Comments

The ideal business growth project delivers higher cash flow within 30 days. The increase is sustainable for months to come, it can be done within current resources, and you can stop it easily if it does not work out. If it’s ideal, it also generates more customer loyalty and better employee morale. Does that sound like heaven on earth? It’s a quick win. Where can you find one?

Hunting for Quick Wins

You don’t have to look far. Take 15 minutes and think about:

  • What would happen if I raised my price 5%? Would less than 5% of my customers leave?
  • What items do I pay for regularly that do not benefit my customers or my operations? Can we do without them? Examples: supplies, dues, donations, overuse of legal or accounting or consultant services, fees paid to payroll companies.
  • What costs could I replace by using readily-available technology? Example: replace answering service with voice mail.
  • Do I use suppliers with whom I have never tried to negotiate better terms, or who I have not tried to replace recently? Example: supplies vendors, insurance, professional services, printing, computer maintenance.
  • Can I order those materials or run that marketing program every two months rather than monthly with no negative impact on the business?
  • What problems do we regularly work around? If I did it differently, would employees or customers appreciate the change?

Small Price Increase

If customers value your offering, a small price increase will not change their behavior, but can have a tenfold effect on cash flow: a 5% increase in price can boost profit from 10% to 15%, a 50% increase. See Pricing Tips: Start High; Big Results from Small Changes

Review the Expenses in the P&L

Use the detailed version of the Quickbooks P&L (Profit and Loss) report for the last quarter to see all your payments organized by supplier. Do you need that water service, or dues? Are you overusing professional advisors? Can you use your phone system or the internet better? Is there an office machine that can eliminate an outside supplier? One client saved as much as 20% of payroll by canceling these types of spending.

Negotiating with traditional suppliers is another fruitful area. Call and ask for a discount, or ask if they have a different package that might meet your needs better. Offer to commit to a standing order for a lower price. Meanwhile, contact a few alternatives to see if they have a better offer – new customers are the goal of every business, so they may get the best offers. You can mention these alternatives when negotiating with your current supplier. One client got a 20% price reduction with a shorter contract length by “pushing back” on an initial offer.

Timing can be another quick win. Less frequent use of a monthly marketing program reduces cash outflow.  You may also find ways to change the timing of payments so they fall into non-payroll weeks (rent), or are spread more evenly through the year (utilities).

Process improvements can take longer to implement than 30 days, but they can result in major cash flow improvements. See Process Improvement for three articles on several techniques.

Wages can be another fruitful field. Can you reduce hours of operation? What percent of staff time is not spent on customer work? Can you use that extra time to provide a customer benefit such as product maintenance? If you did not have a particular support person, could you change operations so there was no major impact? Have you checked www.salary.com to see if you are paying more than the average for that job title in your area? One client was paying twice as much as the prevailing wage for one position, and also found a way to cut hours of operation by 20%.

Are there products or services where the margin is less than half the price? If so, change the price, or reduce the cost, or cancel the product/service, or bundle it into a higher priced package. See Product and Service Bundles: Product Strategy and Pricing Technique: Good, Better, Best.

Satisfaction Boosters

What problems do your staff or your customers work around every day? If you fix the problem, will employee morale and/or customer satisfaction improve? If so, the result should be better retention, better productivity, and happier customers who stay with you and even buy more.

Maybe it’s a facility issue, like fixing a leaky roof, or painting, or moving furniture, or adding a postage machine. Maybe it’s a process with too many steps. Maybe you require higher level approvals where you could trust your employees more. Maybe you could solicit staff input more often. Maybe you could use your office system to provide standard reports rather than interrupting to ask for status.

The Key to Quick Wins

Quick wins are the fastest way to business growth. See The Business Growth Machine and Business Growth Techniques: Fast or Slow

Quick wins boost morale and cash flow. To find them, you just need to step back from the day-to-day grind and think about the business anew, as an outsider would. If you were starting over, would you change the way you do things? If so, find a way to change now!

Help our readers! Can you suggest some quick wins that worked for you?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com

 

Business Growth Techniques: Fast or Slow

by Tom Gray | on Feb 27, 2013 |  Comments

As you decide which lever to use to grow your business, you’ll be thinking about what could go wrong as well as dreaming about success. You do want some noticeable gains soon. You don’t want a major effort for a minor or temporary gain. You don’t want a major risk if smaller steps can deliver the same value. Let’s consider first the idea of “noticeable gains soon.”

The previous article imagined a “business growth machine” operated by the great and powerful small business owner. See The Business Growth Machine. The machine’s manual described each lever for business growth, but it also offered this caution about the speed of results from various levers:

Quartile

Speed   of Cash Impact

Lever   or Technique

1st

 Lickety-split (“Quick Wins”):0 to 1 month Raise price, cut cost, decide not to spend investment

2nd

 Pretty fast:1 to 3 months Stimulate repeat purchases; motivate higher amount per buy

3rd

 Serious effort:3 to 12 months New customers; new distribution channels

4th

 Long slog:1 to 3 years New product; new market

 

“Quick Wins”: You Have Control

Why do “lickety-split” (also called “Quick Win”) levers raise your profits almost right away? If you look inside your growth machine for these quick win levers, you’ll see simple and direct connections between the decision lever and the output gizmo. The owner decides, and it is done. Nothing is simpler than refusing to spend cash. You don’t need an owner’s manual for that! And raising a price has some risk, but it’s easy to do. For quick wins, implementation does not depend on others, and results are fairly predictable, especially if the moves are small.

You can sum it up with the word “Control.” The owner controls implementation, and the outcome is under control as well. Also, if you have control, you can more easily “change the change” if you don’t like the results.

In the above table, the owner’s control of implementation and the predictability of results both decline in the lower categories. Maybe that’s why they take longer to show results. But there are other reasons too.

“Pretty Fast”: Complexity and Skill Requirements = Slower and Less Certain Results

When the owner cannot make it happen by declaring or giving orders, the lever involves some complexity. There are gizmos behind the lever to cause other gizmos to operate, so the outcome is more indirect. Anything indirect is harder to manage: harder to implement; harder to predict; harder to program. This mean successful implementation takes more skill, and it also seems to take more time.

For example, consider the second row in the table: the “pretty fast” levers. To stimulate repeat purchases, the owner/machine creates a loyalty club and promotes it to customers in the customer database. This is more complex than raising price, because you or the machine must

  • Create the loyalty club rules to fit the target customers
  • Make sure you have a customer database so you know who to contact and how
  • Create a communications message and use media to pass the word
  • Then customers must pay attention to the message, find it compelling, and return to buy more

Even if you already have an adequate customer database (see Customer Data Base: The Key to Unlocking Revenue and Using Customer Data Base Reports), three months can easily elapse before you see more revenue. The same kind of multi-step complexity affects your plans to get buyers to buy more in each purchase.

The complexity adds time. The other dimension is skill. The results you seek only happen if you have the skill to do each of these steps well. To the extent your efforts fall short of the optimum, your results will fall short as well. Unlike the quick wins, it’s harder to predict the revenue effect of these “pretty fast” techniques or levers because they are harder to implement. As more complexity and skill are needed, control of results is less certain.

“Serious Effort”: More Variables and Limited Knowledge = Even More Delay and Uncertainty

When you move away from prices/costs you control, and customers you know, the risk of failure rises. You may do all that seems necessary and do it well (complexity and skills), but you may be doing the wrong things well if you don’t know what motivates new customers or new distributors. Hopefully the designer of your business growth machine (that would be you!) links the levers to the right gizmos, but if not, garbage in = garbage out.

The “serious effort” levers take longer, as much as 3 to 12 months, because you need to learn about new types of people and negotiate with them. You need to understand why prospects are not already customers. You have to find out what distributors are available, what kind of supplier they want to work with, and become that kind of company (see Finding Distributors). In both cases, you must then find new ways to get their attention, express your benefits, and make a deal.

“Long Slog”: New Products and New Markets Have the Most Unknowns

The riskiest and most uncertain lever, which also has a red handle, is a new product introduced to a new market. This is close to launching a new business, and the norm for a new business to reach cash breakeven is some time in the second year.

However, you can reduce risk and increase control by cutting the variables in half. A new product for current customers has lower risk because you already know their needs and how to reach them, and they already listen to you. This leaves only the product development risk.

A new market for an existing product has less risk because the product is known. Your challenge is only to understand how to reach and be heard by the new market. If it is a new geographic area for the same type of customer you are already serving elsewhere, the unknowns/risks become even smaller.

Still, the learning and the many steps and skills involved with these techniques suggest that you won’t see gains in profits for one to three years. It may feel like a “long slog.” The projected profit gains may be large, but so is the uncertainty.

In sum, you will experience increases in time required, uncertainty of results, and risk of failure as you move along this chain:

Operations you control

Current customers/current products

New customers/old channels/current products

New customers/new channels/current products

Old customers/new products

New customers/old products

New customers/new products

Which levers will you pull first? 

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com

 

The Business Growth Machine

by Tom Gray | on Feb 17, 2013 |  Comments

Imagine yourself as the operator of a business growth machine, with dials to show changes in key business results, and lots of levers that enable you to cause those changes. You are the “great and powerful Oz” – the small business owner! Which levers should you pull first, and when will the results change?

Growth Techniques – Labels on Levers

Start with reading the labels on the levers. What are the techniques for growing?

Why does everyone want to grow their business? They want more profits (and less stress).They know that a bigger business means one with more revenue, yielding more gross (contribution) margin after variable costs. If overhead does not grow, then that extra gross margin becomes profit.

If growing profit is the goal, then our search for how to grow the business goes beyond increasing revenue. It also includes cost control and even additional investments to enable more profits.

This means you have three rows of levers: one row for revenue, one set for cost control, and one row for investment. Each row contains several levers. For example, the revenue row levers are:

  • Raise price
  • Temporary promotion
  • More repeat sales
  • Higher purchase amount per sale
  • New customers
  • New product
  • New market

Your cost control set has an upper row of levers for variable cost, and a lower row for fixed costs of overhead. The machine maker placed variable above fixed so it would match your income statement! Your lever layout looks like this:

Cost Control

Variable Cost

Fixed Cost
  •   Labor hours
  •   Labor wages
  •   Labor benefits
  •   Material amount
  •   Material cost
  •   Subcontractors
  •   Shipping
  •   Sales commission
  •    % nonproductive labor
  •   Rent
  •   Marketing
  •   Office supplies/misc.
  •   Your salary/benefits
  •   Professional services*
  •   IT systems
  •   Interest
  •   More!

*Professional services includes consultants, lawyer, accountant, other outside services

In the third row – the investment row – all the levers have red handles. The machine-maker’s lawyer even insisted on a warning label: “Use with caution! Misuse could destroy profits!” These levers include:

  • Equipment — Buy a new machine (equipment financing)
  • Leasehold improvements — invest in improving the appearance of your location
  • Loan — Borrow more
  • Sell equity — give a up a percentage of ownership in return for cash investment
  • Acquire – buy another business
  • Divest — Sell a part of your business to get cash to invest in growth
  • Dispose – Junk and write-off facilities or equipment not generating profits
  • New Venture – build a new business, such as a new product or new market

Which Levers to Operate — What To Do Now?

Having unpacked this beautiful machine, you can’t wait to start pulling levers. But first a wise advisor (maybe a spouse) suggests you check out the instructions. In the owner’s manual you find this paragraph:

“Dear Great and Powerful Business Growth Machine Operator, Please be aware that some levers have immediate effects on results, yet others have delayed impact. Also, the amount of growth caused by any lever depends on the external environment and the reactions of independent variables (e.g. people). If people do not do what you or the machine designer expect, the results will not be what you expect.”

This means you need to think about each lever. After you pull it, when can you expect results (machine dials) to show a change, and how much change, when it finally happens?

If you’re in a hurry for growth (and who isn’t?), you won’t take time to read each lever’s section. Instead, you’ll jump right to “lever impact timing” table. Here it is:

Quartile

Speed   of Cash Impact

Lever   or Technique

1st

 Lickety-split (“Quick Wins”):

0 to 1 month

 

 Raise price, cut cost, decide not to spend investment

2nd

 Pretty fast:

1 to 3 months

 Stimulate repeat purchases; motivate higher amount per buy

3rd

 Serious effort:

3 to 12 months

 New customers; new distribution channels

4th

 Long slog:

1 to 3 years

 New product; new market

 

Do you see it differently? Do some of these levers take longer, or have results faster? Leave a comment!

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com

 

Profit Assessment: Is My Business Worth Doing?

by Tom Gray | on Feb 13, 2013 |  Comments

How much are you putting into your business, and what are you getting out of it in return? Could you get the same profit from another activity with less effort or risk?

Stop and reflect, look in the mirror, and answer that difficult question that maybe your spouse has been or will be asking too. “Why are you doing this (to yourself)?” Is following your dream a good idea financially? Will people pay you “enough” for working on what you are passionate about? How much is “enough?”

Comparison: “Returns” available to consumers making financial investments

“Return” is shorthand for “return on investment,” the profit opportunity that compensates for the risk of making an investment. Financial investments can provide returns or profits of 3 to 10% without many hours of effort. Typical returns available to “little guy” investors:

  • 3-4% return on an A-rated corporate bond; hardly any risk.
  • 9-10% return on the S&P 500 stocks since 1900 (lots less since 2000, but more since 2009); some risk, but if you diversify and do not buy/sell on dips, you have a good chance of earning this return.
  • 6.5% return on a portfolio that is weighted 50/50 for the above two investment types.

You can get these returns by making a few phone calls and getting some good advice. You’ll also need to spend a couple hours per month evaluating how you’re doing. Yes, there is risk – mostly with stocks and with bond funds rather than bonds held to maturity. But there is risk when you invest in a small business too. Which has greater risk: your local bakery, or a Fortune 500 company with lots of resources?

Your Compensation: Salary plus Return for Risked Capital

Now compare these profits from investing with the profits available from your small business. You spend at least 60 hours per week on your small business, and you can never be sure you’ll have enough cash to keep the doors open and the staff paid. For that kind of effort and risk, what return makes it worthwhile? The answer has two parts: the value of your time, and the risk of investing your money.

  • You should be paid for your time as much as someone else would pay you, net of taxes. Not the best salary you ever had, but the one you could get today if you seriously tried but did not hit the jackpot. This is the value of your time.
    • Assume your net pay is 2/3 your gross. If the salary is $60,000, the net is $40,000, or about $20/hour for 40 hours/week.
    • Don’t get caught up in counting hours at your own company vs. the one you work for – just figure they are both full-time jobs. The extra hours you put into your own business are the trade-off for the benefits of being your own boss, working close to home, avoiding office politics etc.
    • You should be paid for your risk as well. You should earn a return on your invested cash and the loans you have agreed to pay back. You should expect a higher return for greater risk.
      • Remember that investing in a Fortune 500 company earns you 10% return. Now compare the risk of that company vs. your small company that is chronically challenged to find cash and customers. Your greater risk should be worth a higher return. Aside from salary, you should earn at least 15%, maybe 20%, on the cash you invested in your business.

Here’s an example.

Susan was laid off from a $90,000/year job. She thinks she could make $60,000 as an office manager somewhere, which is $40,000 net. Instead, she wants to open her own boutique in her town. The business plan calls for her to invest $50,000 cash, and take out business loan (personally-guaranteed) of $150,000. What should she earn from her business to make it worth the effort?

When the business is mature (perhaps in year three), her salary should net her $40,000 based on her own market value as an employee, and the business profits should be another $40,000, based on 200K invested x 20% return for risk.

What If Your Business or Business Plan Falls Short?

The profit assessment is a trigger to action! It makes you review of the ways you could increase profits. Here are two:

  • Many new business owners are not sure what price level to choose. This compensation target gives them direction, so they don’t price too low, which is a very common error we see in business plans.
  • The other big unknown for a startup is the sales forecast. Your compensation target can help you figure out how many sales you need. Then you can design a sales force and a marketing plan to get there.

Next week’s article explores the different ways to grow your business, and how long they take to produce cash results.

Try this out – figure how much profit you should be making. Then share your comments on what you learned from it, and where you will go from here.

 

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com

 

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