Maybe you've always known that you wanted to work for yourself. Or, maybe, like me, you found out that you wanted to work for yourself by getting fired by everybody else. How do you get started? What do you pay attention to?
Let's get the "great business planä myth out of the way first. The way business plan myth says that what you really need to succeed in business is a dynamite business plan or a great concept. Those don't hurt, but most of what makes businesses successful is a lot simpler and also a lot more mundane.
To have a successful business, all you need is a product or service that people need or want, and are willing to get from you at a profit. Then you have to tell them about it, deliver the product or service in a way that adds lots of value, and develop the relationship with your customers over time.
It's real important not to close down your business definition too soon. Lots of new entrepreneurs decide that they're in a particular business; and, therefore, miss the opportunities that keep getting thrown at them by the marketplace. For most of us, starting out, it's a good idea to keep paying attention to what our market wants and what our successes are. That's where long-term business is likely to be built.
So, let's say you've got a pretty good idea of what it is you want to do, and who you're going to do it with. In the initial stages of your business, you're going to have two big issues to deal with. One of them is cash flow, and the other one is marketing. They work in tandem.
Marketing is important; because without customers, you don't have a business. The great management Guru, Peter Drucker, even defined business as "the art of creating and keeping customers.% Marketing helps you do that.
I'm going to presume that you've started out with an idea of basing your business on something that people need or want. Now, the classic advice here, is that you "find a need and fill it.% I think that's often wrong for lots of folks. I think it's more effective to find a want and fill it.
The reason is that people are far more likely to spend their hard-earned money for things they want, even if those wants aren't things they need. Once you have an idea what your product or service is, you have to figure out what the benefits are to the people who buy it. There are all kinds of lists of these. Years ago some fellow named McCarthy, came up with a book with 237 reasons people buy things. That's way too many. I use a shorter list developed by a fellow named Herschel Gordon Lewis.
Here's the list.
- It will make me rich.
- It will make me famous.
- It will make me powerful.
- It will make me safe or secure.
- It will make me loved.
- It will make my life easier.
That's it. You don't have to use this list. You can use any list you want. But you must define the benefits of what you do, and then start telling people about it.
The simple reality is that if you don't get customers, you don't have a business. You don't have cash flow. You don't have profit. You don't have business.
Marketing consists of three core challenges. First, you have to get people to recognize your name, to have that bell go off in their head. Second, you have to help them make a wise choice to do business with you . Finally, you have to keep them as customers forever and ever, Amen.
Building recognition and awareness is mostly a process of getting your name out there over and over and over again. You've probably heard that statement, usually attributed to some actor that, "I don't care what they say about me as long as they spell my name right.%
It turns out that there's a lot of truth in that. The initial efforts are to get people to recognize your name to say "Oh, yeah, I've heard of them.% You do that by getting your name out there a lot.
Lots of folks starting new businesses figure they can do that with a mailing, or an ad, or a speech. Taint so. You need to be getting your name out there frequently. Frequently here means four to six times over a six-month period, or nine times in a year-and-a-half. Those are the numbers we get from marketing research.
Remember that repetition is the mother of learning and also of recognition. So do lots of things to get visible. Advertise. Put ads in places where the people you want to see them will see them. But do it consistently and aggressively.
Get your name in the paper through good uses of publicity. Give speeches. Do pro bono work in your community. Tell everybody you know what business you're in, and what you're doing.
It helps to have a good, short statement of what you do that you can share with people who ask. Lots of people who do sales training call this the "elevator test.% That means that if you've taken a three-floor ride on the elevator, you ought to be able to tell them in that space of time. Youâll find several formulas for this in lots of sales books.
I try to get a statement that gets the person I'm with to say, "Oh, really?ä And invite me to say more. If you catch me in an elevator, right now, Iâll probably say something like, "I write books about business.% Or, "I'm a business storyteller.%
As you build that recognition up, your next issue is to convert that into sales. That means you have to stay in touch with folks. As you build recognition, you need to give them ways to respond to you. That might be coupons. It might be your name and phone number on everything you do. It might be a Web site with a URL spread all over the planet.
Once they contact you, you shift into sales mode. It's your job to figure out what they need, and whether and how you can fill that need. Repetition makes a big difference in the beginning of the cycle, when we're building recognition; but from here on out, quality of contact and paying attention are your biggest benefits.
Since most businesses are so awful at this, you get big points just for returning calls promptly and being friendly and helpful. At some point you have to ask for the order, too.
Once folks become your customer, your next challenge is to keep them as a customer forever. Part of that is delivering high-quality service; but part of it also is staying in touch, cultivating the relationship, and being alert to their changing needs and wants. Do this right, and your customers will tell you what matters to them. Then, you can do what they tell you.
That's pretty much the marketing side, but cash flow is a big issue here. You've got to keep the money flowing, or you won't have a business.
Lots of folks will tell you that profit is the reason that folks are in business. It's not. It's a necessity for you to be in business. Profit to a business is like air or food or water to a person. Without them, you can't stay alive.
What that means is that your objective is to deliver that high quality service or product we talked about in a way that gets people to give you enough money that you have profit. In most small businesses in the beginning, one of the most important things is to make sure there is money in the bank and more coming.
It's strange, but a lot of times this boils down to some basic administrative procedure. Invoice people promptly. Follow up to make sure that they pay you. It sounds like third grade stuff, but lots of businesses don't do it.
There's a danger here to be aware of. For some reason, we've gotten it in our heads in this country that one of the most important things for starting a business is to get some venture capital or a Small Business Administration loan. Those are dangerous. The reason they're dangerous is that you don't earn them. Another reason they're dangerous is that they start you out in the hole. Another reason they're dangerous is they often give other folks control over key decisions in your business.
Most of the really successful businesses built over time don't start with venture capital or with big loans. Lots of them are based on getting the capital they need from second mortgages and lots of credit cards. This is dangerous; but, like Winston Churchill said about being shot at in anger, "It is excellent for concentrating the mind.%
Using your own money for the startup means that when you begin to make profit, it's all yours, and that profit is likely to come sooner rather than later. It keeps your energies focused on getting the business built. It also gives you some great stories for later on.
Okay, you're making money. What do you do with it?
There are four things that you do with the money that's generated by your business. The first and most important is that you fund your business. You pay your bills. You keep the lights on, and the phone working, the employees and the taxes paid.
Second, you fund your business growth. One of the things that's left out of lots of the articles on starting up a business is that you're likely to be cash poor for quite awhile, because you're always funding the efforts you need to get that business to be bigger. This is where you look at increasing your marketing efforts, buying new and effective equipment that you helps you work, etc.
In addition to keeping the current business going and paying for growth, you want to use your cash flow to acquire assets. I'm not using assets here in the strict accounting definition. I've found that there are several areas where there are significant differences between the way accountants use words and ways that make sense in the real world. Assets is one of those.
For an accountant, a piece of equipment is an asset, even if it's sitting out there idle in your factory. For an accountant, a piece of equipment is an asset even if you owe more on it than you could possibly get in resale. You need to know the accounting definitions as well as how to read basic financial statements, but you also have to concentrate on cash flow and assets as they relate to real world businesses.
For this, I use the definition that I first heard from Robert Kiyosaki in his series of Rich Dad, Poor Dad books. Kiyosaki says that an asset is something you use to generate revenue.
That's a great test when you're out for buying things. Will this help me generate revenue, build this business, make it better?
There are two kinds of assets to look at here. The first ones are things that you buy. If you buy a piece of equipment, will it help you build your business and make it better?
Remember that once you buy an asset, it's like putting money on the shelf. It has to generate more money from there. That's why, many times, especially in the beginning, the best thing that you can do is out-source things rather than buy equipment or invest in employees.
The assets you buy are things like equipment, computers, furniture, etc. You need to be asking about whether or not they help you generate revenue. The problem here is that not everything really does.
There are some assets, like office furniture, that really don't do much revenue generation. That's why, for some folks, those can be a door laid across a couple of sawhorses and an old kitchen chair. For others, that simply won't work.
I define a "luxury assetä as anything that you buy that doesn't immediately generate revenue. Some of these you have to have. You have to have a place to do your work. You have to have software to do your accounting. You have to have a telephone, and e-mail, and a Website. Just remember, that if they're not helping you generate revenue, they are luxuries.
Be wary here, too. Other common mistake folks make early on is to "fancy upä before and without its being necessary. You see folks who spend a couple of years building up a business; and then all of a sudden, they've great, new offices and lots of extra staff. That's often a sign of trouble down the road. Test every asset, everything you buy, against the will it help this business run and help me make money test. If it doesn't, don't buy it.
There are also assets that you don't buy. These are the assets that you develop, and they come in two forms.
The first and most obvious asset that you've got is your customers. Here, this all ties back to marketing.
You're going to find that it costs you a certain amount of money to acquire a customer. How do you figure out how much you should spend to get a new customer? The only way is to know the lifetime value of a customer. Once you've got them as a customer, what kind of revenue and profit can you expect to generate from that relationship over the lifetime of the relationship?
Once you know that, you can make some reasonable decisions about what it costs you to acquire customers. In the beginning, you may have to make some guesses about this. Let me give you an example from a business that just about everyone knows -- the auto business.
In the automobile industry in the United States, most dealers have been losing money on new car sales for almost a decade. But they're still willing to sell those new cars at prices that generate a loss, and they're still in business. How can this be?
It can be because there are other profit centers in the business that are tied to this customer, who comes in for a new car. One of them is called F and I or finance and insurance. One of them is called used car sales. One of them is called service.
When you run the numbers on the average auto dealership, you find that the lifetime value of a customer is somewhere in excess of $300,000. The majority of that revenue is generated from new-car sales, but the majority of profit is generated through used-car sales and service.
Notice that we're talking here about lifetime value of a customer. That leads me to what I call KISS Principle II.
Most of us have heard of the KISS Principle -- "keep it simple, stupid.% This is another KISS Principle.
Think of your sales as something like a kiss. Where are you most likely to get your next one? Are you most likely to get your next one by going out in the street and trying to convince someone you've never met before to give you a kiss? Or, more likely, are you most likely to get your next kiss from someone who gave you a kiss recently?
The customers you have are one of your most incredible assets. They are assets in my definition, but not in the accounting definition. They are assets because they help you generate revenue and profit.
You spend money to acquire them in marketing, but then you spend money and time to develop the relationship, listen to their needs, and continue to offer them valuable service.
There's one more kind of soft asset that it's important to realize. That soft asset is the skills and knowledge that you develop.
When I was a kid, no matter where I'd been or what kind of experiences I'd had, the first question that my mom would ask me when I came home was, "What did you learn?ä It wasn't until I was well into adulthood that I understood that what she was really doing was giving them a core value for life. Everything you do should teach you something. If it does, it's not a failure.
If you're running a small business and getting one up and started, this is very important to remember. You will learn about customers, your industry, people, and human nature. You will learn what works and what doesn't. You will learn about good ads and bad ads. You will learn more if you pay attention to the learning process.
Build your own skill asset development on two pillars. The first pillar is learning from your own experience. When things go wrong, ask why and what you could have done differently. When you get surprised by a good result that you didn't expect, figure out why and how you can make it happen again.
That last one's one that most businesses ignore. We seem to be stuck on the fact that feedback from bad experiences is more valuable than feedback from good experiences. We even talk about "trial and error.%
Some of the best learning you're going to have in business and the greatest opportunities that you're going to see are going to come from surprise good results. Analyze them -- figure out how to make them happen again.
In addition to learning from your own experience, learn from other people's experience. Read the business press. Go to meetings. Listen to speakers. Listen to tapes. Watch videos. Learn, learn, and learn.
If you keep feeding that marvelous organ that is your brain, youâll do the natural human thing and start to make connections and get good ideas. Capture those ideas. Try some of them out. Keep on moving.
If you start out with a business that focuses on people's needs and wants and delivers solid benefits · If you build your business with effective marketing that tells people about the benefits · If you develop solid, long-term relationships with your customers · and if you pay attention to cash flow and asset development, youâll build a first-rate business.
Created/Revised/Reviewed: 2/2001
Reviewed: 2/15/03
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