Growth

Concentration and Leadership

Concentration and Leadership
 

Mere competence is every business’s price of admission. If we are not competent we will not be allowed to play in that arena.

Concentration on and leadership in a specific market segment often leads to higher profits than other members of the industry. Strong profits come from having a leadership position in an area highly valued by the market, and is is reflected by a strong gross margin. The market may place a high value on the product, the service or the way it does business.

Failing to be a leader, the business becomes one of many. It becomes average, undistinguished. Average businesses don’t have a long life. Poor business conditions drive them out of the market, and their life span is limited.

A position of leadership may be created by concentration. This means concentrating efforts on the smallest amount of resource that will yield the largest amount of revenue. It means reducing the amount of products to those that contribute the largest profits, as the others merely add to costs. It means reducing staff activities to those likely to generate large revenues.

A business should […]

Competitive Advantage through Differentiation

Competitive Advantage through Differentiation

 

For a business to achieve earnings superior to the average in the industry it must have a competitive advantage. Without possessing a competitive advantage a business is doomed to depend on the economic fluctuations in the markets. When the economic conditions are favourable it does well, and when the economy is poor it suffers. I suggest that depending the economy is looking for scapegoats. The real weakness is commoditization of the business. In good times and in bad times having a competitive advantage will earn superior returns.

 Last month I discussed the importance of achieving a competitive advantage through having a low cost advantage. In today’s post I discuss differentiation as the source of competitive advantage.

 Without differentiating a business we will earn the average income in its industry. For some high paying industries like cardiac surgery or specialized dentistry the average industry income may be satisfactory, however that is not the case for most businesses. The average lawyer, accountant, dry cleaner, renovator, wine grower, or graphic designer will make an average living for their industry. Their income may be at times satisfactory […]

By |December 23rd, 2014|Growth, Strategy|0 Comments|

Running a Business for Cash

Running a Business for Cash

 

When faced by a financial crisis a business owner must focus on the following three important areas:

 Reassessing the business model.

Changing operations to reflect the new environment.
Ensuring that enough cash is available.

In my last two posts I discussed the importance of a business model, and addressed the need for a business to make operational changes. Today I will focus on the topic of running the business for cash.

 No matter how profitable a business, running out cash will lead to insolvency. Keep in mind that unless you have a successful business model and the business is run effectively the business will eventually fail. Assuming the first two criteria exist, how do we manage a business from a cash perspective?

 Understanding the various elements of a balance sheet may be helpful.

 

If we carry debt it may be wise to convert debt to equity. Equity is more expensive but does not require repayment and is therefore cash saving. This is easier said than done because a bank will not ordinarily agree to this arrangement, but another type of lender might.
The proper use of debt may […]

By |December 23rd, 2014|Growth, Strategy|0 Comments|

Managing Through a Financial Crisis

When faced by a financial crisis a business owner must focus on the following three important areas:

Reassessing the business model
Changing operations to reflect the new environment
Ensuring that enough cash is available

The Business Model
A business model does several things:

It explains why customers buy from your company. It’s seldom because you do the best work. Other dentists, builders, accountants etc. are just as competent. It’s not because you have the best team, as others also have great players. The reason your customers prefer your company vs. your competitors may be for a variety of reasons, such as price, convenience, location, inertia (too lazy to change), trust, or other intangible factors. For example, perhaps you provide 24/7 service and the competition does not.
It explains how you are able to charge prices that provide a profit, and how you provide enough value that customers will pay for what they receive from you.

The importance of a business model cannot be taken for granted. Environments change quickly, and the value you once provided may no longer be so special. In fact, your company’s added value […]

Growing Your Business – No Longer Just a One Man Show

What is the difference between a CEO that operates a one man show, vs. a CEO that leads a real team?

Too many of us create a business consisting only of ourselves and two to three workers, and there it stays. In too many cases there is a lack of a business plan and sense of mission for the enterprise, and other more personal challenges such as limiting mind sets. We can refer to this type of business as a “one man show”.

What are the other attributes of a one man show?

First, the CEO owns the whole company. The owner’s view rules. The owner makes the decisions and the workers are only there to carry them out. Because of the small structure, the owner doesn’t do much planning, and may not even be aware of the importance and value of a business plan.

These owners compete on price and have a small number of customers. They care about their product but often don’t consider their staff worthy of further development. They have difficulty raising money and managing cash flow; work long hours, and at best make […]

Developing An Extraordinary Guarantee

Guarantees, and especially those that are in some way even better than ‘money back’, are a proven way to attract prospects. But how to develop such a guarantee?

The best thinking on the issue of developing guarantees now involves using the concept of ‘risk reversal’.   There is no better way to change the perceived benefit of a product or service than to offer an ‘extraordinary guarantee’ that switches the risk of making a wrong choice from the buyer to the seller – risk reversal. In effect a risk reversal guarantee inspires the prospects trust by announcing: “I’m so confident in our products, services and business that I’m prepared to put my own money where my mouth is and make it impossible for you to lose out on this transaction.”

By knowing what the customer really wants, and then making it clear that they will get the result they’re after from this deal or else the seller shoulders the consequences, makes their buying decision so much easier.   And that’s what offering an extraordinary guarantee can do.