Mary, Mary quite contrary, how does your business grow?

by Brad on April 16, 2012

When the idea for your business first came to you, it probably centered around something that you liked to do, or perhaps you saw a need in the market that was going unfulfilled. Once you made the decision to do something, whether that was designing custom aprons or offering wordpress consulting services, you probably didn’t give a great deal of thought to how or more importantly IF your business could grow or scale to become a sizable enterprise. For some of you, this might not be a relevant question.  I know people that are perfectly happy to make and sell a product because the whole process is a labor of love for them.  Any income that they derive is secondary to their enjoyment of the process of creating their product.  If you fit the previous description, then you can stop reading here.  But, there are others of us who want to develop a business that has the potential to grow.  If that is the case for you, here are some of the things that you should consider in order to get there.

Top Line, Bottom Line, and Everything in Between

I had an Uncle that ran a large and successful construction company for many years.  Shortly before his death, he gave an interview in which he was asked what he had learned about business over the years.  His response was that one of the most important factors in his success had been in always understanding his costs better than the competition.  For his business, it was imperative to understand costs so that they could accurately bid on projects and make money on the bids that they won.  This principal really applies to every business, large or small.  Most people track their revenues (top line) because it is fun to know how much you sold, but do you accurately account for all of your unit expenses so that you understand how much it costs you to produce one unit of your product?  The Gross Profit calculation is Revenues-Cost of Goods Sold (COGS) = Gross Profit.  If you have included all of your product costs and understand how much gross profit you are making, then your next step is to apply all of your expenses against your gross profit.  Don’t forget your own time!  I think that many small business owners forget to apply a cost of their own time as an expense, but your time is one of your most valuable commodities.  So, if you have accurately tracked all of your expenses, then you can calculate your actual Net Profit or Loss.  Gross Profit – Expenses = Net Profit (loss).  You must first understand if you are making money to determine if you can make money when your business gets bigger.

Know Your Customers

This may sound silly, but I know many small business owners who did not start saving customer information as soon as they opened their business.  So, they had no way of going back and marketing to their existing patrons at a later date.  Marketing to your existing customers is one of the cheapest and most efficient ways to grow your business.  Knowing how many new vs. returning customers that you have is an important determinant to how quickly your business can grow.  So, when that first customer walks in your door or visits your site, have a way that you can collect and store that data.  Customer Relationship Management (CRM) systems have come down in price significantly over the past few years, and there are several good online options available to small business owners.  Here are a couple of online systems that you might consider:  Salesforce.com, Nutshell, and Batchbook.  Using any of these tools will improve the organization of your customer information, and most of them will enable you to upload your customer lists directly into email management systems like MailChimp or Vertical Response to send out direct marketing messages to your customers.

What is success?

How are you going to measure your own growth?  What are the important metrics for your business?  For any business, the answer ultimately is the ability to grow profits, but your ability to scale your business and the rate at which you can do so can be gauged on a variety of other factors, and you must decide which of those is most important to growing your business.  Some examples of key performance indicators (KPI’s) include:  # of unique visitors, conversion rate, customer acquisition cost, # of sales, average size of a transaction, and new versus returning customers.  There are many other factors that you can consider, but choose the group of metrics on which you intend to focus and monitor them relentlessly.  It is easy to get caught up in the number of likes that you have on Facebook, but if you can’t quantify how those likes are turning into sales, then can you really consider that a key indicator of your business?  Focus on measuring the variables that help you grow most profitably and you will soon see whether your business can scale efficiently.

Find the highest value use of your time

What is often the hardest thing to do for a one-person operation is to determine the best time to hire some help.  You may think to yourself that you can handle it all, “I  just need to get a new printer or a faster computer.”  You may find yourself getting your kids to help you sort your orders or ask your husband to make a run to the post office for you.  There is nothing wrong with these things per se, but have you taken the time to consider where your skills as the founder and operator are most effectively employed.  What is it about your business that makes you unique and keeps people coming back to you?  If you are making custom aprons and locating interesting patterns and developing new designs is the thing that differentiates your business, then you must make certain that you don’t detract from this activity.  But here is the rub, the thing that you most like to do is not necessarily the same thing as the most valuable activity to the growth of your business.  Try to be objective in your assessment of the activities that need to occur in your business and their relative value in helping you to grow your customer base.  Once you have determined what those activities are, then look at how you are currently spending your time.  If the majority of your time is spent on priorities 5 &6, while you are only addressing priorities 1 & 2 as time permits, then you may have a problem.  It may be a simple matter of re-prioritizing your efforts, but if your business is large enough to support some additional expense, then perhaps adding labor to handle activities 5 & 6 will allow you to dedicate more of your time to the top priorities.

Understand your constraints

In manufacturing, there is always an activity or series of activities that is the constraint which limits output.  You have often heard this referred to as “the bottleneck.”  But the theory of constraints does not just apply to large manufacturing operations.  Every business has constraints which limit their ability to grow.  A constraint may be creating awareness of a product, obtaining a critical component of supply, or producing a finished product within an acceptable amount of time.  In order for your business to grow, it is necessary for you to consider what your constraints are based on your current size.  Then, you can begin to focus your efforts on removing those constraints.  As you grow, those constraints will change.  Periodically re-assessing the constraints on your operation is a fundamental piece of running your business successfully.  If you have the ability to limit constraints with relative ease as the company grows, then you most likely have the type of business that scales well and has the potential for significant growth.

Finally, one of the things that the above analysis enables you to do is to look objectively at your operation and quantify how efficiently you are running it.  Don’t be afraid to make a change if you see something that isn’t working right.  As long as you continue to measure your results based on the metrics you have determined to be most important to your business, then you will be able to determine the value of that pivot.

Note from Elizabeth:  I totally “dig” the garden marker we found for the post image. If you like it too, head over to GloryBabiesAtoZ on etsy to see the rest  of their cute stuff! It’s a relatively new etsy shop, so I’m sure they’d love a visit!

 

  • http://ideagirlmedia.com/ Keri at Idea Girl Media

    Brad, great post.

    I’m not one for all the math problems.  I’d rather just do it – Like Nike.  ;)

    But you  do make good points, and we should work smarter than harder.  I’ve recently evolved my business where a new “bottleneck” exists.  Your insight was both helpful reminder, and made me think about a few obstacles a bit differently.

    Thanks,

    ~Keri

  • http://www.lendorconsulting.com/ Coach Grace

    Finding the highest value use of your time is an area where most small business owners struggle.  They often focus on priorities 5 & 6 because they are familiar and easy.  Priorities 1 & 2 require them to step out of their comfort zone which can kick up fear.  The reward comes in working through it then looking back to see how far you’ve come.  

    • http://www.shopgirlmba.com Brad

      I agree. It’s a struggle for all of us to keep that in focus on a daily basis. Sometimes we get too caught up on answering every email or in checking off our to do list to focus on where we can create value.

  • http://www.smsmarketingmyrtlebeach.com/ Dawn

    Love this.  Could not agree more!  I have a hard time getting some of my clients to understand the outline you speak of here.   Great Post!

  • http://moreinmedia.com/ Dorien Morin-van Dam

    Very informative, Brad.   Enjoyed reading about email marketing a bit.  I have been building my list and now need to get out there and use it!

Previous post:

Next post: