Overenthused And Undercapitalized
Someone recently told my colleague that most small business owners are “overenthused and undercapitalized.” In other words, there is a discrepancy between the passion in their heart and the padding in their wallet.
Most small businesses don’t survive because the padding in the owner’s wallet runs out too soon. It’s my unscientific belief that there is a correlation between being a business owner and being an optimist. Because business owners are focused on the opportunities, they can get lulled into a false perception of “If I build it, they will come mentality.” It worked for Kevin Costner in “Field of Dreams.” Unfortunately, it usually doesn’t work that way in real life.
Instead, reality usually comes knocking when after months of pre-launch preparation you open your doors for business and lo and behold, there are not droves of clients queuing up to buy from you. What happened to the droves? Didn’t they get the memo? Don’t they understand that you have great products and services?
Regardless of whether you are just getting started or been in business for some time, here are a couple of things that will keep your business wallet padded:
Determine your model – Have a plan and a business model that makes sense. In their book, The Discipline of Market Leaders, Michael Treachy and Fred Wiersema identified three basic business models. You must determine which of the three models you want to have, since your operations, marketing and sales strategies need to support it.
The first business model focuses on operational efficiency. In this model, there is an emphasis on high volume and low costs. Margins are low, usually in the 3% to 5% range. In this model, sales are transaction-oriented and the products are often perceived as commodities.
The second business model is one of innovation and is predictably focused on the newest, best, fastest or otherwise most unique product. Margins are usually high and can range in the 30% to 60% range with a product launch. However, without constant innovation, products can lose their “favored” status to cheaper copycat products and market share and margins can dry up. At that point, this model defaults to the operational efficiency model.
The third business model is all about customer intimacy. In this approach, building a relationship and experience with the client is paramount. This approach work wells with providers of services that are based on providing the best solution. Intimate knowledge of the customer leads to that best solution. Margins can be 80% or higher.
Stay the course – Once you understand your model, you need to do the work that’s going to keep you on course. From a revenue standpoint, that means doing the activities that will drive sales. Without sales, you don’t have a business, you just have a great idea.
Just like you need a plan for your business, you need a plan for how you are going to get customers and grow your sales. Of course, your sales plan is driven by your business model. For example, if you have an operational efficiency model, you may decide that advertising will drive business to a 1-800 number where you can have representatives waiting to take their orders. Conversely, if you have the third business model, customer intimacy, you will want to have account representatives calling on your Bull’s Eye Market that are skilled at building deep and lasting relationships.
Regardless, there are lots of questions you need to ask yourself to determine your marketing and sales strategies. A few of these include:
What’s your sales process? How will people know about you and your business? How will you position yourself? Who will you target? How can you differentiate yourself from your competition? How will you connect with prospects? What questions will you ask to uncover needs? What activities will drive your sales success and who will be responsible?
To get a complete list of questions, e-mail me at Will@dancingelephants.net and ask for a copy of our Sales & Marketing Planner.
With a complete understanding of your model and your best sales strategies, you can create the right plan for you. By developing a systematic way to attract and retain customers, you can make sure that your enthusiasm and your capital get and stay aligned.