In my last post, I discussed the importance of proper pricing for profitability and success. As most people know, you increase profitability by increasing revenue and/or decreasing costs. But, cost reduction does not necessarily mean slashing headcount, wages, benefits, or other factors that often negatively affect morale and cascade negatively on quality and customer satisfaction. There is often a better way.
The best businesses generally focus on repeatability, realizing that the more that you do something – anything, the better you should get at doing it. You develop a compelling selling story based on past successes, develop a solid reference base, and have identified the sweet spot from a pricing perspective. People keep buying what you are selling, and if your pricing is right there is money available at the end of the month to fund organic growth and operational efficiency efforts.
Finding ways to increase operational efficiency is the ideal way to reduce costs, but it does take time and effort to accomplish. Sometimes this is realized through increases in experience and skill. But, often optimization occurs through standardization and automation. Developing a system that works well, consistently applying it, measuring and analyzing the results, and then making changes to improve the process. An added benefit is that this approach increases quality as well, making your offering even more attractive.
Metrics should be collected at a “work package” level or lower (e.g., task level), which means they are related tasks at the lowest level that produce a discrete deliverable. This is a project management concept, and it works whether you are manufacturing something (although Bill of Materials may be a better analogy in this segment), building something, or creating something. This allows you to accurately create and validate cost and time estimates. And, when you are analyzing work at this level of detail it becomes easier to identify ways to simplify or automate the process.
When I had my company we leveraged this approach to win more business with competitive fixed price project bids that provided healthy profit margins for us while minimizing risk for our clients. Bigger profit margins allowed us to invest in our own growth and success by funding ongoing employee training and education, innovation efforts, international expansion, as well as experiment with new things (products, technology, methodology, etc.) that were fun and often taught us something valuable.
Those growth activities were only possible because of our focus on doing everything as efficiently and effectively as possible, learning from everything we did– good and bad, and having a tangible way to measure and prove that we were constantly improving.
Think like a CEO, act like a COO, and measure like a CFO. Do this and make a real difference in your own business!
One of the biggest changes to my professional perspective on business came during the time that I was running my own consulting business. Prior to that, I had worked as an employee for midsize to large companies for ten years, and as one of the first hires at a start-up technology company. I felt that the combination of doing hands-on work, managing, selling, and helping establish a start-up (where I did not have an equity stake) provided everything needed to start my own business.
Well, guess what? I was only partially correct. I was prepared for the activities of running the business but really was not prepared for the responsibility of running a business. While this seems like it should be obvious, what I’ve seen many times is those business owners usually focus the majority of their efforts on growth/upside. That type of optimism is important for entrepreneurs – without it, they would not bother putting so much at risk.
People tend to adopt a different perspective when making decisions once they realize that every action and decision can impact the money moving into and out of their own wallet.
Even in a large business, you can typically spot the people who have taken these risks and run their own business. I was responsible for a Global Business Unit with $50+ million in annual sales and ran it like a “business within a business” because I had P&L responsibilities and the decisions I made mattered to the success of my business unit
It’s more than just striking out on your own as a contractor or sole proprietor. I’m talking about the people who have had employees, invested in capital equipment, and went all-in. These are the people thinking about the big picture.
What do these people do differently than people who have not had this type of experience?
One of the biggest things is they view business in terms of “good business” and “bad business.” Not all business is good business, and not all customers are good customers. There needs to be a fair commercial exchange where both sides receive value, mutual respect, and open communication. You know this is working when your customers treat you like a true partner (a real trusted advisor) instead of just a vendor, or at least do not try to take advantage of you (and vice-versa).
A business is in business to make money, so if your work is not profitable it is very likely that you should not be doing it. And, if you are not delivering value to an organization it is very likely that you would be better off spending your time elsewhere – building your reputation and reference base within an organization that was a better fit. That is true for employees at all levels.
“Bad” salespeople (who may very well regularly exceed their quota) only care about the sale and their commission – not the fit, the customer’s satisfaction, or the effort required to support that customer. Selling products and services that people don’t need, charging too little or too much, and making promises that you know will not be met are typical signs of a person who is not thinking like an owner. Their focus is on the short-term as they are not focused on growing accounts and their compensation plans generally only reward net new business and first-time sales.
How you view and treat employees is another big difference. Unfortunately, even business owners do not always get this. I believe that employees are either viewed as Assets (to be managed for growth and long-term value) or Commodities (to be used up and replaced as needed – usually viewed as fungible and treated as if they are easily replaceable). Your business is usually only as good as your employees, so treating them well and with respect creates loyalty and results in higher customer satisfaction.
Successful business owners usually look for the best person out there, and not just the most affordable person who is “good enough” to do the job. The flipside is that you need to weed out the people who are not a good fit quickly. Making good decisions quickly and decisively is often a hallmark of a successful business owner.
Successful business owners are generally more innovative. They are willing to experiment and take risks. They reward that behavior. They understand the need to find a niche where they can win and provide goods and/or services that are tailored to those specific needs.
Sometimes this means specialization and customization, and sometimes this means more attention and better support. Regardless of what is different, these people are observant of the small details, understand their target market, and are good at defining a message that articulates that difference. These are the people that seem to be able to see around corners and anticipate both problems and opportunities. They do this out of necessity.
Former business owners are usually more conscientious about money, taking a “my money” perspective on sales and expenses. Every dollar in the business provides safety and opportunity for growth. These usually are not the people who routinely spend hundreds or thousands of dollars on business meals, or who take unnecessary or questionable trips to nice places. Money saved on things like unnecessary travel or unnecessary training expenses can be invested in new products, features, or marketing for an organization.
While these are common traits found in successful business owners, it is possible to develop them even if you have never owned a business. Do you understand the big picture vision and mission of the company that you work at? What do you value and what is your culture? Who is your competition and how are they different? How is their messaging different? Does your management style reflect this aspirational vision?
When selling, are you focused on delivering value, developing a positive reputation within that organization, and profiting on the long-term relationship? When delivering services, is your focus on delivering what has been contracted – and doing so on time and within budget? Are your projects used as examples of how things should be done within other organizations? Are you spending money on the right things – not wasteful or extravagant?
These are all things that employees at all levels can do. They will make a difference and will help you stand out. That opens the door to career growth and change. And, it may get you thinking about starting that business you have always dreamed of. Awareness and understanding are the first steps towards change and improvement.