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The Role of The Small Business CEO as an Allocator of Resources

Guest post by: Paul Tobey

Article Overview: The primary job of a business owner is to continually look for ways to increase the rate of return on the equity in their business.

The Role of The Small Business CEO as an Allocator of Resources

The primary job of a business owner is to continually look for ways to increase the rate of return on the equity in their business. This is true if you are a sole practitioner or the head of a large multi-national.

As owners of small businesses we don't always realize this. Many of us think our primary job is to bring in new business, and in some cases your earning ability is your only equity. But even when our only equity is our earning ability, we still have to decide how to allocate our resources. On whom do we spend our time? On which products do we focus? Which of our skills do we use most? etc.

In a recent article by renowned speaker, author and consultant Brian Tracy, he suggested this equity is your ability to think and act in ways that generate results. So to improve your return on your equity (i.e. everything you have invested in the business, not only money), you have to invest your resources in those areas with higher potential returns.

Resources are scarce in every business, none of us has enough time, money or good people to do everything we need to do.

What this means to owners of small businesses is that you have to be constantly finding ways to maximize your returns on every activity, so that you increase your earning ability or produce the same result with less effort.

Street-Smart Marketers make sure that every activity they undertake is the highest and best use of their time. They know time spent on any activity that does not yield maximum results is gone for ever. They continually find ways of producing better results from the same or fewer resources.

As a business owner you owe it to yourself to ensure that every marketing activity yields the maximum output. As you've heard me say before, it costs the same to run a marketing program that yields one or two sales as it does to run one that produces constant sales.

I was talking recently to Allan, a contact management software consultant, about his marketing activities. He said he had tried a number of marketing activities, including direct mail, that yielded poor to modest results and did not believe that anything but referrals worked in his business. He said he realized he needed better marketing but was frustrated by his results and needed help.

After discussing his advertising and direct mail activities, it became clear that his poor results were not that these strategies don't work in his business but more a function of his lack of knowledge, than their ineffectiveness. The question for him was; "As an allocator of resources, should he be focussing on what works, i.e. referrals or should he learn how to do other forms of marketing that generate greater results from the meagre resources available?" I believe the answer identifies both. Do more of what works, and learn additional ways to bring in new prospects.

I showed him how by simply improving the headline of his ads and letters he could create greater response. We also discussed making a more compelling offer that would encourage people to respond. He called me back a few weeks later to excitedly tell me that the changes we had made had resulted in a 45% increase in response rate and a 38% increase in new business. No additional cost, no additional effort. He is not finished yet. He is now working on ways to increase both the response rate and the gross dollars he gets from each new customer.

This is a perfect example of the impact of leverage; you take what's working modestly, or even poorly, and make it better. You never accept any level of response as the ceiling.

Anything less than that and you are failing your stakeholders. i.e. yourself, your family and your customers. Why? Because you have to work harder than you need to, to produce the results you are producing. This increases your costs, reduces your free time, reduces your return on the time you do invest and limits the time available for creative thinking about your business.

Business owners often tell me "Direct Mail doesn't work in my business!" or "Advertising doesn't work in my business!" They don't realize that these tools take skill and experience, and that these skills can be relatively easily learned. Just because you can write a letter, does not mean you understand the rules of successful direct mail.

Once they understand leverage, they don't accept low results any longer, they begin to learn, to re-think and to find ways to improve the results. They also are no longer prepared to accept the default of referrals and networking. There is no question that these techniques work, but at some point they become a limiting factor in your growth.

If you feel that referrals and networking are the only marketing tools that really work in your business, what impact is it having on your ability to grow or to have more time off?

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