Ignorance is bliss

Before you set up your business, did you ever give any thought to what you needed to know about running a business, let alone running a business in your industry?

After all you were probably pretty good at what you did, whether it be a trade or a techie. That's the reason so many people start a business; they reckon they can do a better job than their boss, and they've probably got good reason for so believing.

And it is probably good enough for the moment - "do what you do, do well boy, do what you do, do well" as the old song went. If you did what you did 'well' then word of mouth will have got you customers and given you at least a wage.

But if you are going to be in business for awhile, you need to be earning more than a wage. You need to be recompensed for the risks you are taking, and for the hours you are working.

Don't tell me you are working fewer hours than you were working when somebody else was the boss. It rarely happens as I sure you well know.

And training as a tradie or techie doesn't tell you how to handle the business when times get tough, as they will. All too often events outside your control can come and give your business an almighty belt around the ears. Or for some reason you can't explain the cash is no longer there.

You see, when you say "What you don't know can't hurt you" you are completely misleading yourself. You are also saying in effect that "what you do know, can hurt you." You need some business management knowledge as well as those good technical skills.

Ignorance is not bliss. Ignorance is dangerous when you're running a business.

Whether it is that big wallop from outside the business, or inexplicable things starting to go wrong in the business, for the profits seemingly to have silently leaked out of the business, lack of knowledge can and will prevent you doing the things you need to do to protect your business.

To quote a good client - "I didn't know where to go to fix the problems, or how to fix them." "We owed money to our suppliers and were not able to make ends meet. We were not even making a profit."

"Until we saw the facts and figures we didn't know what to do, all we knew was that we should be doing better. I was disappointed with myself, not happy because I knew we COULD do better. I was frustrated and felt helpless because I didn't know what to do."

"You don't see the pitfalls before you set up your business. You should sort out the hurdles before you start; otherwise you are just operating in the dark."

A little ignorance can go a long way, but only some of the way. What you don't know will always hurt you when you are managing your own business.

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© Copyright 2010 Adam Gordon, Profits Leak Detective

A slogan for an interesting year.

The small motel just above the beach where we live has a small blackboard beside the entrance. We pass it on our morning walk just to make sure we catch up with the proprietor's pithy comment for the day chalked on the board. I don't know his source but his daily comments can be amusing, irreverent and sometimes thought provoking.

Today's offering "Why not - a slogan for an interesting year" falls into the latter category.

It's a bit more about you and what you might do in your business than about the old Chinese curse; "May you live in interesting times", which seems more about what the outside world may inflict upon you. I think we've had enough of that in the last year or so.

With the holiday rush over, you may be thinking about settling back into your routine, getting more comfortable. But I suggest you don't get too comfortable. Once you do you'll find yourself stuck in the same routine, repeating the same patterns and producing the same results. Keep on this track and your business can't grow or evolve.

Challenging yourself by stepping out of your routine and doing something different in or with your business is the only way you'll grow.

The oft-plagiarised quote from George Bernard Shaw "Some men see things that are, and ask "Why?" I see things that never were, and ask "Why not?" reinforces this.

Continually asking "why" is an open invitation to doing nothing, making no changes to how or what you are doing. You will end up taking no steps forward, trapped in a comfortable lethargy, producing those same, familiar results. Do what you've always done and you'll get what you've always got.

If you want a challenge ask instead "What today is impossible to do in your business but if it could be done, would fundamentally change what you do?" Now there's an opportunity to say "Why not"!

That's not to say that change automatically leads to improvement but to recognise that improvement won't happen without change. Asking "why not" to the impossible is a challenge, and will allow you to make some fundamental changes to improve your business.

Such changes may be:

  • Taking your current products and services to new markets;

  • Developing new products or services for your current markets.

But it may also mean different ways of doing things. Imagine, for example :

  • if you got serious about marketing in your business and learnt how to address the key drivers in your various market niches (or even what were the niches you serviced);

  • or developed proper systems and procedures so people did not keep on making the same mistake over and over again.

Improve, change, profit! Asking "why not" can indeed lead to an interesting year.

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© Copyright 2010 Adam Gordon, Profits Leak Detective

Would you think better?

Meeting successful entrepreneurial types is always an interesting experience. What drives them, how do they achieve their success, how do they stay on top of what they do?

I met a couple of very successful such people the other day, brothers actually, and in separate conversations with them a number of factors emerged. By the way these were general conversations, not interrogations.

Hard work - to build the foundation of their first business they worked hard, very hard. One talked about the number of years they had worked 100 hours per week over peak periods. Not everybody is prepared to put that kind of effort in, and they don't do those kinds of hours now, but it was the building block for their future.

Good advice - whether it was legal advice, financial advice or accounting advice they made sure they accessed the best possible advice they could find. They described it as underpinning their businesses. Good advice is another foundation block for business success. Although not mentioned by these entrepreneurs having access to good business mentors is strongly recommended to start up businesses. You are less likely to make mistakes and when problems arise, as they will, are more likely to find your way out of the mire.

Information - both brothers talked about their use of information. One referred to the spreadsheets he used to collect and analyse what was happening in the business, and to make his business decisions. The other brother, when asked about how he kept control of the myriad of disparate businesses they had built referred to the eagle eye he kept on them through the reports he required.

As regular readers of this blog and of the Profits Leak Detective newsletter know lack of management information is a key factor holding back most small businesses and the cause of many of their profit leaks. In fact it is frightening how uninformed so many small businesses are.

To quote the late American business success philosopher, Jim Rohn:

"If we were to ask people why they feel the way they do about certain issues, we would probably discover that the reason why they FEEL the way they do is because they don't really KNOW a great deal about those issues.

Lacking all the information, they form conclusions based upon bits and pieces that have come their way (not that they sought). With their limited knowledge, they often make poor decisions about how things are. If they knew better they would think better."

Hard work, good advice and information, three foundation stones to business success. If you have them you will both know better and think better about your business. Something to ponder on over Christmas.

Thank you for following my thoughts this year. My best wishes to you and your family for a wonderful Christmas and a happy New Year.


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© Copyight 2009 Adam Gordon, Profits Leak Detective

The data are surely wrong

Now I don't want to get into a debate about climate change but I do want to look at a little business lesson from the somewhat infamous leaked emails from the UK's Hadley Climate Research Unit that were splashed around the media and blogsphere last week.

In one email, Kevin Trenberth, a climatologist at the US Centre for Atmospheric Research, who supports the theory of man-made climate change, says: "The fact is that we can't account for the lack of warming at the moment, and it is a travesty that we can't."

Dr Trenberth says data published last August "shows there should be even more warming . . . the data are surely wrong." In effect he allowed his beliefs to affect his judgement of the data, rather than the other way around.

The lesson we can take from this relates to the use of data in business to make business decisions. Put simply, better information leads to better decisions.

Dr. Bob Smith in his book "Blind Spots - How to End Everyday Business Mistakes" shows that the more deliberate the thinking, and the wider the range of information we use and process then the decisions we make as a result are good decisions 85-90% of the time. The likelihood of a good decision being made when making the decision in the moment or under stress, i.e. without consideration and information, drops to 25-50%.

In other words having good data and considering all the issues before making a decision is more likely to lead to a good decision.

When it is your money at risk this could be important.

Professor Fred Hilmer, former Dean of the Australian Graduate School of Management also had something useful to say about having good information to make decisions. "If textbooks underestimated the time pressures faced by chief executives, they completely understated the problem of incomplete and misleading information. Accounts may be soporific but poor accounting makes it extremely difficult to make good decisions."

You must have the facts before you can solve a problem or make an informed decision, and in business you are asked to make decisions all the time.

Unless of course you are in government and not in small business. As John Maynard Keynes observed "There is nothing a government hates more than to be well informed; for it makes the process of arriving at decisions more complicated and difficult."

There is of course a further facet to this. Bad decisions are not always made because people don't have all the facts. Bad decisions are sometimes made because people ignore the facts, do not understand the facts, or do not give the facts enough importance.

So where does that leave decisions made by people who understand the facts, but ignore them because they don't suit their views. In business you can't afford to do that.

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© Copyright 2009 Adam Gordon, Profits Leak Detective

In my Rugby playing days we used to refer to a lazy sidestep as that practiced by someone large, usually a Kiwi, who would drop a shoulder and go straight through you, rather than take the slightly longer way around. And very painful it could be too.

Lazy dollars can be just as damaging for your bottom line. They are dollars that you are investing in your business that are not giving you the return that they should. Can you invest them elsewhere into dollars that work for you?

First you have to identify them. The problem is that lazy dollars can be found hiding away anywhere in your business.

Lazy dollars can lurk in all sorts of areas, such as:

Advertising and promotion - you'll know the famous old saying, which I believe goes back to a retailer called John Wannamaker in the 1920s; "Half the money I spend on advertising is wasted; the trouble is I don't know which half." Now that's alright for the 1920s but there is no excuse today.

You can measure the returns from your promotions, and you should do so. Why would you want to spend money on advertising or promotional material that doesn't work to generate sales? Lazy dollars indeed!

Stock - In 2006 Australian retailer Myers had 40% of its stock stacked in warehouses where customers could not see it, growing older and accumulating storage charges. Today, in 2009, that figure has been reduced to 10%.

If they can't see it, they won't buy it. If your products are sitting on the shelf, out of sight and out of mind, customers won't buy them. Dollars sitting down on the job and going nowhere.

How much of your hidden stock is saleable.

Stock turn - the longer you have something in stock, the more likely you will have to write it down. Slow stock turn could be related to the above comment, or it could be that market demand is low. There are circumstances where you may have to keep some low moving stock, like key spare parts, but if there is little demand, do you have to stock as much or any of that product.

Processes - the laziness is allowing inefficiencies to exist. The dollars invested in your processes may not achieve the returns they require because your processes by which you satisfy customers needs take too long, or have too many steps in them.

With one client we tracked a process that took 15 steps to deliver a result over 30 days on average. With a bit of work that was reduced to 8 steps and 2 days. The dollars tied up in the process were working much harder.

Don't get knocked down by lazy dollars. Lazy dollars damage your bottom line by leaking your profits and reducing your Return on Investment. They need to be identified and made to work harder to earn their keep.

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© Copyright 2009 Adam Gordon, Profits Leak Detective

What should people be doing in marketing and management NOW


Sometimes something crosses my desk that strikes me as being particularly useful and relevant to small businesses owners and managers. This question, asked recently of one of the top writers of sales material in the world, the very old and worldly Drayton Bird, was the trigger.

But it wasn't the question, but his answer that I thought you would find useful. So my challenge to you is - how well do you measure up to the 5 points Drayton makes?

The question he was asked was: what new things he thought people should be doing in marketing or management because of the present misery.

He replied:

"There is absolutely NOTHING new in management or marketing to be learned from the current crisis. But there are many OLD things that people have NEVER learnt.

1. In Marketing

a) Always measure, not gamble on what you or your boss or your wife likes.

b) Never spend without testing on small numbers before wasting money on large numbers.

2. In Management

a) Look outside at customers, not inside at your own organisation - "There is only one profit centre in business. It is your customer" - Peter Drucker.

b) Ask constantly about every person in your business: "What is this person doing to make or save money for the business?"

3. And, in marketing and management:

Never have a meeting unless it has a purpose that you are SURE is aimed at improving profits and that any decision will be acted on.

I am rather depressed that I decided these things made sense about 40 years ago. I have learned nothing much since, which is no surprise. But nor has anybody else, which is. Or am I wrong?

Thanks Drayton.

So there are your challenges; now answer honestly - of the five OLD things that Drayton identifies in how many would you score?

Of course, having been assisting small business owners and managers improve their profitability for more than 20 years I have my own view and what most answers should be.

By the way Drayton's web site is www.draytonbird.co.uk.


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Why your competition can be your best friend

Are you like most small businesses? Do you see your competition as the enemy, the biggest threat to your business? Someone to be resisted and held at bay at all times.

Have you ever been limited in taking advantage of an opportunity because you didn't have sufficient capacity to meet the requirements called for? You may have all the required skills but can't meet the volumes required.

Or maybe an opportunity may call for a range of skills, products, or services beyond the capability of your business. You may be able to meet some of the requirement, but not all.

In both these situations you can be faced with a dilemma: do you forgo the opportunity or do you find some means of adding to your capacity or capabilities. Partnering or collaborating with other businesses, either formally or informally is one solution.

The dilemma arises because the businesses most likely to have the required capacity or additional capability may well be your competitors. And most small businesses are extremely distrustful of their competitors.

Partnering is taking advantage of an opportunity presently out of reach of individual businesses operating in their own right. Advantages include:

  • Learning from each other and sharing the knowledge
  • Developing closer working relationships with suppliers
  • Undertaking joint research, marketing and development
  • Improving opportunities to meet customer demand for products/services
  • Strengthening negotiating and purchasing
  • Access to new expertise & experience

We call partnering or collaborating with your competition - co-opetition.

So what is the basis of co-opetition?

Co-opetition can be developed in a number of ways. They can be in the form of:

  • a formal joint venture for a particular project or opportunity;
  • an on-going formal relationship looking for a variety of opportunities, where a new business is formed to provide the vehicle for the co-operation;
  • an on-going formal relationship looking for a variety of opportunities, where one business agrees to be the lead vehicle for the co-operation;
  • an on-going informal relationship looking for a variety of opportunities.

Where three or more businesses become involved the partnership can be regarded as a business network.

Successful co-opetition has five characteristics which must be met:

  • Each business needs to stand to benefit, and so to have the motivation to join the partnership or network;
  • Members of the partnership need to have a good relationship with each other and develop commitment to each other and the business project;
  • Each firm needs to have something to offer;
  • There needs to be 'domain overlap' between the firms.
  • The business climate needs to be right

And how to avoid the problems?
Co-opetition depends on frankness and trust. This can take a long time to build, and a very short term to destroy. Trust is destroyed when:

  • Partnership members moving into competition with one another when there is a partnership opportunity;
  • Deviation from the core business of the partnership;
  • Lack of a self-starting, motivated, seller
  • Business opportunities are not shared by partnership members
  • Lack of commitment to a group effort
  • One business behaves entrepreneurially at the expense of the others.

So to succeed partners need to do the reverse of this.

Committed co-opetition with your competitors can reap rich returns. Give it a try.

What do you think? You can comment by clicking on the button below.

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© Copyright 2009 Adam Gordon, Profits Leak Detective

4 ways to keep existing clients

Many years ago, in a different job, I was involved in letting a reasonably large contract. There were a couple of serious contenders. After awhile, with the aid of some background checking and our interaction with both it became apparent that one was more intent on winning the job than what they did with the contract afterwards.

Their A-team was tasked with winning the job. What the B-team did with it afterwards didn't seem to be as important. Needless to say they didn't win the contract. We were much more comfortable with the other company's more customer-centered approach

You will have often heard of sayings like:

  • The lifetime value of the customer;
  • The real cost of acquiring a customer is greater than the return from the first sale;
  • We're not here primarily to make a sale; we're here to get a customer.
  • The name of the game is repeat sales rather than one-shots. And to have that, you need a customer
Our A-team contender was interested in getting the sale, not in getting a customer.
Harvard Business School research has found that a 5% increase in customer loyalty can lead to 40% to 90% increases in the lifetime value of that customer relationship. Now surely that is more important than just getting the sale, and then having to turn around and get yet another sale.

All of which leads to the question, if the value is in retaining customers, how do you do so?

Here are four steps you can take:

1. Keep talking ... stay in touch and maintain a healthy dialogue. If you leave your customers alone after their first purchase, you will reduce their lifetime value to your business. Keep in contact with your customers; let them know of items of interest, when specials are coming, trends which may affect them? Use any excuse to keep in contact so that your business is in the front of their mind.

2. Maintain quality ... if you are providing your clients with anything less than the best, you will most likely lose them. One study found that "good is bad", retaining customer loyalty couldn't be guaranteed by merely satisfying them. They need to see you as "excellent".

3. Add value ... by really understanding your client's business and goals. Customers buy because they have a need to be met, a problem to be solved, a pain/frustration to be removed. The better you understand them and what they are seeking, the more likely you will move from being a "satisfactory" provider to an "excellent" provider.

4. Push your brand ... make sure you are maintaining your presence. When the need arises, it is of your brand that you want them to think.

Don't be like the A-team, win the customer, not the sale.

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© Copyright 2009 Adam Gordon, Profits Leak Detective

And what does it do to your business?

Way back in 1973, four hostages were taken in a botched bank robbery at Kreditbanken in Stockholm, Sweden. By the end of their captivity, six days later, they actively resisted rescue and afterwards refused to testify against their captors. Allegedly they even raised money for their captor's legal defence.

It is thought that captives begin to identify with their captors initially as a defensive mechanism, out of fear of violence. Small acts of kindness by the captor are magnified, since finding perspective in a hostage situation is by definition impossible. Rescue attempts are also seen as a threat, since it's likely the captive would be injured during such attempts.

The behaviour is considered a common survival strategy for victims. It became known as the Stockholm Syndrome.

Industries can become like that, with individual businesses expecting that they need to conform to an "acceptable" pattern, not to step out of line or be different in any way, trapped by their environment.

And if times are tough, and a business is in survival mode the tendency to do so is reinforced: small businesses tend to pull in their horns, to hunker down, to survive. And in doing so, lose any chance of being different.

Have a look at the industry you are in. Do businesses operate in a common pattern and conform in everything from the way they advertise, the package of services or products they offer to how they promote and price their products and services?

All very well, but what does it do to your business? You do compete, don't you?
If you do compete, but are not different in any way, then ultimately the only way you can compete is on price. And if you compete on price, there is only one way prices can go, and that is down.

What does that do to your margins, and to your profits?

Competing on price alone is nothing but a giant profit leak.

You can get more for your product or service if you are different, if you are unique.

If you set yourself a target of being significantly more expensive than your competitors, what could you offer to your customer that gave them every reason to choose you rather than your competitors?

Before you say it can't be done, let's look at a few examples:

  • Bottled water - putting aside that you pay more for this than you would for an equivalent amount of petrol there are so many different brands on the market, from those in a simple plastic bottle to Perrier with its attractive packaging and social cachet. Yet it is only water. Why would you pay so much more?
  • Butchers - you can go to your local supermarket and take your choice from the shelf, pre-packaged and ready to go. Or you can go to your local butcher and pay a lot more for your meat. What makes your butcher different is the level of service, the fact that they will cut exactly what you require, the value-added gourmet cuts they have available.
  • Flash drives - you know, those little USB thumb sticks you can use to store and transfer data on your computer. They used to be comparatively expensive, now they're ridiculously cheap, but you can still get some that cost $200 or more. And those expensive ones are on back order, and come with a loooot more capability. For which you pay.
  • Cars - cars are about transport or are they? You can pay (I think) around $3,000 for Tata's new car in India to anywhere from about $50,000 to $1 million plus. Once you get above about $50,000 the price starts to jump in increments of $20,000. Once you get up to the $500,000 level it seems to jump in increments of $100,000. Why? Niche markets willing to pay a price.

Just to rub it in, the best and most expensive products don't discount and usually have a waiting list.

Coming down from the stratosphere of exotic cars how could you define your uniqueness? What makes you different? If you were to double or quadruple your prices, what would be the reason to choose you?

Is it the level of service, speed, ease of use, cost reduction, simplicity, appearance, emotional benefit, freedom from pain, attractiveness to others? You can find, or create, something - "Because we're number two, we try harder" (Avis Rentacar).

So throw off the Stockholm Syndrome, break free from your captivity, and compete by being different, by being unique. And charge a price accordingly.

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© Copyright 2009 Adam Gordon, Profits Leak Detective

And how to get future business

"It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness" - as Charles Dickens' famously opened 'A Tale of Two Cities'.

It comes to mind as I was reflecting on the performance of two different tradesmen we've used in recent times, and the small business lessons that can be learnt from that experience.

One tradie, let's just call him Austin, I found by word-of-mouth. As you will know, word-of-mouth is the most powerful medium for promotion. But, like respect, it is something that must be earnt, not just given. That's important, because in this case I trusted the referral, and didn't get competitive quotes.

Austin came promptly to inspect the job, and to start it when awarded. The job was done professionally and without any fuss or bother. There were no delays, no stop-start as can so often happen when you're looking for a tradesman. I was pleasantly surprised when the bill came in a little below his initial estimate. I was even more pleasantly surprised when, without being asked, I was given a complete breakdown of the bill in hours and materials.

And then there was Nelson. There wasn't much wrong with Nelson's workmanship. It was his attitude, and his approach. Nelson had a problem. Planning was an issue.

Lack of planning lead to a lack of time. Lack of time led to short cuts, to things not being done properly which, when spotted, had to be redone.

It also led to an attitude that we, the client, by insisting on things being done to specification, were trying to take him down, to short-change him. As a client, an attitude like that leaves a bad taste in my mouth.

What can we learn from this little tale?

Well quite a lot really. But first some basics:

  • Customers are the lifeblood of every business. If you don't have customers, you don't have a business.
  • A successful business model is one that focuses first and foremost on continuing benefits to the customer, the customer and the customer.
  • Most businesses make real money only on repeat sales. While an advertisement may make a prospect hopeful enough to try your service, it can't make that customer delighted enough to buy it again. Only you and your service can do that.
  • Harvard Business School research has found that a 5% increase in customer loyalty can lead to 40% to 90% increases in the lifetime value of that customer relationship.
  • The referred customer is most likely to become a source of more referrals. He got there as a result of a referral so he's already been conditioned to refer. The more you use these strategies the more profitable your business will be. Dan Kennedy

A bloke called Ray Kroc once said 'If you work just for money, you'll never make it, but if you love what you're doing and you always put the customer first, success will be yours.'

Who was Ray Kroc? He was an American businessman who took over a small-scale franchise way back in 1954 and built it into the most successful fast food operation in the world - McDonald's Corporation.

So to the lesson:

  • Look after your customer and you'll get repeat business.
  • You'll make more money from repeat business.
  • Repeat customers are more likely to give referrals and testimonials.
  • Referrals and testimonials are the most effective way to get new customers.

Now in my tale of the two tradies which is more likely to get a referral or testimonial?


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© Copyright 2009 Adam Gordon, Profits Leak Detective

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