Business Resolution: Success
- Published: 01/20/2014
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- Download: Business Resolution: Success
Years of working with business owners has shown how challenging it is for a business to survive in today’s ultra-competitive marketplace. Experience has taught us that unless business owners keep a constant eye on what they are pursuing— Business Success— their business, like 70% of all businesses, will eventually fail and cease to exist.
Today many owners are assessing their business and making a resolution to make this a successful year. But, what does it mean to own a successful business? To answer this question, it is important to first understand that there are three distinct stages of business development, and secondly, to understand the process of moving through the stages to achieve - Business Success!
The Three Business Stages:
The three stages of business development are:
- The Start-Up Stage,
- The Survivor Stage, and the
- Success Stage.
The Start-up Stage: The characteristics of the Start-up Stage are obvious: Here, a new business owner opens their door and introduces their business to the public. Whether selling services or products, the challenges in this stage include accumulating enough capital to keep the doors open, marketing the product or service, building a client base, and selling the product or service. Unfortunately, about half of all start-up businesses do not survive more than two years. They fail primarily due to the owner’s lack of planning and understanding of the challenge ahead of them. Most never develop a clear definition of what it means for their business to succeed.
Start-Ups that do survive, however, generally enter the next stage of business development—the Survivor Stage. Here, most will exist until eventually going out of business without ever achieving long-term business success.
All business owners, whether Start-Ups or Survivors share a common goal: Business Success. Therefore, the purpose of this article is to help owners achieve success by sharing the characteristics of the Survivor Stage and providing owners with a clear definition of: Business Success.
The Survivor Stage: The Survivor Stage is where most businesses spend the majority of their existence. Here they exist in a nearly constant catch 22. On the one hand, the business has made the cut – it has survived! It is part of the 50% that made it past the Start-Up Stage. These businesses generally survive for one reason: the willpower, perseverance and sacrifice of the owner.
On the other hand, these businesses continue to survive for the same reason: the owner’s continued willpower, perseverance and, most importantly, sacrifice. At some point, however, a tipping point will occur when the owner runs out of resources, energy, or desire to keep the business open. The business closes, often with devastating financial results.
Is your business is stuck in the Survivor Stage? Here’s a simple test find out:
- Do you work more hours and earn less money than you would doing the exact same job for someone else?
- Are you the primary player in day-to-day operations? If you get sick and cannot work for an extended period of time, say 3-4 weeks, will the business suffer dearly or risk going out of business?
- Do you occasionally sacrifice financially for the business? Have you sacrificed your own pay to pay business’ bills and employees’ paychecks?
- Do you sometimes have a difficult time paying your sales, payroll, and/or income taxes?
- Do you often feel caught up in a proverbial Catch 22 - Earning enough not to give up (yet), but lacking the time and resources needed to take your business to the next level?
- Do you feel your business could simply do better? That it is not achieving the vision you had when you first opened your doors?
If you answered “Yes” to one or more of these questions, your business may be stuck in the Survivor Stage. To move out of the Survivor Stage, make a resolution to transform your survival skills into those which will achieve business success. The first step in developing these skills is to understand the definition of a Successful Business.
Successful Business Defined:
We, at HBS, define a Successful Business as:
- An organization that:
- Makes current customers happy and
- Gets new customers while,
- Earning a profit.
This may seem like a simple definition, and it is! Yet many business owners do not utilize it when making daily business decisions. Their original goal of creating a successful business is lost to the day-to-day challenge of keeping their doors open.
It is, however, absolutely vital that owners, their managers, and employees make this definition the cornerstone of daily activity. Understanding and refocusing on the definition of success is the key to drastically changing their business’ future.
So, where do we start? By expanding on each part of the Business Success definition:
An Organization: The key to understanding this part of the Successful Business definition is the term Organized. All successful businesses have this in common. Their activities are not haphazard. All activities are intentional and designed to achieve the three remaining parts of the definition effectively (they achieve intended results), and efficiently (with the least expenditure of time and money).
In successful businesses every action, from answering the phone, to creating the product, to following up with customers, is performed in a specific manner designed to maximize desired results. These actions, steps of procedures, are constantly measured and refined to:
- Make customers happy,
- Get new customers and
- Earn a profit.
The term organization also has a second meaning which has to do with continuity - the business must be able to operate in the absence of the owner. A primary reason businesses fail is due to the unforeseen absence of the owner. To ultimately succeed long-term the business must continue functioning in the owner’s absence. If, for example, the owner gets sick and cannot work for a month, the business must have the ability to continue serving customers and generating revenue. If it cannot, the owner may be one injury or illness away from losing everything.
Makes Current Customers Happy: This part of the Successful Business definition may seem obvious: Of course, successful businesses make customers happy! Knowing and doing, however, are two very different things. Knowing alone has little value. It is doing – actually making customers happy – that really matters. Unfortunately, performing the actual activities that create a positive customer experience often take a back seat as owners are consumed by day-to-day operations, or new employees are hired who do not share the owner’s passion for happy customers.
Successful business owners, and their employees, understand that an adequate product or service merely gets the businesses’ foot in the marketplace door. What their customers really buy—why they choose one business over other alternatives—what makes them happy, is this: a value-adding Customer Experience.
Gets New Customers: A successful business has organized procedures (systems) to get new customers. It has procedures in place to:
- generate and follow up on prospects,
- close new sales, and
- absorb new customers.
Even if a business owner is satisfied with the number of customers, they have they will undoubtedly lose a customer or two over time. So, the business should be able to replace lost customers. The easiest way to get new customers is to maximize the value of the Customer Experience and through effective marketplace outreach.
Makes a Profit: There are so many different measures of profit — accounting profit, taxable profit (income), cash-based profit, accrual-based profit—that it is no surprise that businesses struggle with an objective way to measure their businesses’ performance.
To survive, however, a business must make a profit… but not necessarily any of the profits mentioned above. Accounting profit means very little to an owner who has high loan payments or customers who do not pay their bills. Taxable profit may generate a tax liability but won’t help an owner effectively manage day-to-day operations.
To succeed a business must consistently create what we call an Entrepreneurial Profit —- it must bring in more money – CASH - than it spends. It must have money left over after paying all its expenses, loan payments, taxes, and the owners’ wage or salary. Entrepreneurial Profit is relatively easy to calculate for the average business owner and absolutely essential to Business Success.
- It starts by knowing how much money the owner needs to pay their personal expenses and the cash-cost of running the business.
- Then by calculating the direct cost of providing its product or service.
Once armed with this information, the owner can develop the price/volume strategy to create Entrepreneurial Profit.
The Action Formula: Finally, it is important to understand each part of the Business Success definition is an ingredient in an action-based formula. Doing, not just knowing, is where the rubber meets the road! Making a resolution to apply this definition-formula to each and every aspect of operations is a major step toward achieving true Business Success.
Please remember: This or any article does not constitute or replace the advice of a qualified professional. If you would like assistance with your businesses’ development or any taxes issue, please feel free to call our office at (304) 267-2594.