It was 2007 and my business was a toddler after I left my cushy corporate position to strike it out on my own… I had gone straight down that well-trodden path of selling my skills right back to the corporate I’d just left but had also managed to get another few blue chip clients along the way. Then the economy collapsed and so did my business. Being an analyst on new IT projects when all new projects are canned, will do that to you and I was devastated. I don’t consider myself a muppet so how did I build such a fickle company, but the better question was, how can I build a company that thrives in good times and in bad?
And it's that question which has driven me ever since. Have you ever noticed that in boom times everyone is an estate agent? This is because It's easy to sell houses when everyone is a buyer and the banks are giving out money left right and centre. It's a totally different ball game when the economy turns. But understand there are still winners in these down markets! In fact, these are the overall winners because they thrive in up and down markets. So, it's worth having a look at exactly what they do differently and to emulate this to ensure your business success.
These are the musings of Paul Dalton, a strategic advisor to entrepreneurs, who works to ensure businesses thrive and not just survive. We spoke to him to find out more…
I find the core of a resilient and thriving business is a strong commercial model – winners are the ones that understand how to make real money out of what they do. I'm talking about profits here and I know that all the winners I've encountered have an almost fanatical focus on profits rather than turnover. Their commercial models are not accidental, they are planned and carefully crafted. They fully understand that it’s difficult and costly to land and on-board a new client and so a wining commercial model ensures they collect each and every cent they possibly can from each new client. You’ve no doubt heard of lifetime value of a client and winners know how to get it all. They know the power of a happy client to put even more into their pockets through that magical power of repeat sales and referrals. Their business processes, yes, they've actually got these too, are geared towards making sure each client is served extremely well, buys the maximum and actually wants to spend more money with them over time.
Understand that very few businesses can make any real money from their core! The real value, in terms net profits that each product or service differs from each other and then build processes to ensure the upsell, cross sell and resell, continuously drives towards the higher profit products and services. All your fixed costs are built to deliver core, but this is also where you face most competition, so your margins are fixed and so the core is necessarily lean. But there are usually great profits to be made adjacent to the core. Think! buying sushi at your supermarket, when you popped in to buy the milk. The core brings the client through the door, and might just about keep the doors open, but it's the up-sells, cross-sells, commissions and outsourcing where your real profit opportunities lie. Winners know this and so there is a definite focus, a deliberate approach to making sure that all clients are directed here.
Businesses that only survive the good times, don't do this… Instead they focus upon marketing. Bringing in new, expensive to land and expensive to on-board, clients, to sell them core products and wave them goodbye. The winners only scale after they know they can make money, everyone else is out doing their marketing first.
Dalton concludes: “I use the lessons of the 80/20 rule to build very valuable commercial models. The 80/20 concept is ever present, affecting every part of your business and to really appreciate this, I urge you to consider that nothing is average Don't treat all your clients, staff, products, opportunities or threats as the same, most things in business simply don't deserve your time.”
ENDS
Paul Dalton is known as the 80/20 guy and runs his own business growth advisory called Leapfrog Projects. As a well-respected business advisor in South Africa, his practical and innovative approach has enabled him to double and treble profits in almost all his clients’ businesses.
If you are an SME owner and have a turnover between R20-200-million per year but are struggling to make profits or wanting to improve, you can contact Paul for a free consultation: paul@leapfrogprojects.co.za