The triple C bottom line: Getting back to basics
It’s easy to get caught up with lots of ideas and exciting opportunities to pursue in business, but unless you get the business basics right, chasing or implementing the latest whizz-bang idea, management fad or marketing strategy won’t get you the results you’re looking for. Instead, they’ll be a distraction that you can’t capitalise on.
The basics I’m talking about are the three Cs: Clarity of focus, competitive advantage and cashflow. Get the three Cs right first and you’ll be in a better position to make decisions and take advantage of opportunities when they arise.
Clarity of focus
Clarity is about knowing why you’re in business and what you want to achieve. This means you need to have clear goals that you’re pursuing as the business owner. They might be financial in terms of dollar return on investment, profit or business value or non-financially driven, such as control or lifestyle.
Once you know what you want, you need to have a plan for achieving those goals. Your plan should be specific and address what the business needs to deliver, to allow you to achieve your personal goals. It should also outline the activities you’re going to implement to produce the results that deliver what you need.
A large part of this will be having clarity around what products or services you will sell, and the customers and market segments that you will sell to. Having a clearly defined product/market fit is a key to business success. Many businesses struggle because they try to be many things to too many people.
Conduct a review of your current range of products and services and assess where the sales and best margins are coming from. Many businesses find that 20% of their customers generate 80% of sales, but it’s not unusual to discover that 20% of your products generate 80% of your sales as well.
Clarity of focus also helps you to filter out the noise and stay focused on what you’re trying to achieve, and can be a motivational reminder when you need one.
Why should your customers place that vital first purchase with you and then keep buying from you after that? Even if there’s market demand, you still need a sustainable competitive advantage to convince customers or potentials to choose you ahead of your competitors.
Most small businesses don’t have the market share or buying power to compete on price so they need to focus on value, differentiating features, niche positioning or using your strengths and innovation to distinguish yourself from your competitors.
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However you choose to distinguish yourself it has to be meaningful to your customers, or it won’t affect their purchasing decisions. So find ways to test and gather their feedback when developing and communicating your competitive advantage and then once you’ve got one that resonates, find ways to replicate it.
Also once you’ve found it, check in every now and then to be sure it’s still relevant. It will need to adapt over time as the market, new competitors and customer needs and buying decisions evolve over time.
There’s little you can do if you don’t have the cash to support it. Establishing a business requires cash; maintaining and growing a business even more so. So before you can target a new market segment, introduce another product, invest in marketing to drive more customers to your door, or pursue pretty much any other strategy, you need cash to fund it.
For most small businesses the most important and sustainable source of cash is that which is generated from profitable trading operations. You can borrow money to kick-start things, but eventually you will need to produce the cash to pay it back.
The first step is to understand the cash needs of the business, what your cash-to-cash cycle is and, for each additional step up in growth, what additional cash is required. Sometimes growth can absorb more cash than the marginal profit produced, leading to overtrading and potential financial problems. The objective should be to develop a business model that produces a regular and sustainable free cashflow that can be reinvested to fuel growth.
Once you have the cash, you also need to ensure you are using it efficiently and appropriately on those activities that support your focus to prevent wastage without results.
You need to get these three Cs right in your business before you can successfully pursue other activities or ideas. Without a solid grounding in them, you’re more likely to be taking a scatter-gun approach to distractions that don’t provide the results you really want.
Marc Peskett is a partner of MPR Group a Melbourne based firm that provides business advisory and finance lending services, as well as tax, outsourced accounting and grants support to fast growing small to medium enterprises.
MPR Group are holding Business by Design workshops in November to assist business owners develop the focus they need to have the business they want. For more information click here.
You can follow Marc on Twitter @mpeskett