Marketing

Follow Your Emotions and Go Broke

According to dictionary.com, one definition of emotion is “an affective state of consciousness in which joy, sorrow, fear, hate, or the like, is experienced, as distinguished from cognitive and volitional states of consciousness.” Emotions can be complex and if you make business and financial decisions based solely on how you feel at the moment without considering facts then this can be a disaster. Here are a few examples and ways to prevent you from making decisions based upon emotions:

Investment decisions: When the stock market tanks and the economy is in a recession, you may be strongly tempted to sell all of your investments, which is most likely the worst decision ever. If you have a good financial advisor then hopefully they can temper your emotions.

Too excited over expected results: A perfect example is when a sales person tells you how much money you will make by placing an ad in their publication because thousands of people will see your ad. It may be true that thousands of people will see your ad, but if they aren’t your target market then your results will be dismal.

Conflicts with customers and employees: If you have a performance issue with an employee, first determine if this is a recurring problem before you pounce on them. Maybe the issue just needs a gentle correction versus more severe actions. What about a customer complaint? Even if you are right, try not to reactive emotionally so as not to let the situation escalate out of control.

There are several techniques that you can use to prevent poor, emotionally-based decisions:

Wait: Don’t be reactive to another person or situation. If the situation requires you to speak or deal with it immediately, then pause, even if just for a moment, before speaking. For other decisions, take a day or more to make a decision. The time spent making a decision should coincide with its importance.

Look at the facts: What you think is true based upon how you feel and what actually is the truth are two different things. Separate feelings from facts.

Seek advice: Speak to a trusted professional, friend, or colleague about your decision. Sometimes just speaking to a third party before making a decision can put things into perspective.

Don’t let your emotions get in the way of your decision making.

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5 Traps to Avoid When Growing Your Business Rapidly

Growing your business, especially growing rapidly, can be a really great accomplishment, but there are dangers when growing too quickly. Here are several traps to avoid to ensure successful growth:

Cash flow: Quite often, a small business will have cash flow issues when growing too rapidly. This is due to a delay of getting paid, while expenses need to be paid for upfront or before getting paid. There are 3 solutions that can help depending upon your situation. The first is to see if you can obtain terms with your suppliers to delay expenditures, second is to obtain a line of credit to support your receivables, and third, which tends to be the hardest, is to build up a cash cushion first.

Finances: As you grow your business, the financial aspect becomes even more crucial to your success. This entails a focus on investing in more robust accounting software, accounting staff and/or accounting services, streamlined processes and procedures, and internal controls, to name a few.

Employees and management structure: Unless you enjoy working 24/7, you need capable managers to manage your employees (you have been hiring more employees, right?). It is easier to have a few people reporting directly to you then several dozen. Also, make sure to acknowledge and reward the loyal employees that helped you to obtain your success.

Personal time and wellness: It is very easy to put in excessive hours to handle the massive growth of your business. There will be times when you need to work extra, but if this becomes the norm then it is easy for your personal relationships to suffer, along with a decline of healthy habits.

Infrastructure and organization: This applies not only to the physical nature of your business, but especially your operations. Have you outgrown the physical space that you occupy? Are you using equipment, technology, or IT that is not keeping up? Are your vendors and advisors able to handle the growth of your business? What about marketing and marketing staff? These are all areas to consider; otherwise, they will act as barriers to your growth.

Growth needs to be profitable, stable, and smart; otherwise, your results can easily go in the opposite direction that you intended. Think long-term, strategically, and surround yourself with the appropriate advisors to help you along your journey.

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Old School Marketing that Still Works

Google AdWords, Facebook ads, Instagram, and email marketing, are just some of the modern ways to market your business. We are told by social media experts that traditional, old-school marketing does not work anymore. Let’s take a closer look, especially as some digital marketing methods have become overly saturated.

Some traditional marketing methods work better than others, which is the case for any type of marketing techniques. Methods, such as phone book advertising, may be dead because no one receives phone books anymore, but here are 4 old school methods that are still alive:

Networking: Developing a network of referral sources by going to networking events, lunches, dinners, etc. and developing strong, trusted, relationships, still works. People always like to do business with and refer their customers to someone they know, like, and trust. It may take some time though.

Pounding the pavement: If you are selling a service or product to restaurants, as an example, then make an effort to visit them. Make sure to know when it is a convenient time to stop by plus it is beneficial to have information to provide to the business owner.

Direct mail: I’ve heard it being said that direct mail is dead. It’s not true. If you are going to commit to direct mail, which can be very costly, make sure that your efforts are very focused and get noticed.

Speaking engagements: What better way to come into contact with people who actually want to hear and know more about your expertise? Even a small group of attendees can produce a significant return on your time and investment, especially if you make it easy to get in touch with you and obtain contact information from those willing to share this information.

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Instead of Taking out More Debt, Do This Instead

One of the first ways most people try to cover a financial shortfall is to incur more debt. Whether this is to support a struggling business or even on a personal level. This may be a solution in some cases or may be used in conjunction with other financial methods. However, there is another solution that may work to solve your shortfall.

Reason for shortfall: Simply put, there will be a shortfall when your income is less than your expenses. Sometimes this is temporary or seasonal and you may be able to predict a shortfall based on business patterns.

The debt solution: Usually, most businesses turn to debt to smooth out the shortfalls. While this may be a viable solution, it should be well though-out and other options should be explored.

Alternative solutions: Aside from needing funds to support a large purchase, if your income is not enough to cover your expenses then instead of first choosing debt, here are a few other options:

Sales: Focus on increasing your sales. An increase in sales will help to increase your bottom line results. Will your expenses increase as a result? Most likely yes, but so should your profit. Aside from industries that have a poor cash conversion cycle, which is a topic all by itself, the additional business activity should help to offset your financial shortfalls.

Expenses: Small businesses should always be conscious of what they are spending their money on. Based on observation, small businesses do not usually spend their money excessively, but they may spend allocate it to areas of their business that do not generate a benefit, such as poorly spent advertising dollars.

Profitability by service/product/client: It may come as a surprise, but most likely there are several aspects of your business that are really not that profitable or may not be profitable at all. If that is the case, then by eliminating these activities your profits will increase as you can focus on increasing sales of higher profit services.

Don’t always go for the “easy” solution, but perhaps a simple, more sweat-producing, long-term solution to help the finances of your business.

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Should You Market to Existing Customers or Search for New Ones?

Much of the marketing advice today focuses on marketing to obtain new customers, which is full of excitement and challenges. While you should always be seeking new customers, what about your existing ones? What is most effective?

New customers: It is especially important to market to new customers when you are just starting up and also when trying to grow your business. The benefits are new customers to develop and grow your customer base, to replace ex-customers (there is always natural attrition that is not your fault), and increase cash flows.

There are also several downsides to marketing to new customers. The first downside is that it is much more expensive and time-consuming to obtain new customers. Some studies show that it is about five times more expensive to obtain a new customer than to retain an existing customer. Additionally, depending upon your business, a new customer may be less profitable than an existing customer, which means that your profits will not keep up with your sales growth.

Existing: There are two types of marketing that should be performed for your existing customers. The first should be to develop stronger relationships, loyalty, and ultimately higher customer retention. Unfortunately, many small businesses and professionals greatly lack a plan to keep in touch with their customers and wait until they are contacted by their customers for an urgent need. The second type of marketing should be to increase sales of existing products or services, and also to provide additional products and services to their existing customer base. Studies also show that existing customers are much more likely to purchase from you vs. new customers.

When I was in high school I learned this lesson from my dad after finding out that I needed to sell magazines as a fundraiser. He told me to go see the customers from my old paper route that I had several years back, which I reluctantly did even though I thought that he was wrong. It turns out that I was the one who was wrong and met the sales quota with very little effort.

Hybrid: The older and greyer I become I realize that most things in life are not either or, but are a combination of both. The wisest approach is to market to new customers, make efforts to retain your existing customers, and to offer new products or services to your existing customers.

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Want a Better Business? Focus on Recurring Revenues!

There are more ways to make money in business that can be listed. However, one mostly overlooked business model by a majority of small businesses is the recurring revenue model. Larger businesses already know this and are taking advantage of the benefits. Here are some pros and cons and how to implement the recurring business model:

Pros: Recurring revenues, specifically monthly recurring revenues, provide a steady stream of predictable cash flow. Since you can easily predict your income you can plan ahead for the amount of expenses needed to support your revenues, such as employees, technology, supplies, inventory, etc. This will in turn significantly lower your expenses and help to increase your profit margin. Additionally, a business with recurring revenues has a much higher value than one-shot deals. Think homebuilder (one-shot) vs. a subscription service like Netflix (monthly revenues).

Cons: Many small business owners love the large payments that they receive when they land a one-time or short-term project, which do not exist with the recurring revenue model for the most part. It can take time to build a recurring revenue business, but an existing business should realistically be able to see a massive change with a one year period.

How to Implement: Take a look at the services and/or products that you provide, and determine which ones can be modified to fit the recurring revenue model. For example, a marketing company that helps clients with social media can develop a package to perform certain tasks each month in exchange for a recurring monthly fee.  Virtually any business can turn at least a portion of their business into recurring revenues

The recurring business model is not costly or difficult to implement, but rather a low-risk, high-reward activity. It takes courage and openness to change your business, but it will be worth it.

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Small Business, Large Profits

All small business owners want to increase sales, open new locations, obtain more customers, add employees and grow, grow, and grow some more. It sounds good, but is it really necessary? Is there an alternative?

Necessity: It is necessary to grow your business as the alternative isn’t too appealing. You have financial obligations and people that depend upon you, such as family, employees, and customers. So, yes, it is necessary, however, here is a different view on growth.

Focus on profitability: If you double your profit margin then this has the same impact as doubling the sales of your business. Even if you increase the profit margin by several percentage points then it has the same impact as increasing sales. It sounds too easy, but here are some ways to do this:

  1. Decrease the number of services/products. Spreading yourself too thin usually decreases your profitability because it is hard to do everything well.
  2. Service the proper clients by targeting a more defined niche.
  3. Use marketing methods that only target the customers that you want to serve.
  4. Plan ahead for large purchases or investments, including space requirements, people, vendors, equipment, and technology.
  5. Price your products and services properly.

The interesting fact is that when you are more profitable, then each additional dollar of business is worth more to you, which makes it easier to actually grow further.

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3 Ways to Turn Around a Struggling Business

After the Great Recession there are still some businesses that may be struggling and don’t know what to do about it. Here are a few ways to turn around a struggling business:

Upgrade: The rate of change nowadays seems to be accelerating at a pace that has not existed in the past. This includes technology, competition, lifestyles, behaviors, and preferences. Although business principals never change, everything else around us does. Questions to ask are:

  1. Is my service or product still relevant and in demand? A perfect example is Blockbuster and department stores.
  2. Are delivery methods of your product or service in sync with customer preferences, lifestyles, and behaviors? Another closely related question is, “How easy is it to do business with you?”
  3. Have demographics changed?

Your business may need to upgrade/change any of the following: location, technology, including website capabilities, payment processing, scheduling, and communications with customers, turnaround times, product and service offerings, the type of customer you are servicing, and so on.

Marketing: Marketing methods have changed dramatically over the last 10 years. Are you marketing your business to keep up with these changes? If you relied heavily on newspaper or phone book advertising in the past, then I would make a bet that it is not very effective anymore. Even businesses that serve very local customers need to have a strong Internet presence. The best products and services still need to get the word out. Rationally, they shouldn’t have to, but this is just not true.

Analyze and take action: Take a fresh look at your business and seriously consider hiring a consultant to point out your blind spots. Most likely you are not recognizing what needs to change or possibly you do but do not know how to go about making changes. The next step is to actually implement changes.

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Focus on These 3 Areas to Multiply Your Business Success

Having a business is not easy, and even successful business owners know this. But what is the secret to running a successful business and multiplying your results? You must focus on these 3 areas:

Operations: Operations is a very broad category, but it can be viewed as any activity that supports or creates and delivers the services or products that you are selling from start to finish.  Many small business owners are very good with providing their service or selling their product. However, there are usually great improvements that can be made with efficiencies, employees, and using time and resources wisely.

Marketing & Sales: Surprisingly, some small business owners perform almost no marketing activities, but are actually marketing their business by their reputation, the way they deliver their services, the characteristics of their products, and the overall customer experience. Virtually all must sell to some degree as many interactions are sales opportunities. Think of restaurants that try to “upsell” a larger size or additional items, such as much needed desserts! Smart marketing and effective sales can help you to multiply your revenues, and it does not have to be expensive.

Financial: This is all of the boring stuff, such as accounting systems, cash flow, internal controls (to ensure more reliable financials and to reduce fraud), and managing receivables and payables. I have yet to see a business that does not either have cash flow issues or tax issues if they ignore this part of their business. Finances are a crucial part of every business and are mistakenly ignored or paid very little attention to. With proper attention to finances, a business can easily become more profitable, have greater cash flow, pay less taxes and interest, reduce stress levels, and have a greater sense of control.

An interesting observation is that all three areas are very interdependent upon each other. An improvement in one are will help the others, but on the flip side, if one are is lacking, then the others will suffer as well. If you need help with any of these, then please let me know.

Increase Sales or Cut Expenses?

What should be the focus? Should we increase our sales or cut our expenses? All of the marketing and self-development gurus tend to focus on increasing our sales, but other financial experts want us to focus on cutting costs and debts. Who is right and what should we do? Let’s look at the pros and cons of each:

Cut your expenses and debt: Being aware of our expenses and cutting unnecessary expenses is a smart move, along with reducing debts. However, cutting expenses will only go so far because you need to incur expenses to support your business operations. Reducing debts is also a smart move, but this should not be done to the detriment of using up all of your cash, otherwise you will go right back to increasing your debts.

Increase your sales: Every business should look for ways to grow their sales, as a business tends to naturally deteriorate over time. An increase of sales can and should lead to an increase of profits, but not always. Many times, a business will increase sales activity, but their profits may actually decrease, stay flat, or only increase incrementally. The main reason for this is due to the fact that a business needs to spend money on marketing, people, technology, and infrastructure to be able to support higher sales.

The optimum solution: Instead of focusing on either or, you should focus on both to some degree, which is what the most successful companies do. Instead of just growing your sales haphazardly, you should focus on growing your sales profitably. To accomplish this you will need to perform some simple math to make sure that you are focusing on profitable services and products and delivering them in a profitable way as not every dollar of sales is equal. Better profitability will also allow a business to have excess cash to help pay down debts and not get into more debt. Without a focus on profitability, a fast growing company will tend to have cash flow issues, and companies that focus on cutting expenses tend to cut themselves into irrelevancy.