BIG BusinessJan 25, 2021
"MOST BUSINESSES START & STAY SMALL. FEW FIND THE FORMULA"
Have you ever wondered what the difference is between a local restaurant and a national chain?
A neighborhood furniture builder and an international provider… or a local contractor and a company that services an entire country?
The obvious answer is scale and all the benefits that come with working with a large company.
Here’s the thing though…very few of those companies started out as international corporations from the outset. Many (now) world famous brands originally started as (some still are) family owned and operated businesses.
So what gives?
After meeting with countless business owners and reviewing more business plans than I can remember I’ve come to realize that there are 5 major areas that keep small companies small.
The automobile maker BMW was first established as a business entity in late 1918 when they first started out producing motorcycles. That was the focus. They didn’t enter automobile production until 1928.
Tim Horton’s started with coffee and donuts in 1964 and now serves a variety of options from breakfast right through to steak panini sandwiches for dinner.
Can you imagine if BMW or Tim’s originally came to market with ALL the options they offer today? Never.
The sheer logistics of “starting” everything at once would have been a monster of a task.
The market would have been confused and not understood what the companies were doing. Staff would have been scattered. The expression “like herding cats” comes to mind…
Yet this is exactly what many entrepreneurs do.
They are excited about their business and want to take on the world. All at once.
Nearly every successful major corporation that exists today started with one or two high margin core products and built from there.
It blows me away how many people get into a business without first understanding what the financial landscape of their chosen field looks like.
Simply selling “more” of a product or service isn’t enough. In fact, I’ve met some business owners that went broke precisely because they did such a good job selling!
The fact is that if you can’t squeeze out enough profit after all your expenses are paid, your business will be short lived.
If you’re entering a business where everyone competes on price you’ve got your work cut out for you.
The businesses making waves today in the marketplace are the ones innovating and disrupting how things are done.
IKEA disrupted the furniture market years ago by creating affordable furniture that you can take home that day and assemble yourself.
Goodlife Fitness succeeded where many gym chains failed. They helped gyms shake the image of the “meat head”, attracted more female clients and created a welcoming environment with national reach.
Even now there are countless companies attempting to disrupt other industries by carving out their own niche markets on their own terms and with their own pricing.
Increasing your margins is tough when you do what everyone else in town does.
But - when you price based on solely on the additional value you create you eliminate much of the comparison shopping out there and your ideal customers begin to emerge.
It’s hard to build systems when you don’t keep enough of the revenue you generate, or you lack focus.
Consistent processes are a major reason why a hamburger joint like McDonald’s is now one of the world’s most expensive franchises - unlike most local places to eat.
Systems are one of the primary reasons why franchise models work and can be quite lucrative. Nearly every industry with major players has extensive policies and procedures in place to maintain consistency, measure efficiency and grow.
The irony here is that many entrepreneurs that leave their job to start a business do so because they want to break out of the “corporate world” and live life on their own terms.
Many (myself included at times) have thought that the people that come to work in your business will “know” what needs to be done and how to do it.
This is a dangerous assumption. Most employees (most people) want to do a good job but need to know exactly what’s expected of them. They crave direction.
If you don’t introduce some processes it’s very hard to assess performance, provide feedback and help people grow. Finally, when you do attract a few self-starters that bring fresh ideas you will want to have a “place” to “download” what works for others to follow. This is especially important when you experience staff turnover.
CROSS MARKET & BUNDLE SERVICES
You have customers. Hard fought for customers that trust you and your business.
Telephone companies started originally with a basic home phone service. Most now offer cable tv, internet even home security services.
Car dealerships sell you a car, provide you financing options, accessories to customize your purchase and all kinds of maintenance packages to help you take care of your car.
Banks provide you with personal banking, mortgages, credit cards, and loans just to name a few services.
When you really think about it almost every big business has a way of pulling you in and keeping you committed. It’s convenient and often ends up saving you money.
From the businesses perspective it also keeps you loyal as changing things up can be pain. Think about it; when was the last time you changed banks?
Many start-ups and growing companies fail in the first few years because they run out of money. If your business lacks a healthy margin, laser like focus and efficient systems it’s only a matter time before it lacks capital too.
If you don’t understand how to “raise capital” for your business, you limit your options.
There are many ways to increase the amount of cash you have on hand as a business owner whether it’s through getting more favorable terms/pricing from your suppliers and vendors, turning fixed costs into variable expenses all the way through to going to the market to secure investors.
Big Box retailers always ask for long payment periods from their suppliers (small business owners) and typically turn over the inventory several times before they even pay for the first order.
Equipment manufactures partner with financing companies to sell a monthly payment to their clients and in turn eliminate the need to discount the original purchase price.
Computer companies like IBM went from selling computers (one-time sale) to selling IT/Consulting services which created a steady income stream for the business.
These types of companies have since been able to attract millions, even billions of dollars from investors largely in part because the respective business has a grasp of its margins, clear focus and established systems.
What are you going to do to refine your approach?
To Your Success,
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