Five questions you should be able to answer
Time and time again, I find myself talking to business owners, both start-ups and those that have been operating for some time, who are unable to clearly and confidently answer some simple questions you would assume they should know.
This is an indicator that they don’t have the level of clarity, focus and concentration needed for sustained and profitable success.
It also means they can’t share and set the right focus for their teams or articulate it to their customers and gain the power of leveraging a strong message and common focus.
To avoid falling into the same trap, here are my top five things every business owner should know:
1. What do you want to achieve?
If you don’t know where you’re going, you’ll probably end up somewhere else. Having a clearly defined vision and goals for your business is the antidote to that.
What do you want to achieve and when? What do you want the business to look like in five or 10 years from now? How clearly and confidently can you articulate that to your staff, customers, supporters and bank manager?
What do you want your brand to stand for, the market to know you for, and your customers to think about you?
You’re the business owner, so what do you need personally from the business? What was your reason for going into business in the first place and how will you achieve that?
What financial return do you need from the business and how will you get that? When will you exit and how?
With a clear big picture, you need to work out how you’re going to eat your elephant. The answer is one bite at a time.
So get specific by breaking it down into smaller short-term goals that are measureable and manageable, so you can keep track of how you’re going and know whether you’re going to achieve your goals.
This will help you stay motivated and allow you to make adjustments or ramp things up as you need to.
2. What do your customers really think of you?
Do you really know your customers or are you basing your knowledge on an unconfirmed assumption? The biggest assumption being that because they bought from you before, they will buy from you again.
Many business owners fall into the trap of assuming knowledge rather than simply asking the question.
So the next time you’re in front of your customer, take the opportunity to check and confirm how they’re going, what they think and know about you and if there are any issues or gaps in their knowledge that you can address.
Send them a survey if face-to-face discussion is difficult or uncomfortable, or ask them the ultimate question, which, according to Fred Reichheld, is the only question that matters: Would they recommend you to others? If the answer is no, find out why and address it.
3. Who is your real competition?
It’s often the direct competitors that business owners compare themselves to and monitor, while failing to consider the indirect competitors or dollar substitution options that your customers might choose over you.
For example, if you’re a gym operator your direct competitors are obviously other gyms, fitness centres and the local YMCA. But if you think about the objective of your customers, you’ll find you have a multitude of indirect competitors you’re contending with at the same time.
Customers focused on weight loss could choose any of the following alternatives: boot camp and personal trainers, equipment hire for home, playing sport, running, weight loss clinics, books, audio and video tapes, calorie counting and fitness apps, diets, meal delivery and replacement options, hypnosis and many more.
Thinking about your indirect competitors can help you address these alternatives and build a better case and competitive advantage that positions you as the best option for your target market to choose.
Another competitor you need to think of is the general competition for your customer’s dollar. Is your product or service an essential for the customer?
If not, how are you going to convince them spending it with you is a wise investment? People need to make decisions every day about where they spend a limited pool of money.
If they don’t consider what you have to offer a priority, they might spend their cash elsewhere on something completely unrelated or not spend at all.
With this in mind, when the opportunity to engage with them arises, how will you understand their triggers and address them to convert a potential into a paid-up customer and then keep them?
4. How will you achieve your growth targets?
Where will your business come from and what do you need to obtain it? Many business owners set growth targets but don’t analyse their activities or understand what additional steps they need to put in place, to work out how they’re going to achieve that growth.
Just like your vision and big picture goals, you need to break down your sales and growth expectations into specific, bite-sized and measureable targets.
Start with your existing customers; because we all know it’s much easier to sell to people you already know. Based on your past performance, identify how many of them you can expect to retain.
Then of those that you will retain, know how much they currently spend and consider what you can do to increase the number of times they buy from you and the value of each transaction.
Then work out how many new customers you need and where will they come from. It helps if you can define your ideal client and use your past experience to tell you where you’ll find them.
Next, map out your sales process and the steps and investment you make to take someone from a lead to a paid customer.
Calculate the number of leads you need to find and convert to achieve those sales targets. To do this you need to know your current conversion rate and from there it’s simple maths.
But by capturing, analysing and modelling your sales performance you can identify opportunities to improve your conversion rate, see what impact it will have on growth, understand your cost per lead and decide which leads to pursue to get the best return on your dollar and time investment.
Finally, make sure you consider any increased or additional costs you’ll incur as a result of an increase in sales. Do you have the cashflow to support those costs at the time you’ll incur them?
If you don’t have the cash you could over-extend yourself and end up in trouble rather than rolling in cash.
5. What are the important financial metrics of your business and how are you performing against them?
I’ve said it above, but it’s so important it warrants its own emphasis. Measure and track how you’re going against your goals.
Too many business owners only review their financial results at the end of the year when it’s past history.
Instead you should measure the activities and key indicators that produce the results your business is looking for.
Then monitor them throughout the year, when you have an opportunity to make adjustments that positively impact the outcomes.
This allows you to see patterns and trends, make predictions and decisions that improve the performance of your business.
Some of the key metrics you might want to monitor include those I’ve mentioned above: number of leads, customer visits, purchases and transaction value.
Other important activities to monitor might be profit margin, cashflow and return on investment
The right metrics to measure will vary for each business, and once you’ve set them you need to make sure you understand and know how to use them rather than just measuring for measurement’s sake.
Being crystal clear in these five areas will allow you to stay focused, use your knowledge and resources to your best advantage and achieve the outcomes you are looking for.
Marc Peskett is a Director of MPR Group a Melbourne based firm that provides business advisory and finance lending services, as well as tax, outsourced accounting and grants strategies to fast growing small to medium enterprises. You can follow Marc on Twitter @mpeskett