What in your business should be killed off?

Did you stop and think whether you had any “darlings” in your business that should be murdered?  You will recall from last week’s blog I used the writing advice “murder your darlings”, which is advice given to writers to remove any passage of writing that didn’t fit the story or style.  It can be perfectly good writing, and treasured by the writer, but if it spoils the story it needs to go.

The metaphor for business was that there can come a time when products, services of even processes that may be treasured by the business, need to be killed off.  The two classic case studies I quoted were Ford’s Model T, close to Henry’s heart, but kept in production for far too long, enabling the competition to catch and pass Ford; and Kodak, inventor of the digital camera, who clung to traditional film, leading to filing for bankruptcy.

Search the literature and there are many such stories, for example Nokia and Digital Equipment. 

Even more prevalent today is the disruption caused by technology.  Think Uber and AirBnB as I have written about a number of time; Disruption and the Gig Economy, More Disruption, But More Helpful, I don’t have the Answer , Three Sources of Business Disruption to Avoid

So how to avoid this situation

How do you identify, those “darlings” which need to be murdered, and make the decision to do so?

Here are eight things you can and should do.

Decisions - Making good decisions requires good information, then analysing and using that information.  Making decisions on gut feeling and instincts is all very well, but you are far less likely to make the right decisions.  Facts require a good information system providing accurate and timely information.
People are likely to make poor decisions without accurate and timely information that has been analysed and reported.  And too many poor decisions will lead to business failure.  

Mindset - Vince Barabba in “The Decision Loom” suggests businesses must have an enterprise mindset that is open to change.  Unless those at the top are sufficiently open and willing to consider all options, the decision-making process soon gets distorted. 

Whenever I’m consulting to or coaching a business and am told “We’ve always done it that way” alarm bells go off in my mind.  I explained why last week.

Have a variety of tools you can call on when tackling complex business problems; tools such as brainstorming, scenario planning, being willing to ask and keep asking “What if?”, risk management, and regularly using the “80-20” tool.  If Kodak had used some of these in the ten-year period they had to prepare for the arrival of digital photography, they might have made some different decisions.

Being flexible – both Ford and Kodak were inflexible.  “We’re on the right path, and we’re not budging” appears to have been the approach.  That doesn’t mean constantly changing direction like a hare, but it does mean having the ability to change when necessary.  Nokia made a significant change when it moved into mobile phones, and it was innovative enough to become a market leader, but like Kodak, became fixated on the phones it was producing, and was overtaken and passed by ‘smart phones’.

Heraclitus, an ancient Greek philosopher, is quoted as saying "change is the only constant in life", so the idea that we have to keep changing has been around a long time.  The marketplace we all operate in is changing even more rapidly, think disruption.  Killing promising new businesses to maintain old ones doesn’t make a lot of sense. When will businesses learn that if you don't cannibalise your own business, competitors will do it for you? 

Look at the trends.  Much like “we’ve always done it this way”; resting on your laurels, ignoring viral trends and failing to innovate turns market leaders into history in the blink of a business cycle.

Not understanding the business you are in!  Think of the Mission Statement in most business plans.  They should provide a clear definition of the business you are in.  Defining what business you are really in is a composite of three factors:
•    Customer Groups - who is being satisfied
•    Customer Needs - what is being satisfied
•    Technologies and processes performed - how needs are being satisfied.

Kodak thought they were in the film business, when they were really in the business of satisfying the need for “images”.  It is the end that is important, not the means.  So many business failures come about through not clearly understanding this.

The status quo needs to be challenged on a regular basis.  Many famous leaders have said it a lot of different ways, but it always comes down to the same message: when you stop challenging the status quo, you're dead.  Few companies are great at constantly reinventing themselves and most get by one way or another.  But the ones that resist change and try to hold onto what they were don’t find those fatal darlings.

Do you have some “darlings” in your business?

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, they usually have a profit leak, and often that profit leak, costing them cash and profits, is a “darling”.  It may be a product, it may be a market, it may be a process.  But its time has passed, and it needs to be killed off.

For more than 28 years I’ve been helping small business owners plug the profit leaks in their business and restoring their cash flows.
If you would like to discuss with me how you might do that, book a Strategy Consult here.  http://www.profitsleakdetective.com/fast-track-to-cash-consult

 

© Copyright 2016 Adam Gordon, The Profits Leak Detective 

And the lesson for business

You may know this phrase – if you’re a writer, but probably not if you are in business.  But it has a business lesson.

The source of the phrase is the English writer Sir Arthur Quiller-Couch, who said ‘murder your darlings’ in a lecture he gave at Cambridge University in 1916, a century ago.

The American author William Faulkner followed up many years later, advising “kill your darlings”.

Stephen King continued the theme, saying, “kill your darlings, kill your darlings, even when it breaks your egocentric little scribbler’s heart, kill your darlings” in his book On Writing

But what exactly does this mean?

Basically, this phrase is referring to those parts of our manuscript that we have simply fallen in love with but are no longer needed for the story and can perhaps even be distracting to the reader.

They're all referring to what you might call your “best bits.” The “bits” you should edit out of your work.  The theory is that writing you’re particularly proud of is probably self-indulgent and will stand out.  It might be excellent writing, but is not needed there.

So what is the business lesson? 

What is “no longer needed”, and should be killed off?

Let me give you two very real case studies.

The Ford Model T was an automobile that was produced by Ford Motor Company from October 1, 1908, to May 26, 1927.  It is generally regarded as the first affordable automobile, the car that opened travel to the common middle-class American; some of this was because of Ford's efficient fabrication, including assembly line production instead of individual hand crafting.

Although automobiles had already existed for decades, they were still mostly scarce and expensive at the Model T's introduction in 1908. Positioned as reliable, easily maintained mass market transportation, it was a runaway success. In a matter of days after the release, 15,000 orders were placed. 

The first production Model T was produced on August 12, 1908 and left the factory on September 27, 1908, at the Ford Piquette Avenue Plant in Detroit, Michigan. On May 26, 1927, Henry Ford watched the 15 millionth Model T Ford roll off the assembly line. (Source: Wikipedia)

The problem was, while the Model T was the foundation of Ford’s success, it had stayed in production far too long.  The competition had caught up with it, and passed it. 

The lead in the car industry it established vanished.

As the old saying goes, “you can be on the right track, and still get run over.”

And then there is Kodak.  

On 19th January 2012 Kodak filed for bankruptcy protection.  There are few corporate blunders as staggering as Kodak’s missed opportunities in digital photography, a technology that it invented. This strategic failure was the direct cause of Kodak’s decades-long decline as digital photography destroyed its film-based business model.

Steve Sasson, the Kodak engineer, invented the first digital camera in 1975.  But it was filmless photography, so management’s reaction was, ‘that’s cute—but don’t tell anyone about it.’

Kodak management’s inability to see digital photography as a disruptive technology, even as its researchers extended the boundaries of the technology, would continue for decades. As late as 2007, a Kodak marketing video felt the need to trumpet that “Kodak is back“, and that Kodak “wasn’t going to play grab ass anymore” with digital.

They commissioned a study.  The results of the study produced both “bad” and “good” news. The “bad” news was that digital photography had the potential capability to replace Kodak’s established film based business. The “good” news was that it would take some time for that to occur and that Kodak had roughly ten years to prepare for the transition.

The problem is that, during its 10-year window of opportunity, Kodak did little to prepare for the later disruption. In fact, Kodak made exactly the mistake that George Eastman, its founder, avoided twice before, when he gave up a profitable dry-plate business to move to film, and when he invested in colour film even though it was demonstrably inferior to black and white film (which Kodak dominated).

Kodak choose to use digital to improve the quality of film.  It bought out a new camera, the Advantix Preview.  It was a digital camera. Yet it still used film and emphasized print because Kodak was in the photo film, chemical and paper business.  It failed.

You see the problem

Unless you “murder your darlings” you’ll get left behind, run over, a memory.  As I write this, Ford Australia has just closed its local operation, after approximately 90 years of manufacturing in Australia.  There were many issues, but the principal one was that it stopped making the type of car people wanted. 

They failed to move with the market, and kept on making their traditional type of car, a large six-cylinder rear wheel drive sedan.  People were no longer buying that.

On a personal note, I recall having just gone on the board of the family retailing company, which my great grandfather had started in 1862, and questioning something.  The crusty old Chairman, who had been with the company all his working life, said, “We’ve always done it this way!”  End of discussion. 

I had the melancholy duty, some years later, of taking on that role to try and save the business for the family, only to have to call in the Receivers.  The business had a number of “darlings” which it had failed to kill off.

So how to avoid this situation; how do you identify, and make the necessary decision to “murder your darlings?

That will have to wait for next week.  This blog has gone on long enough.

Do you have some “darlings” in your business?

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, they usually have a profit leak, and often that profit leak, costing them cash and profits, is a “darling”.  It may be a product, it may be a market, it may be a process.  But its time has passed, and it needs to be killed off.

For more than 28 years I’ve been helping small business owners plug the profit leaks in their business and restoring their cash flows.

If you would like to discuss with me how you might do that, book a Strategy Consult here.  http://www.profitsleakdetective.com/fast-track-to-cash-consult

© Copyright 2016 Adam Gordon, The Profits Leak Detective 

Much activity, but no progress

My client hesitated; "I don’t know about that.  What if a better opportunity comes along?"   I was suggesting to him that he commit to a specific objective; time based, measurable, with steps to follow once the initial objective had been achieved.  It was designed to get his start-up moving, to get some momentum, and bring in some cash.

But he was like a dog with too many bones to choose from.  He’d identified so many opportunities and markets for his product.  But virtually all had impediments, most of which required money to overcome, money he didn’t have.

Have you ever watched a hare running in a paddock?  They can run quite quickly, but don’t make much forward progress.  Off they dash, then stop, squat for a moment, off they go again, in a different direction, only to stop, squat, and off again – in another different direction.  There’s no such thing as a straight line from A to B.

A poorly led business is like a hare in a paddock, constantly changing direction.  It is very hard to make progress when you are changing direction all the time.  Different goals, different strategies, not giving time for one to succeed before the next is embarked on confuse both staff and customers.  Chasing another bone, the silver bullet that is going to solve the business’s problems for once and for all. 

Successful businesses have a very clear focus on where they are going and what must be done to achieve their goals.  They also have motivated staff.
That doesn’t mean something should not be abandoned if it is not working.  Not everything will work.  You have to keep testing and trying, but do so with your eyes clearly fixed on the end-goal.

There are two problems with hare-like behaviour in a business; lack pf progress, and stress.

Successful businesses keep trying new things.  And importantly they keep measuring, so they know what is working, and what is not working.  When they find something that works, that takes them towards their overall objective, they do more of it.  But when they find something that doesn’t appear to work, they may try to fix it, and if it doesn’t, they discontinue that project or process.

The important thing is to keep moving forward to achieving their overall objective. 

Two key measurements of that progress will be cash flow and profitability.  If you are dashing about from one thing to the next, not committing to anything because you want to be free to chase the next meaty bone, then you will be spending precious cash in the endeavour to make this one work, but not staying long enough to make it work, and generate cash flow. 

Believe me, this happens, particularly in the start-up phase.  And the problem is, such businesses never get beyond start-up.  They dart from one possible windfall, to the next, off in another direction.

Which brings me to the other problem – stress. 

If your business is not making progress, if it is burning cash faster than it can create it, then you will be stressed, and that stress will spread throughout your business.  Your staff will know things aren’t going well, and they will be worried about their jobs, and their future.

Stressed people aren’t always pleasant to be around.

And I know what your solution will be, having been working with people like you for twenty-eight years.

The solution most adopt is to work harder and longer.  Gradually you find yourself working long days, and night, seven days a week.  No time for your family, and your hobbies for relaxation. 

It does happen.  I’ve seen it time and again.

What’s the real solution? 

I know it sounds boring but, put the blinkers on, decide which of the options has the least impediments to success, plan the steps, and take them, one at a time. 

Achieve that, and move on to the next.

Develop some momentum, and bring in some cash to fund those next steps.  Slow and steady progress will be the result.

My client is still hesitating.  Setting targets and dates is a bit to airy-fairy.  But not that new opportunity he has just identified – it’s huge.   And he can’t wait to attack it, if he could only fund that attack.

Do you have direction in your business?

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, it is not just marketing that is holding them back.  It is the lack of control they have over their business, and eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business, and lack of direction.

For more than 28 years I’ve been helping small business owners plug the profit leaks in their business and restoring their cash flows by assisting them understand:

•    The strengths, weaknesses opportunities and threats of their business
•    Determine where they want to be – clear, achievable goals, and
•    How they are going to get there – their strategies to achieve their goals

This is sometimes known as the NOW – WHERE – HOW model.

If you would like to discuss with me how you might do that, book a Strategy Consult here



© Copyright 2016 Adam Gordon, The Profits Leak Detective 

Who wins from a reciprocal exchange?

Let me tell you about the largest negotiation I was ever responsible for, and the lesson I learnt from it. 

I was responsible for bidding and negotiating major new contracts for a medium sized Australian manufacturing company. We had bid on some new work, and were asked to come and negotiate with a major client.

It was all rather hurried and last-minute. I had a briefing with our board and confirmed our minimum acceptable position which we used to call “MinAcc”. Naturally the client was determined to get our price down as much is possible, Minacc was the point at which, if reached, I had to walk away from the negotiations and fly home. On the other hand, it was up to me to negotiate the best possible price, and margin, for the job.

I should also add that our price had two components, the non-recurring or setup costs, and the recurring cost of production units. Each had their own Minacc point.

But of course it wasn’t just the price that was important, and terms and conditions of the contract were also very important and subject to negotiation.

The “strawman” was a technique I had been schooled in by our more experienced directors.  This is a technique where you negotiate very strongly about something that is not so important to you, so that when, if you concede, they will also concede another sticking point.

By picking on a weak part of the position and making a big deal of it, attention is distracted from the more important factors that would weaken your position.  The idea is to make concessions in areas that are really important to them, in return for which you give up your straw men.  This tactic will only work if their demands are for something that is either difficult or impossible for you to agree to.

In my situation we were able to reach agreement on both the terms and conditions and price eventually. The contract was renewed a number of times after I left the company, and became a very long-running contract for the business.

As an aside I also used technique I have not used since, a very simplified version of the Monte Carlo simulation to look at a range of possible outcomes.  Sitting alone in my motel that night I could see only one that would allow me to reach a successful conclusion, which guided my approach the next day.

Back to the lesson; the “strawman” underlies one of the key principles of influence in Robert Cialdini's book, "Influence – The Psychology of Persuasion."  They include Reciprocity, Commitment, Social Proof, Liking, Authority, and Scarcity.

It is reciprocity.  People tend to return a favour, thus the pervasiveness of free samples in marketing.   In effect, I conceded on some key points that were important to them, and they conceded on some key points important to us.  I’d never heard of Cialdini or his book then.  That is not surprising, as he didn’t publish it until 1984. 

In day-to-day transactions some call it “reciprocal concessions”. You have probably done this from the other side, starting with a small price that you’re prepared to pay, but willing to concede a higher price, but not as high as a seller is asking.

When you’re selling the logic goes, you mention a big number... any big number... and then mention your price, which is lower.  By comparison, the price will look small.

“Reciprocal Concession” just adds more deliberate meaning to that context. “If that’s too much,” it says, “how about this?” Knowing, of course, that “this” was what you were negotiating for all along.

How might that work in your next sales pitch?

You have properly seen online sales pitches like this:  "To get the same kind of service from a top-level pro, you might pay $1,1275 for a three-hour consultation. That’s what I’ve charged my private clients for years...”

“And frankly, it’s well worth it.”

“But I know this is new. And I know, from where you stand, it takes guts to be a pioneer. So I’ve set the launch price at just $725. That’s a great deal.

“However, let me do you one deal better. For the next 24 hours, you can grab an early-bird discount of just $450. You HAVE to let me hear from you by midnight.

Make that deadline, and the steep discount is yours.”

You get the idea.  If you start with the low price, it might feel low. It might not. By starting with a nearly preposterous offer and then backing off, you highlight the bargain. You also get a customer who feels more satisfied, getting such a great deal too.

If you have negotiated on the beach in Bali, the same principle applies. It’s like a ritual dance going back and forwards until a midpoint of mutual satisfaction is reached.

Where else can you use this principle? 

Reciprocation recognises that people feel indebted to those who do something for them or give them a gift.  For marketers, Cialdini says:  “The implication is you have to go first.  Give something: give information, give free samples, give a positive experience to people and they will want to give you something in return.”

How about one of the most powerful promotional tools, word-of-mouth through referrals.  If people feel they owe you something, they are more likely to give you something in return. One of the things they will give is referrals. 

So how might you generate that?  What about a thank you note, either by email or more preferably, a handwritten note. It only takes a few moments, but is really appreciated. It helps build a relationship, shows that you care. The recipient now feels that they owe you something and a request for a testimonial is the logical next step.

And personal testimonials are social proof of the value that you supply.

People like to refer business. It makes them feel good. People are making a contribution when they refer business. They are doing a "good deed" and that makes them feel good about themselves. Given the opportunity, people would refer business to others all day long.

Or demonstrations; the seller offers to demonstrate the product or service.  At some stage a tea, coffee or even a beer is offered, no charge of course, “accept a little hospitality”.  This is where a sense of obligation is created so that you will start to feel at some point to you need to reciprocate by buying something, just something small of course.  There’s always a touch of reciprocity from the demonstration’

Give to get back.

Where do you use the Principle of Reciprocity in your Business?

When clients approach me for coaching, clients with businesses just don’t make the sales they should, I often find their offers are all take, with very little give.  

The problems lie in their approach, concentrating on the sale, and not on the sale process.  It is all very well to start with the end in mind, but sometimes you have to give to get.

If you would like to learn more, I’m offering a free consultation, yes, there is no cost – this is my gift to you, book a Strategy Consult here

© Copyright 2016 Adam Gordon, The Profits Leak Detective 

How to Transform your business and take it to the Top

Have you thought about reaching the top of business, about excellence in business, and what it would mean for your business? 

I can think of three good reasons why excellence in business is important:

  • Excellent businesses are more profitable, and more sustainable.  They grow faster.  As an owner or manager you are much less likely to have sleepless nights worrying about cash flow and profitability, and spend more time with your family
  • Excellent businesses are good for the people who work in them, increasing employment & skills development opportunities
  • Excellent businesses benefit and lift their community

Yet 70% of businesses fail to achieve their true potential. And yet they are nearly there.  All the components are in place. It is just they are missing the essential ‘sauce’ that provides coherence and alignment in their business.

So I discussed this conundrum of business transformation with Michael Voss from MichaelVossNZ.com.  

For those of you who don’t know Michael, he helps leaders to grow personally so they can lead their businesses to the top using business excellence principles and practices that are based on the accumulated knowledge from the best organisations in the world.

He is a speaker, consultant, coach, and advisor, skilled at providing advice at all levels of organisations to develop sustainable high growth strategies and am passionate about driving high performance change.

Michael has a background in science, engineering, communications, research and development, manufacturing, leading high-growth companies and governance.

He has worked with the Baldridge Business Excellence Model for over 20 years, designing awards programmes, training judges, examiners, and award applicants.  Michael has led evaluation teams, and been involving in assessing hundreds of organisations from two person partnerships to multi-site companies in New Zealand and overseas.

He is the recognised ‘go to bloke’ for unlocking the barriers to growth in companies of all sizes and across all industries. And is the author of the soon-to-be-released book "The 7 Must Have High Performance Tools - for driving a high growth business”.

He blogs at MICHAELVOSSNZ.COM and runs regular webinars on integrating management systems and driving business growth.

I asked Michael five questions to explore “How to Transform your business and take it to the Top”:

1.    You describe yourself as a High Growth Business Enabler. What do you mean by that?

2.    And how do you apply excellence to business?

3.    How would you suggest our listeners get started?

4.    What results can people get?

5.    For the benefit of our listeners, can you go over this process?

Some takeaways you will find useful

  • “Excellence practices” are absolutely brilliant in solving problems in business. 
  • Financials are lag measures, and don’t help strategically with where the business is going.  The Baldridge business excellence framework provides some useful lead measures which can then be connected to lag measures such as financials, to become a very useful tool. 
  • Excellence has stood the test of time.  This is partly because it is non-prescriptive.  Businesses that score well on the Baldridge Business Excellence Framework outscore Standard and Poor’s companies 4.4:1, and they grow twice as fast as the typical ISO Certified company. 
  • Any business can work exceptionally well and impart significant growth in their businesses if they start to use the Business Excellence Framework to take them on that high growth path. 
  • Excellent businesses are more profitable and more sustainable.

To get more information or resources go to Michael’s website at http://www.pyxis.co.nz or http://www.MICHAELVOSSNZ.COM

How Well is Your Business Performing?

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, it is not just marketing that is holding them back.  It is the lack of control they have over their business, and eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business.

For more than 28 years I’ve been helping small business owners plug the profit leaks in their business and restoring their cash flows by assisting them understand:

  • The strengths, weaknesses opportunities and threats of their business
  • Determine where they want to be – clear, achievable goals, and
  • How they are going to get there – their strategies to achieve their goals

This is sometimes known as the NOW – WHERE – HOW model.

If you would like to discuss with me how you might do that, book a Strategy Consult here.  http://www.profitsleakdetective.com/fast-track-to-cash-consult

© Copyright 2016 Adam Gordon, The Profits Leak Detective 

Is it fulfilling that Role?

It was a tiff between two people in a client’s business that prompted this question.  One was the business owner (let’s call him Al), and the business manager (Bill). 

Bill had done the right thing, in my view, he’d taken the time to review income and expenditure for the previous month against budget, and comment on the variations.  Al didn’t disagree with the figures, but as owner, had a different perspective on the variations.  In essence the difference was about how rigidly variations from budget should be treated.

I won’t go into the details, but one of the issues that needed to be resolved was a better understanding of the role of the budget in their business, and how to use it to fill that role.

What is a Budget?

Let’s go back to tors and look at exactly what a budget is.  Your budget should not be a meaningless document that you prepare just to say you have one, although I’ve seen this.  Your budget should be the course you have decided upon for your business, an expectation of what you want your business to achieve. 

The budget is something that is compared to actual results to determine variances from expected performance, so that you can make informed decisions.

Your financial statements are a picture of the past; your budget maps the road ahead.   Mixed metaphors I know, but you get the point.  Financial statements are lag indicators.  They measure what has happened, where you have been.  Your budget is where you want to go.

Budgets usually represent a detailed analysis of how a company expects to spend money in future time periods, and the returns from that expenditure. 

It should reflect how you expect your business to perform, financially speaking, if the strategies, events and plans you have prepared are put into action.  You do have such strategies and plans, don’t you? 

How are you using your budget?

So you need to compare your lag indicators on a regular basis, what has actually happened, with the results you planned to happen.  Note the word “regular”; you don’t want the lag to be too great, otherwise you could be well off your planned road to the future.

And that is where “variations from budget” come in.  Inevitably, both from a revenue and an expenditure viewpoint there will be positive, and negative, variations. 

Detail is important in both Costs and Revenue, not just the bottom line.  I’ve always been keen on identifying what a business’s offering contribute in terms of both Sales and Gross Profits, and the market segments which from which they come.  I call it a Customer/Sales Matrix.
 

This is a powerful tool, particularly when measuring Gross Profit.  It helps you pinpoint opportunities for improvement both in what you are offering the market, but also those customer groups where action will be most effective.

Not all budget variances indicate a negative business situation.  If budget variances occurred due to unexpected growth in sales revenue, you may need to increase the budget amounts for future sales increases.  Such increases will also explain increases in expenses, particularly variable costs.  They may also reflect the results of increased or improved marketing.

It's why I’m keen on regular reporting so we have information from which you can make informed decisions. I wrote about this in “Can you see the Way Ahead”.   If your strategies and plans are not working, then you want to know as soon as possible, not three months after the end of the financial year. You want to know early enough to take action to get you back on the right path.

Which leads me to another important question: “Why is it so?”  When you have variations from budget it is important to understand why such variations occurred.   Having detailed information, not just a broad-brush comparison helps here.

But it also means reviewing those strategies, events and plans, how they were executed, market conditions, and a whole range of internal and external factors. 

Beware the “Three Blind Mice” Syndrome – “Don’t worry, be happy”, ignore the problem and hope it will solve itself.  It’s so easy to fall into the trap of using external factors as a convenient excuse for not taking action.

Another powerful tool to use is TRENDS.  One month’s variation may be an anomaly, but three months can show a serious trend.  It may be positive, it may be negative, but trends give you a very clear message.

Finally, the real secret to any business budget is its (and your) ability to be flexible.  If revenue falls below target, you need to know what changes can be made to the budget to help bring it back on track quickly. While an initially well-structured budget is the key to achieving your financial goals for the year, the reality is that they require constant tinkering at regular intervals, as revenue and expenses fluctuate.

What if you don’t use your Budget?

Shakespeare expressed it well, although I’m not sure he knew much about budgeting: 
“There is a tide in the affairs of men,
Which taken at the flood, leads on to fortune.
Omitted, all the voyage of their life is bound in shallows and in miseries.
On such a full sea are we now afloat.
And we must take the current when it serves, or lose our ventures.”

If a strategy or plan is working well, producing sales and profits, then you will probably want to take advantage of this, and build on it.  If not, it just becomes another missed opportunity.

Budgets are not set in stone.  They need to be reviewed and adjusted where necessary to reflect changes in conditions, strategies and plans.  Having the flexibility, through spare cash and an ability to cut or increase spending as needed, along with a determination to stick to your budget, are the best moves you can make to ensure your business reaches its profit goals, continues to grow even during changing economic conditions, and most importantly remains viable well beyond the current financial year.

And that is just what Al and Bill are doing, being flexible, but recognising that they need to be guided by their budget if they are going to take the business to where they want it to be.

How are you travelling against your budget?

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, it is not just marketing that is holding them back.  It is the lack of control they have over their business, and eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business.

Very often that is because they have not adopted a rigorous budgeting process.  They don’t treat their budget seriously, nor review it regularly.  And if they do, variations are not thought through.

Four spaces available next month – I have four spaces for a business assessment this month. 

If you would like to avail yourself of one, and there is no cost – this is my gift to you, book a Strategy Consult here



© Copyright 2016 Adam Gordon, The Profits Leak Detective 

If so, how do you get out of it?

There’s a feature of many of today’s youth that you will have noticed.  They like to be seen to be different.  So they wear their caps backwards.

It’s not practical of course; it doesn’t shade their face, or keep the sun out of their eyes.  And it doesn’t make them different from their mates, because they do exactly the same. 

So many small businesses follow the same approach, they like to believe they are different from their competition, but they don’t want to be seen to be too different.  Whether it’s with their products, presentation, their promotion, and especially their pricing they instinctively seek to conform to the norm.  They become a commodity, with all its inherent problems.

Has the term “commodity ever been used to describe what it is you sell?  Do your customers say “I can buy the same widget down the street, or online, for less?”  Or how about your sales team, do they believe the only way they “can sell this stuff” is if you get them a product at a cheaper price?

If so, you’ve found yourself in commoditisation hell, and that ensures one helluva profit leak.

As E Myth puts itIf your market’s perception of what you sell – your service or product – is no different from others in your trading area, you sell a commodity. And if that’s the perception, (so pervasive that even you accept it) you’re in a dangerous trap because the only way you can compete is on price. And that’s a recipe for disaster.”

If a lower price is your only weapon, then you're a commodity not a brand.  And there'll always be someone willing to race you to the bottom.  But when you're a brand you don't have to have the lowest price.  In fact, you can often charge a premium for your product or service. And customers will beat a path to your door to pay it.

So how do you get out of, or even better, avoid getting into commoditised hell?

You need to create a position where continually lower prices are not your only weapon to win against the competition. 

Dan Kennedy put it well: “Price is the #1 way you can spearhead dramatic improvements in PROFIT in your business.  Price is the path to stored value, hidden and overlooked opportunities, and even personal liberty for business owners”.

You have to create the position where you can charge such a price.   Promotion, in all its forms, is one tool to use to create such a position, but it has a downside.  You can tell people you are different, but if your offering is no different from the widget for sale down the street at half the price, they will soon wake up to you.

Advertising will only fool people some of the time if your product or service doesn’t have better value.  Marketing hype is no way to fight commoditisation.

The difference must be real.  As the old saying goes: "good, fast, cheap - choose any two".  Offer the customer a choice.  Those caught in commodity hell offer only one – cheaper.  Being “good”, or rather “better”, and “faster” in delivery will enable you to charge the kind of price Dan Kennedy talks about.

Where do you start?  You need to determine what “good/better” and “faster” means for your clients.  Anticipate your customers’ needs better. Solve the problems they are not yet aware of. Offer something the market wants that the competition is not offering. Then pricing is not the only factor a customer uses to make the buying decision.

Better usually means better value.  Determining which offering provides better value is the process a prospect goes through, usually subconsciously.  They assess the benefits your widget brings to them, minus cost the cost of acquiring it.  You need to know the benefits your prospect values most, provide that, and then add further value.

So how do you deliver faster?  You could put everyone on skates; the sight would be interesting (as would the site) but I suspect that wouldn’t work. 

There’s no need to make people work faster, or harder.  Rather, improve the processes by which you meet your customer’s requirements, and reduce the cycle time.  Improving business processes is best undertaken as an incremental activity, a series of small steps.  If you want to solve all the problems in your business in one giant step that WILL take a lot of time, time that you don’t have.  There are no silver bullets in improving businesses.

Improving your processes will not just enable you to deliver faster, it will improve your customer’s experience, and reduce your cost of operation.  Improving processes can mean:

  • Reducing the number of steps in a process – one client reduced the number of steps in a process from 15 to 8.  Think of the savings that achieved, and how much faster they could deliver.  It also meant more savings and their people freed up to do other things.
  • Eliminating areas of error and rework, reducing waste; more productive use of time and materials.
  • Doing jobs with a completely different process – this is where investment in your IT and communications become important.

But you must take action.  Taking action is the real difference between those in commoditisation hell, and those in a much better place.

Is your business in Commoditisation Hell?

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, it is not just marketing that is holding them back.  It is the lack of control they have over their business, and eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business.

The problems lie in the dark recesses of the business, unseen and un-resolved.  Illumination is provided by knowledge of what is happening in the business, and how to respond.

One space left –I have only one space left for a business assessment this month. 

If you would like to avail yourself of this, and there is no cost – this is my gift to you, book a Strategy Consult here.

© Copyright 2016 Adam Gordon, The Profits Leak Detective 

A toddling tale

That may sound like a silly question, but when we re-located nearly eight years ago to an old family haunt, one of the features of local business that rather surprised me was the number of local businesses that refused to accept credit cards.

I would be told to toddle off to an ATM and come back with the required cash. 

Image the number of people who would decide it was all too hard, and continue toddling, never to come back?  The gross profit that toddled off would be far greater than the 1-2% foregone from the credit card transaction.  After all 2% saved on nothing is still ….. nothing.

That “never to come back’ is an important consideration such businesses obviously never took into account.  You will know you make more money from repeat customers than new customers.  There are a number of reasons why you do so:

  • Cost of acquisition – repeat customers cost less money to acquire.  Think of your promotional dollars, usually aimed at getting people to come through your door.  Repeat customers know where your door is, and what they are going to find.  That’s why they come back.  And here's a thought about discounts - discounts cost you money. Some businesses offer specials to make a sale.  Good businesses offer specials to gain a customer.
  • Referrals – word of mouth is the most effective form of promotion, worth far more than endless promotional campaigns.  People believe their friends, and a repeat customer is highly likely to tell others where and why they bought something.
  • Size of purchase – the initial purchase may be small, that’s why on-line marketers offer small products as “lead magnets to get you ‘through the door’, but as the customer’s confidence in you grows, the size and frequency of their purchases grows.

Make it easy for them to buy

You may or may not want to offer credit but the more options you can give the customer to pay the more likely they are to buy. 

The list of widely used payment options is not long. On-line you can use credit and debit cards: Visa, Master Card, American Express and Diners, or PayPal.  Offline you have EFTPOS for the various credit cards, direct debit plus of course cash or cheque. 

I continually scratch my head in bewilderment when I find businesses preferring to save the transaction fee on credit cards rather than make the sale.  You haven’t saved anything if you have lost the sale.

If it is harder to do business with you than with your competitors, guess which way the customer will go.  And you not only lose the customer, you lose their repeat business.  What is “saved” in transaction fees will be dwarfed by the lost opportunities.

What other cost-cutting measures cut sales?

Very often businesses decide they need to “cut costs”, and yes, this can be very important for two good reasons:

  • Fixed costs – the more you can lower your overhead or administration costs, the more you reduce the break-even point for your business.  And once you are past breakeven, the more profit you will make each year.  See "How to bring forward your breakeven point".
  • Cost of Sales – if you can reduce your Cost of Sales while retaining your price, obviously your Gross Profit will improve.  And as I keep repeating, it is not the volume of Sales that determines your profitability, but the volume of Gross Profit.

For more on breakeven and its importance see "What is breakeven and why is it so important."

But as Paul Lemberg suggests “There are tons of proven ways to lose sales by making it extra hard for customers to buy from you. Mostly these are just bad decisions people make to limit expenses, but they are almost always short sighted. They repel good customers, and not only for the all-important first sale, but for all the otherwise super-profitable recurring sales as well.

Once pushed away, those potential customers are pushed away forever. They never come back for that ever-more-valuable repeat business.”

Cutting costs which make it more difficult or off-putting for the customer can be cutting of your nose to spite your face. 

Here are some more examples:

  • Cutting staff – now I know people are your biggest expense.  They are often around 50% of more in many small businesses.  But customer service is a critical element in customer loyalty.  If numbers have to be reduced, look for ways to compensate and improve the customer experience.
  • Shipping and handling costs – yes, they can be genuine, but they shouldn’t be loaded.  Overcharging shipping and handling to make an extra dollar is cheapskate.  Make your margin on a good product.  You can even use shipping and handling to increase sales, as Amazon does, offering free delivery if you buy an extra book.  Some businesses offer free shipping to make it easier to win the sale.
  • I can’t find what I want – you go into a business, or online, and you can’t find what you want.  It’s very off-putting.  Online, the easiest thing to do is to click away to another site.  Offline, clear signs, well organised, well labelled merchandise makes a big difference.  Even a small change in the question your staff asks customers can make a big difference.  Instead of the off-putting “Can I help you?”, try “How can I help you?”. 

Make dealing with you a pleasure, not a pain, and build loyal customers and repeat business.

Is your business travelling as well as it could, and should?

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, it is not just marketing that is holding them back.  It is the lack of control they have over their business, and eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business.

The problems lie in the dark recesses of the business, unseen and un-resolved.  Illumination is provided by knowledge of what is happening in the business, and how to respond.

Two spaces left –I have only two spaces left for a business assessment this month. 

If you would like to avail yourself of one, and there is no cost – this is my gift to you, book a Strategy Consult here.

© Copyright 2016 Adam Gordon, The Profits Leak Detective 

Why marketing can’t fix a sales problem

I’m sure you know that old saying in the headline; “you can lead horse to water, but you can’t make it drink.”

That’s what comes to mind when I hear people espouse marketing as THE solution to a business’s lack of income.  It’s part of the solution, a very important part, but it is not the complete solution; there’s a missing piece to the jigsaw puzzle.

And that is sales; the skills to turn a lead into a sale - to close the deal. 

There was a time when sales was an honoured profession, but then somehow the term “salesman” became somewhat downgraded, even slightly sleazy, associated with shonky used car salesmen, or real estate – with apologies to both those honourable professions. 

In my view sales skills are one of those lost skills.  I have lamented before that I don’t seem to hear of sales training as much as I did years ago, of people planning their sales territory, of how to prospect for new business, of the essentials of a “sales conversation”, of how to listen, and, most importantly, how to close a sale.  See:

Businesses need both, so let’s examine their respective roles, and how you can use them.  But first you need to understand that marketing, like sales, is not what it used to be. 

If you do a little research you will find dozens of definitions of marketing.  Here are just two:

Marketing is nothing more than educating your prospects and clients to understand, appreciate and desire the self-serving benefits, advantages and results of your services to them, and wanting to have those results for themselves, because they trust you as a purveyor of it.”  Jay Abraham

“Marketing is a process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives.”  American Marketing Association

The wise Peter F. Drucker wrote, “The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.”

Focus Marketing on the Marketplace - If marketing were supposed to focus on your product, it would be called “producting.” But it’s not is it? It’s called “marketing,” which means that marketing is supposed to focus on the marketplace.

John Romero offers the following advice, “In marketing I've seen only one strategy that can't miss - and that is to market to your best customers first, your best prospects second and the rest of the world last.” 

That is important; you are not selling to everybody, but to those most likely to buy.

So marketing is about identifying your most likely customers, determining a compelling marketing message that will persuade that customer to buy from you, and not that competitor, and gets that message in front of them.  Marketers see themselves as generating the leads for sales people to convert.

It involves advertising, PR, segmenting, distribution, pricing and so on.  We were taught the 4 Ps of marketing were Price, Promotion, Product and Place, and all strategies arose out of how you combined and used these.  An early lesson I learnt was that if a different strategy was required, you were targeting a different segment.

Sean D’Souza suggests “marketing is all the hard work you do before you communicate. All the tactics, the positioning, the branding and determining your target audience.”

But it doesn’t make the sale.  And that is where the complications begin.

Sue Barrett suggests “The reality is that the Internet, smart-phones and social media have changed the world of sales and marketing.” 

As I discussed in “Two Problems in How People Now Buy” the essence of the problem is that people no longer rely on magazine and other advertisements, at least to the extent they did, to find what they want.  Nor do they wait for the sales rep to call.  Salespeople have lost control of the process. 

Buyers are now researching online, instead of calling salespeople to discuss their problems and suggest solutions.  These days, buyers don't want to see a rep, or step into your business, until maybe the last 20 percent of their buying process. 

But here’s the rub, Sue Barrett suggests “Selling is not some black art or something to be feared. Selling is something to be studied, learned and applied just like Marketing.” 

To get to the point, if you need to grow, or if you are going through a down period, to turn to “marketing” to solve the problem is not the solution, at least not by itself. 

You need to know whom to sell to, and what ticks their boxes, but you also need to know HOW to sell.  Your team needs to know, and be able to implement effective and practical sales skills, to have a thorough grounding in the essential knowledge, skills, & mindsets needed to sell effectively.

I’m quoting from Sue Barrett here, and I’ve never spoken to her, but I like what she says in regards to sales skills, you need:

•    A sales system of core principles, skills, tools, templates, processes and models that lead to sales success.

•    How to plan your sales territory and prospect for new business with confidence

•    How to plan, open, direct a sales conversation and close a sale

•    How to understand customers' priorities and perspectives and effectively position your offerings

•    Insights into the application of the key skills of questioning, listening, responding to scepticism, indifference and obstacles

Whether you are versed in marketing as it was, or as it is now, you still have to make the sale.  Marketing leads the horse to the water, but the sale makes it drink.

Is your business travelling as well as it could, and should?

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, it is not just marketing that is holding them back.  It is the lack of control they have over their business, and eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business.

The problems lie in the dark recesses of the business, unseen and un-resolved.  Illumination is provided by knowledge of what is happening in the business, and how to respond.

Three spaces left –I have only three spaces left for a business assessment this month. 

If you would like to avail yourself of one, and there is no cost – this is my gift to you, book a Strategy Consult herehttp://www.profitsleakdetective.com/fast-track-to-cash-consult



© Copyright 2015 Adam Gordon, The Profits Leak Detective 

And put Cash in the Bank

Have you ever found yourself lying in bed in the early hours of the morning, when you should be sleeping deeply, girding yourself for the day ahead, and wondering just what you can do to get your business back on a growth path?  A path that will put cash in the bank and relieve of those worries that are keeping you awake at night. 

Here are seven steps you can take to grow again and generate cash and profits.

1.    Focus on the 20%, not the 80% - I’m sure you’ve heard of the 80/20 Rule.  You will win 80% of your profits (and sales) from 20% of your customers.  They will be buying from you more frequently and in larger amounts than other customers.  They do so because you meet their needs; solve whatever business, personal, emotional problems they have.   They trust you, and believe they have developed a relationship with you.

You can waste a lot of your promotional dollars and effort by no focusing, by trying to target everyone – after all, you don’t want to miss a potential sale – forgive the sarcasm, but I come across this belief so often; that there’s some magical marketing message that will resonate with everyone possible (not potential) customer you have.

It doesn’t work like that; your product offering must satisfy the needs of your most likely customer, not your least likely customer.

For a different take on this, read Does your marketing tail stretch to the sea?

Be very clear about who your target market is.  Once you do that, you’ll cut your wasted marketing expense to zero and start getting maximum return from all your marketing.

2.    Make sure WHY they should buy from you is very clear.  You must have a real point of difference with your competitors, something that makes you stand out, something that your likely customers really value. It’s your USP, your Unique Sales Proposition, or Unique Value Proposition.  I’ve written about USPs and how to develop them before (Does your message get your prospect’s attention?).

Without that, how do you persuade your prospect to choose you or to change suppliers to you?  Of course, to develop your USP you must know which prospects you are targeting, you must understand them, their wants, needs, and desires. 

If you are still competing with other businesses, then your USP needs work.  Create a USP that makes your business the clear and only choice for your customers.

3.    Develop offers, bundle products, but don’t compete on price, compete on value.  Bundling is packaging a group of products together and selling them at a price less than the customer would pay if he bought them individually. This is often used in Travel industry and computer sales.

Instead of offering additional products at full prices, the customer is offered additional products or services at a discounted price.

The objective is to use the discounted price to encourage the customer to increase their purchase and increase the volume of Gross Profits (that’s what pays for all those Overheads), but at the expense of % Gross Profit.

This add-on product can be either given away or sold.  Even if you give away the add-on product, it's better than giving a discount on your main product. Now be aware that the bundled products need to be priced, or else they have no value in the eyes of the customer.

4.    Sell to Groups - When given the choice between selling to an individual, or selling to a group, the majority of salespeople choose to sell to the individual.  But when you sell to groups, you can significantly increase the return you achieve. 

What do I mean by sell to groups?  Have you ever been asked to make a presentation to your local Chamber of Commerce, or other such organisation?  That’s a group to who you are, in effect, making a sales pitch.  And then there are seminars you organise, training workshops which can lead to “Can you help me with that?”. 

Don’t forget the increasing popularity of webinars; they enable you to reach out to an audience well beyond your local market.  Those webinars can be recorded and rerun.  The opportunities are endless.

Selling to groups gives you three strategic advantages:

Social Proof – All the individuals in the group are reassured knowing that others are there exploring the solution to their own problem.  It validates that they are like others, and not some strange freak of nature.  Social proof is very powerful.

Pressure – A group setting by default applies buying pressure on others.  Why?  Well, because they want to confirm to themselves that they aren’t a freak of nature, that they make

The Group Effect – Have you seen those young boys or men who love wearing a cap backwards.  They want to demonstrate how different they are, by being the same.  They follow the leader.  The same effect happens when you give visible buying instructions to a group.  Meaning when you say, “if you want one of the thirty remaining spots go to the table in the back of the room right now.” 

When you get good at selling to groups you can make significantly more per hour.

5.    Use email marketing well - It might surprise you that email marketing is still one of the most effective tools you can use to win customers.  Surprise you because we flick aside most of the constant stream of emails we find in our Inbox.  But if you research the experts, and I do, you’ll find the opinions are to the contrary.

Now I know you’ll worry that you will lose your list if you send “too many” emails.  Don’t – I addressed this fear in “How many emails are too many”. 

Research tells us that email marketing is still the number one way for businesses to communicate directly with customers.

But you have to do it well.  We all suffer from too many emails in our Inbox.  It’s a competitive world, so your email needs to capture attention, and hold it.  Too many people just whip out an email without working on an attention grabbing subject line, an opening paragraph that draws the reader in, and a compelling message that leads to action.

And then there is the sequence; one email is unlikely to get the result you need when you are trying to make a sale.  I used a three-email sequence.

So learn the fundamentals of crafting compelling sales emails.  Poor email messages will alienate your list—sometimes permanently.

6.    Resurrect the dead - Have a resurrection campaign to restore ‘dead’ customers; previously good customers who have inexplicably dropped off the perch.    Bring the dead back to life; this may involve gifts or special offers.  It should acknowledge that they haven’t used you for a little while, or that maybe you have done something that discouraged them.  Apologise and what you can do to repair the relationship.  Give them a reason to come back.

And when they do return, send them a personal thank you note afterwards to remind them that they are valued customers.

7.    The road to success is paved with good information.  So often in a business you can’t see the way ahead because of the fog around you, a lack of illumination on what is happening in your business, as I wrote recently.

Good information disperses the fog, and gives you a clear view of your world. 

We don’t necessarily have a clear view of what is happening. Pave the road to success with good information, and you won’t be fog-bound

Doing one of these things will increase your income. Doing all of them could make a tremendous impact. Pick one or two to start and once you’ve implemented them, move on to another one (or two) on the list.

There’s Nothing Wrong with Asking for Help

When clients approach me for coaching, I find they are almost always a business with a problem, a problem that if not fixed, will see them go out of business. 

They usually have “business”, although frequently not enough, but often it is the wrong business, less than profitable business.

Often they lack a management mindset, and lack control over their business.  Eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business.

Not knowing how to write emails that sell is another factor.

For more than 28 years I’ve been helping small business owners plug the profit leaks in their business and restoring their cash flows by assisting them understand the information they need to have control over their business, how to manage and analyse it, and how to answer that critical question – WHY IS IT SO?

If you would like to discuss with me how you might do that, book a Strategy Consult here

© Copyright 2016 Adam Gordon, The Profits Leak Detective 

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