Managing Through a Financial Crisis

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

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

The Business Model

A business model does several things:

  1. 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.
  2. 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 may have become mainstream, and now all players in the industry are providing a similar service (remember when banks closed early and stores were closed on Sundays?).

Consequently, when faced with a crisis business owners must immediately examine their business model to ensure that it has remained relevant and valuable. In fact, the savvy owner will have a clear understanding of how valuable their business model is, and if it is protected from or threatened by the competition. When the environment changes, a weak business model will lead to a loss in gross margins and overall profitability and market share.

Next month we will examine the changes that need to be made to business operations when a crisis looms on the horizon.

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 a living.

CEOS that break out from this level have a product that has taken off. New lines are being developed and new customers are flocking to their doorstep. They have a steady customer base, so instead of competing on low prices, value that is important to their customers is being added to their product. At this point the expansion creates complexity and demands a new management structure. The CEO begins to delegate and searches for staff that can bring value and further growth.

We all start small. However, those businesses that move from a one man show to a growing business usually do so within five years. Within five years their billings can reach one million dollars. The right CEOS will make it happen. They will create the right team as well as the right value proposition for their customers.