So what’s a whale? In this case it’s not a big fish. The whale I’m referring to here is a very large customer. It’s the client that spends more with you than anyone else. Overnight it can take your business to the next level. But if you are not careful, it can also put you out of business.

Pursuing large clients is what most of us strive to do. It’s even better if the company is well known. It gives us instant credibility with prospects and within our industry.

New challenges

But let’s not kid ourselves. Landing a whale is a lot of hard work. As they say, getting the order is the easy part. Ramping up your business to manage their demands can strain the whole organization. HR, finances, and the needs of existing clients can all be impacted.

A whale tail

Even once the large client is up and running, you have a brand new challenge. That is to deemphasize its importance to your business. It’s not uncommon that a newly acquired customer can account for 30% or more of your business. But having any client that represents more than 15% of your business is a flashing red light.

The 15% rule

Somewhere along my entrepreneurial journey, I had read that “no client should represent more than 15% of your business!” I have no idea where I had read this, but once I understood why, I embraced it.

Why the 15% rule? The 15% rule is designed for your protection. As a client moves above 15% of your revenues, their importance to your business grows exponentially. This is because, large, and very large clients end up representing a disproportionate amount of your revenue, your expenses, and your focus. This shouldn’t come as a surprise and is to be expected. But as the saying goes, “don’t put all your eggs in one basket”, because if you do, you better keep an eye on that basket.

When you consider that for most of us, onboarding a large client requires some form of investment. Depending on your industry, it could range from hiring a few people to committing to more physical space, vehicles and equipment that could run into the thousands of dollars. As a result, the financial pressure and risk rise significantly.

The math

So let’s look at this in a pragmatic way. A healthy net profit for many small businesses is 7%, but most barely exceed 4%. So, in a million dollar business that only represents $40,000. Not a lot of money to cover increased costs.

And if we are being honest, most of us sharpen our pencils when it comes to pitching a potential whale. Granted, if priced right, this strategy should put more dollars in our pockets, but it reduces our margins.

This then results in their percentage of expenses exceeding the percentage of revenue. For example, they may equal 20% of your revenue, but because of the discount you provided, they now account for 30% of your expenses. This is normal and so long as they are a client, things should work.

But what happens if you lose that client? Losing the revenue is one thing, but now having to cover all those expenses can become a monumental challenge. Your 4% net profit won’t come close covering an extra 30% in expenses and now your once profitable business can be facing bankruptcy.

However, before it gets that far, you would try to counter the loss by cutting expenses. But reducing staff usually comes a cost of severance pay and those fixed costs, like rent, are almost impossible to dispose of quickly without paying huge penalties. This of course is with money that you may not have.

Growing our business is what keeps things exciting and if done properly can be quite profitable. But keeping your business safe is equally important. That is why the 15% rule is so critical.

So if growing your business is your goal, then you must make growing your existing clients or finding new ones a priority to deemphasize the whale’s dominance. Granted this adds more pressure to your already busy life, but it’s too easy to relax at this point. Once you’ve brought the new whale’s revenue back in line, you can take a break.

By limiting your largest clients to 15% of revenue, it also reduces your dependence on them. Should they leave, and they most likely will at some point, you will probably only face some short term pain. But with a little hustle, you can survive and get back to building your company.

For those that are interested, I’ve created a “Be prepared checklist” that is available for download by clicking here.

Get More LIFE Out of Your Business

You shouldn’t be the hardest working person in your company.

Many small business owners find that even after the struggling start-up years, they’re working too many hours and still managing every aspect of their businesses.

Greg Weatherdon has been there, done that. As an entrepreneur, he learned not only how to get a business to the point of running smoothly, but also how to reduce the number of hours he worked, delegate more responsibility to his employees, and take longer vacations while his business chugged along like a well-oiled machine. And now he is providing the secret to success.

Do you suffer from any of the following?

1. Business ownership isn’t living up to the dream.
2. Endless workdays.
3. You can’t find good people.
4. Profits are less than expected.
5. You can never take a vacation.

You’re not alone. But there is a solution. As Greg demonstrates, with some time and effort, you really can Get More Life Out Of Your Business.

Inflation is much like rust. Left unchecked it can quietly eat away at your buying power and can turn a profitable business into one that struggles and a struggling business into non-existence.

For many of us, you pretty much had to be a Boomer living in an industrialized world to fully appreciate the impact that inflation had during the 80’s. During that period mortgage rates skyrocketed to over 21% and unemployment exceeded 12% in North America.

As bad as that was, there were countries that faced 100% annual inflation back then. To put things in perspective, that meant that the price of goods doubled in a year.

Inflation is like rust

The point of all this is not to provide an economics lesson, because I’d be the wrong person for that. No, this is intended is reinforce the need to be vigilant in managing your costs and pricing.

Regardless of your industry, you are probably facing cost increases in materials and wages. The latter because of the tight labour market, thanks in part to government social programs.

With all the things we must oversee as business owners, being a little more vigilant with all our purchases can become burdensome. However, with inflation starting to ramp up to serious levels, it’s more important than ever review your costs and adjust your pricing to protect your margins.

Too often I find small business owners struggle with increasing their prices because they are afraid of losing customers. Their internal dialogue usually centers around “I can’t charge them that much, that’s expensive, they’ll never pay that much!”

How is it that they won’t pay that much? Everybody is paying higher prices for just about everything they buy now. So, why should you be a martyr? Unfortunately, inflation is a perpetual motion machine that never stops.

The destructive power of inflation

What so many entrepreneurs fail to realize in a high inflation era, is that you need to keep your prices in step with the increases in your costs, otherwise it ends up costing you money and potentially your business.

Inflation can destroy your income statement in short order. When you look at the bottom line of many small businesses, there is not a lot left over after a year of hard work. The typical small business has a Net Income is way below 10% with many running in the 2-4% range. So, on a $1 million business that means your left with $20-40,000 or $10-20,000 on $500,000 and only $6-12,000 on a $300,000 business. Not much of reward for all the hard work.

Now layer on inflation at 4-7% that has recently been reported by various governments over the past few months and you will start to see the potential for margin destruction. But only if you don’t adjust your costs accordingly.

Business is not a charity

Using the previous examples, a 4% increase in inflation can wipe out the profit of most small businesses. Whereas a 7% increase you automatically go negative into a loss.

Look, nobody likes price increases, but it is a reality of our time. For the past 10+ years most of us have enjoyed a low predictable inflation rate below 2%. Even then I have encouraged small business owners to take annual price increases. Because 2% compounded annually equates to over 6.1% over a 3 year period.

Business is not a charity. You are here to make money. The more you make, the more security you can bring to your firm and your employees. The more money you make, the more you can pay your staff and yourself.

Some options

Being worried if your customers can afford the new price is noble but not realistic. There’s no point of losing money just to avoid increasing your prices. Yes, you can always offer a one time discount to your better customers as a way to ease them into the new pricing. But I stress one-time.

I also know that there always seems to be someone willing to do the job cheaper and to that I say let them. Every industry has someone who offers low pricing but it’s my experience that most don’t last long.

Alternatively, you can do what many consumer goods companies are doing, reduce the size of the product to maintain a price. Offering your customers a “lite” version of your existing product or services may be all you need to do.

Minor tweaks such as a decrease in reporting, a reduced delivery frequency or even quicker payment terms are just some of the examples. These small adjustments can be used to maintain a given price point.

Another thing to always keep in mind is if those customers are only shopping on price, you must ask yourself whether you want them as customers in the first place. Often, they are not loyal and will change suppliers for a nickel.

It has been my experience that profit margins are never high enough. So, increasing your prices to ensure inflation doesn’t destroy your company, is just smart business.

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Get More LIFE Out of Your Business

You shouldn’t be the hardest working person in your company.

Many small business owners find that even after the struggling start-up years, they’re working too many hours and still managing every aspect of their businesses.

Greg Weatherdon has been there, done that. As an entrepreneur, he learned not only how to get a business to the point of running smoothly, but also how to reduce the number of hours he worked, delegate more responsibility to his employees, and take longer vacations while his business chugged along like a well-oiled machine. And now he is providing the secret to success.

Do you suffer from any of the following?

1. Business ownership isn’t living up to the dream.
2. Endless workdays.
3. You can’t find good people.
4. Profits are less than expected.
5. You can never take a vacation.

You’re not alone. But there is a solution. As Greg demonstrates, with some time and effort, you really can Get More Life Out Of Your Business.

For newly minted entrepreneurs, the biggest priority is to generate revenue, any revenue in an effort to transition from struggling to profitable enterprise. To those of us who have made the crossing, we have more often than not sacrificed our own financial needs in order to create a proper fiscal foundation for our business. Because so few of us ever get investor capital, we are left to our own devices to fund our enterprises. That’s okay. As that old saying goes “What doesn’t kill us, makes us stronger!”

Unfortunately, we have trouble letting go of this attitude once the business moves off life support and begins breathing on its’ own. Of course this is understandable. Having lived through the tough times, it’s not something we’re eager to revisit. So under the guise of “reinvesting in the company”, we continue to pour our profits back into the organization and rarely do we consider taking it out of the company. Not to spend on toys, but to take some risk off the table.

Money Jar

80% of owners wealth is in their company

Considering most business owners hold upwards of 80% of their wealth in their business, this “all your eggs in one basket” scenario is a high risk situation. Ask these same owners if they would invest 80% of their net worth in shares of just one company on the stock exchange and they would certainly question your sanity. Yet these same individuals don’t think twice about their current wealth strategy.

In my case, I had set a target of getting 66% of my wealth outside of my operating company and to provide some form of creditor protection. I did this not because I was anticipating any sort of business crisis, but because I realized I didn’t want all that I had worked for to be totally dependent on the future performance of me and my company.

5 simple steps to get you started

Okay, so where and when do you begin? The following steps may help you frame your own initiative. Your corporate structure will dictate what vehicles are available to you and by all means consult your accountant, lawyer, financial planner and any other professional you need to maximize the effectiveness of this strategy

  1. Make sure you’re taking a regular dependable salary. Not your dream salary, but one that allows you to work without the stress of your personal financial situation overwhelming your decision making. In other words comfortably covering your basic needs.
  2. Begin formally moving a set amount from your current account to your chosen vehicle i.e. holding company, corporate savings account, etc. The formula you choose can range from 5% of all your billings that automatically gets transferred monthly to upwards of 50% of annual profit being transitioned out.
  3. This money should not be put at risk in another venture.
  4. Although minimizing taxation is always important, it can’t be the deciding factor.
  5. Eventually you will have transferred at least a portion of your wealth and created another pillar in your financial portfolio.

Freedom and security

If you were expecting some magic formula, I’m sorry to disappoint. This is basic wealth management, a rainy day fund, often ignored by business owners. Too many owners are hoping to cash-in when they sell their companies and are devastated when they can’t sell or get significantly less than they anticipated and have no additional source of wealth.

Being an eternal optimist is a necessary ingredient to having any chance of success as an entrepreneur, but it needs to be tempered with a bit of realism. It’s truly amazing the sense of freedom and security you feel when you’ve consciously created an additional source of wealth outside your operating company.

How you do it is up to you, but starting today in small increments is a must, because like a journey of a thousand miles, financial freedom begins with a single small step.

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Get More LIFE Out of Your Business

You shouldn’t be the hardest working person in your company.

Many small business owners find that even after the struggling start-up years, they’re working too many hours and still managing every aspect of their businesses.

Greg Weatherdon has been there, done that. As an entrepreneur, he learned not only how to get a business to the point of running smoothly, but also how to reduce the number of hours he worked, delegate more responsibility to his employees, and take longer vacations while his business chugged along like a well-oiled machine. And now he is providing the secret to success.

Do you suffer from any of the following?

1. Business ownership isn’t living up to the dream.
2. Endless workdays.
3. You can’t find good people.
4. Profits are less than expected.
5. You can never take a vacation.

You’re not alone. But there is a solution. As Greg demonstrates, with some time and effort, you really can Get More Life Out Of Your Business.

Money, it’s one of those personal topics that many people are uncomfortable discussing. Why that is, varies from person to person.

Even inside a business that uncomfortableness exist, but that needs to change. Generally speaking, the only time the subject of money seems to ever comes up is in the heat of the moment in comments such as “Do you know how much that costs?”. Even then the word money is not used.

When I ask owners what business they are in, I usually get the expected answer such as “I’m in retail or I own a restaurant or I’m in a service business of some sorts.” These are all technically correct answers and serve to explain your enterprise to your external customers and strangers alike.

However, I would like you to consider an alternative definition that should be used internally within the organization and be at the forefront of your decision making process. What is that internal definition? Simply, “We are in the money business!”

dollars, pounds, yen

And it matters not one bit what industry you are in. At the end of the day, you are in the money getting business. Pure and simple. You exchange your services in return for money.

The service you offer is nothing more than the vehicle you use to get that money.

This may sound a little crass to some because they don’t want to think of their business in such impersonal terms. Others are so emotionally committed to their desire to be an entrepreneur that they have fallen in love with their idea and not the business of the business itself.

Let’s be honest, the reason 99% of us went into business in the first place, is the allure of potentially making more money. To be sure, we had other reasons such as being our own boss, validating our idea or just finding a better way to do something. But at the end of the day, the majority of us were seeking higher incomes.

Focusing on money is not to say that you have to become Scrooge like. Nor does it mean caring less about your customers or how you do things. To the contrary, having higher profitability and more money gives you the ability to actually increase your service levels. The alternative means that you’re on the proverbial treadmill generating additional low margin business just to keep the doors open, which results in customer service taking a back seat to everything else.

No, it means being selective in where you commit this precious resource. It also means getting your staff to understand that their actions can impact, good or bad, the profitability and financial health of the company. But you need to reinforce that position with them. You need to make them understand that their actions have a cost associated with it.

Loving what you do is one thing, but it’s got to be profitable and the more money or profit you make allows you to build a safety net under your company. Consider for a moment, how unprepared so many small businesses were in the face of the Covid-19 lockdowns. Sadly, many have locked their doors forever.

Changing the mindset

 

There’s really only two things you need to know about money, where you get it and where you spend it. So, the logical place to start is to understand where you get your money.

It’s been my experience that just about every business has revenue categories. Unfortunately, many entrepreneurs don’t bother to segregate their services into any formal groupings. As a result, they have no idea what percentage each product or service groupings contribute to their revenue.

 

But revenue grouping is only half the equation. We often hear that we should be focusing most of our time on revenue generating activities. I absolutely agree that this should be every entrepreneurs priority, with one added caveat. These revenue generating activities need to be profitable and we should be focusing on the most profitable of these activities.

Therefore, in order to determine which revenue generating activities are the most profitable, we need to be able to attribute what it costs to generate those revenue. You do so by allocating all the expenses incurred to each of the revenue groups. In doing so, you can now determine the most profitable areas of your business. In other words, what’s making you money, where you’re losing money and everything in between.

By having the ability to analyse your revenue categories, you can begin to make educated decisions. When you consider how much labour, overheads, and other expenses go into generating revenue and then to find out you lost money or only break even, it’s heartbreaking. Granted getting a nice big cheque for a project you just completed is a wonderful feeling. However, if it has a low profit margin, you are effectively just trading dollars.

So first and foremost, you need to prioritize your activities on the most profitable products or services you offer. Then you need to determine how you can increase your activity on these most profitable items.

At the end of the day your objective is to narrow your focus to those items or activities that are the most profitable and quit wasting time on marginal ones. There are only so many hours in a day available to you and your staff. If you subscribe even just a little bit to the 80/20 rule you’ll quickly determine that a lot of your energy and your staffs is wasted on low value products and activities.

I know many will say that they have to keep their prices low in order to compete. This is where you need to get your head around the fact that you are in the money business. If that’s truly the case, get the heck out of that line of business or quit offering that product. If you need to stay in that line of business, then find a way to increase the value of your offer without increasing your costs. That way you’ll you can demand a higher price, thereby increasing your profits. These decisions are well within your control.

A True Story

Many years ago, I undertook this exercise to determine where we were making our money. Although it was a tedious process, it was an eye opener. The net result of that undertaking was that I cut over $300,000 of revenue from the company by identifying low margin activities and clients in industries where, due to competition, we were unable to manage any form of price increase to make them more profitable.

This was at a time when my company had just achieved breakeven and this decision was going to be a major setback. However, as expected or maybe I should say hoped, our profitability grew significantly, and we were profitable in less than a year.

In hindsight, it made perfect sense and the risk was more imagined than real. When you consider that we focused on fewer but more profitable services and clients or labour and other expense inputs dropped dramatically, which resulted in more profits for the company.

In addition, this exercise helped us to identify and target those clients and industries where there was very little competition. Doing so allowed us to regain the lost revenue within 18 months and our profitability continued to grow. 

Just to reinforce this point, Covid-19 forced many global foods companies to reduce their product offerings in order to focus on their core products. Lays, Procter & Gamble, Kraft and the Campbell Soup Company, stop producing, not just cut back many of their slower moving products because demand on their core products exceed their ability to supply. Some of these companies reduced their offering by upwards of 18%. Many of these cut products may never return to our grocery shelves because the companies realized that their profits came from their core products.

Spending money is easy, making money is hard

Another thing to keep in mind is, that spending money is easy, making money it is hard. Because of how hard it is to make money, every spending decision, whether that be on equipment or staff needs to be paid for somehow. For example, if you’re netting 10% profit on the bottom line, a $10,000 expense requires you to generate extra revenue by a factor of 10. In other words, you need to generate $100,000 in additional revenue just to cover the cost of that expense.

So before you or your staff clicks the “Add to Cart” button or slap down your credit card on supplies or that new piece of equipment, you better make sure it’s necessary. Because at the end of the day, that’s less money you’ll be able to take out of the company personally.

Money is such a precious commodity in any business. Some of the benefits of having money in the bank, is that it’s a great stress reliever knowing we have the capabilities to meet our obligations. Taking that stress off the table, then allows us to concentrate our time on more productive duties.

It’s in times of crisis that the importance of money is reaffirmed. Crisis come in all shapes and sizes. From key customers that quit buying to pandemics, each can seriously mess with your business. So by adopting the attitude that you’re in the money business, will go a long way significantly increasing your profitability and your income.

I’d like to know your thoughts if you were faced with a similar situation. So, leave your comments below.

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If you found this of value, please pass this along to any business owner that you fell could benefit by understanding that they’re in The Money Business

Get More LIFE Out of Your Business

You shouldn’t be the hardest working person in your company.

Many small business owners find that even after the struggling start-up years, they’re working too many hours and still managing every aspect of their businesses.

Greg Weatherdon has been there, done that. As an entrepreneur, he learned not only how to get a business to the point of running smoothly, but also how to reduce the number of hours he worked, delegate more responsibility to his employees, and take longer vacations while his business chugged along like a well-oiled machine. And now he is providing the secret to success.

Do you suffer from any of the following?

1. Business ownership isn’t living up to the dream.
2. Endless workdays.
3. You can’t find good people.
4. Profits are less than expected.
5. You can never take a vacation.

You’re not alone. But there is a solution. As Greg demonstrates, with some time and effort, you really can Get More Life Out Of Your Business.

A few months ago, I finally did something that I had longed to do but just never got around to it. Not quite a bucket list item, but pretty close. That something was to drive a race prepared car on a closed road course. Calabogie Motorsports offers just such a program. The road course is just a hair over 5 kms that has 20 turns and enough of a straightaway to get you to question your sanity. But at the end of the day, I couldn’t help but draw many parallels between the days activities and running a small business.

It all started because my youngest son was planning on signing up for the half day training at the track, and it only took me a couple of minutes to invite myself along. It’s funny how these things always seem like a good idea until the early morning drive to the track makes you wonder if it really was.

Now driving is something I’ve done my entire life, having spent my early days as a long haul truck driver. Getting behind any vehicle with a steering wheel is something I’m comfortable with. What gave me pause, was the fact that I’d be hurtling along in a race car at over 200 kms. That plus the fact, you never want to be that guy that embarrasses himself in front of the other 10 participants, let alone your son. That can be somebody else’s job.

Briefing session

So, as we gathered in the training room at the appointed time, we were welcomed by a couple of gentlemen that were going to review the schedule of morning activities, the characteristics of the car, track conditions that day, safety rules and the meaning of the on-track flags. This brought about the first comparison to running a small business.

Small Business Tip#1 – Briefings

How often do you take the time to gather everybody together, to define the day’s or week’s activity? How often do you remind your group of why they’re here and what we’re hoping to achieve or gain that week? How often do we set expectations in a team environment? Although we have great intentions of doing so, I suspect we don’t do it often enough.

As a result, we just assume everybody knows what to do, when to do it and what’s expected. Sadly, this lack of direction or confirmation of understanding can lead to untold number of mistakes. Implementing, short briefing sessions on a weekly or daily basis, as well as at the beginning of a major assignment can greatly reduce confusion and ensure your team is focused on the same end results. Or as the saying goes, make sure everyone is on the same page.

Track Time

After a quick introduction to our in driver trainer, we made our way out to our cars. These race prepped cars, had windows replaced where needed with Plexiglas and removed where not necessary. I can tell you getting into these vehicles is quite the process as you weave yourself around and through the roll cage, much like performing a downward dog yoga move coupled with a reverse warrior pose to end up in a snug, but less than comfortable racing seat. They make it look so effortless on tv, but I can assure you it’s not.

For the first of three on track sessions, you are a passenger as the trainer puts the car through it’s paces and shows you what’s possible. As a first time passenger in a fully prepped race car, I can confess that it’s a whole new experience. Unfortunately, the sensory overload during the ride along, really wasn’t conducive to learning anything the trainer was saying. There was just too much information to be absorbed in a very unfamiliar environment with your senses being hammered by new inputs. However, I do remember him saying that sometimes you need to go slow to go fast, which I didn’t quite understand at the time.

Small Business Tip #2 –  Teaching moments

Too often we assume people understand the objectives. We throw so much information at them and then never take the time to confirm their understanding. To be sure we ask if everybody understands and of course heads nod in agreement. This can be because they don’t want to look foolish or more often, they actually think they do understand, but it may be a completely different understanding.

Taking a few extra moments to ask specific questions about expected results or executional details to truly confirm their understanding can go a long way in avoiding missteps. The reason for this extra steps is to make sure someone hasn’t misinterpreted a critical piece of information or expectation.

My Turn

So now it’s my turn behind the wheel. The moment you push the engine start button and the V8 roars to life, you know you’re not in Kansas any longer. The sheer raw power of the engine shakes the car and is felt in every fiber of your body. Not uncontrollably mind you, but enough to make you respect it’s potential and get focused. It’s also the time when you start thinking, what the hell have I done!

Sitting behind the wheel you realize that these cars are stripped down to their bare essence. An engine, a transmission, tires, body shell and absolutely no interior padding with only a handful of gauges. That’s it, just the basics. But seriously, what else do you need? These cars are built to go fast and stick to the track.

Small Business tip #3 – Simplify

How often do we have steps or unnecessary processes to getting a job, task or assignment done, just because we think it’s necessary? Do we have efficient processes? Can we strip down the process to it’s basics in order increase our deliverables? Has anybody asked, why we do it this way or is there a better, simpler way?

The race car is meant to go fast and it does so without any unnecessary frills. Shouldn’t we be running the most efficient businesses we can? If something doesn’t add real value to the customer, then it shouldn’t be there. Are we asking our staff for their input or suggestions? They are the ones that work with the processes every single day, they just may have a better way.

On the track

As I pulled out onto the track, I distinctly remember that the transmission and clutch had a familiar feel. It then dawned on me that it reminded me of my uncles farm trucks of my youth. The transmission and clutch had a very positive interaction and it was all business, no frills.

Staying in the safety lane all the while accelerating in order to merge with the other vehicles, it was at this point that I realized, I didn’t remember a thing my trainer had told me. However, being connected to him via headset as he sat in the passenger seat, I started receiving a constant stream of instructions that easily matched the speed of the car as we approached 200kms per hour.

For the next 15-20 minutes we did laps around the track as I desperately tried smooth out my handling and add a little finesse to an otherwise less than stellar run. At the end of the session, we made our way in for a debriefing session with all the participants as we asked, and they answered our questions.

Small Business Tip #4 –  Status updates

How often do we gather everyone to either get or give a status update on the company or an initiative? Scheduling regular but short debriefing sessions help to identify road blocks, allow for clarification and make course corrections. Checking in regularly can solve many minor issues before they become major issues that are impossible to correct.

The last session.

This last on track session is where I had my greatest breakthrough and an “Ah ha” moment. As with most people who do these things, I felt I was a pretty good driver and understood the basic concepts of racing, such as finding the straightest line through a curve, etc. However, that easier said than done as I consistently missed apex after apex on most turns. It was frustrating and humbling.

The trainer kept telling me to brake hard to scrub speed as I entered the tightest turns. I figured I understood the concept, but time and again, I’d blow the turn. I thought I was going slow enough to hit my mark, because going any slower wasn’t cool and we’re suppose to go fast, right?

So, on one particular lap I figured I’d slow down earlier and harder and see what happened. To my amazement, the car just hunkered down and dug in. We held the line and we rocketed out of the turn, with very little corrective input required on my part after pointing the car in the right direction. The throttle was wide open, it was almost textbook, and it was confirmed by my trainer’s comment “that’s what I’m talking about” through the headset.

Small Business tip #5 – Pump the brakes

Too often we’re in a rush to get the end result. Ambition is a great quality but needs to be tempered at times. The Navy Seals apparently have a saying that says “Slow is smooth, smooth is fast”. I know that sound contrary to what we believe, but it works.

Not always, but sometimes we just have to pump the brakes on an idea or initiative and stretch out the deadline. By doing so it gives us the time we need to make sure we have all the information, the right people and the capacity to handle the assignment. Whether that’s growing our business or contemplating pitching a large contract. This extra time may allow for a much smoother execution and less rework, because smooth is fast.

Go Slow to Go Fast

Going too fast can be very stressful for all involved and can set us up for mistakes. Knowing when to hammer the throttle and when to stand on the brakes is an artform in itself and I have a new found respect for professional drivers because it’s both mentally and physically draining controlling a race car at speed.

The same can be said of running your business too fast. Sometimes you just need to go slow to go fast.

I appreciate hearing your feedback to this or any of my posts. So share your thoughts below.

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Get More LIFE Out of Your Business

You shouldn’t be the hardest working person in your company.

Many small business owners find that even after the struggling start-up years, they’re working too many hours and still managing every aspect of their businesses.

Greg Weatherdon has been there, done that. As an entrepreneur, he learned not only how to get a business to the point of running smoothly, but also how to reduce the number of hours he worked, delegate more responsibility to his employees, and take longer vacations while his business chugged along like a well-oiled machine. And now he is providing the secret to success.

Do you suffer from any of the following?

1. Business ownership isn’t living up to the dream.
2. Endless workdays.
3. You can’t find good people.
4. Profits are less than expected.
5. You can never take a vacation.

You’re not alone. But there is a solution. As Greg demonstrates, with some time and effort, you really can Get More Life Out Of Your Business.

Shrink to greatness is a phrase I’ve often had to use when working with clients. To be honest, it’s rarely received well by those I’ve had to tell because everything we read about how to be successful in business says you must grow. So, this contrarian approach can be a little challenging for the recipient to accept as it goes against everything they’ve been led to believe.

Numerous articles have been written stating that you can’t shrink to greatness. However, under the right circumstances it’s the only course of action that must be taken. Otherwise, they risk becoming just another wreck on the side of the entrepreneurial highway.

Why Shrink to Greatness?

Why would a business need to shrink? Well, most of the time it’s a simple matter of the owners ambitions outstripping the ability of the business to support the rate of growth. One of the early warning signs is that expenses are overtaking revenue. It’s interesting to note that in many cases that I’ve seen, generating revenue was not a problem, but doing so in a profitable manner was.

How they got here is really quite simple. In the early days, when overheads were low, most sales, jobs, or contracts were deemed to be profitable. That’s an easy assumption to make, because with minimum expenses, they always seemed to have money and they were getting every piece of business they were pitching. So naturally, they assume that they’ve hit upon a formula for success.

What often happens though is that, with all things being equal in terms of capabilities, they were getting the business in large part because they were cheaper. And they were cheaper, because they weren’t allocating any overheads to their pricing. Now, this is how most of us start, and it gets us in the game. But as the business grows, we need to modify our pricing in order to allocate our actual expenses to our pricing model. This is simple enough for those of us who were fortunate to figure this out, but unfortunately, many don’t.

Not for everyone

Shrink to greatness is not an effective strategy for everyone. One of the key considerations I look at before making this recommendation is what kind of business are they doing? If they have regular repeat business from a core group of accounts, then it may be a candidate. Having repeat business tells me that these accounts are happy with the results and loyal to a degree.

The other key I look for is if the client is willing to make the drastic changes required. When we attempt to shrink to greatness it is a difficult decision, it’s a leap of faith and a blow to their ego. It requires them to make decisions and take action contrary to what they have believed and outside their comfort zone. These decisions, albeit painful, are the short term pain they must endure in order to end their current misery and right-size their businesses.

The following are two examples where I used this strategy to save one company’s ultimate demise and another as a basis to get beyond just breaking even.

The Marketing Agency

The first example is when I was asked to meet with the owner of a marketing agency as a favour to their bank manager. When we first met, I got the impression that he was meeting me under duress or pressure from his bank manager. We chatted for an hour, but it was very one sided and it was clear the business needed to shrink and I told him so. I left that meeting feeling that my advice had fallen on deft ears, but I had fulfilled my obligation.

About a year later I received an email from the same individual asking for another meeting. My initial thought was that I wasn’t about to waste my time, as his reaction to our previous meeting was still clear. However, always willing to help a fellow entrepreneur and for some unknown reason, I agreed to meet with him again. My plan was to make it a brief meeting, if I felt it was going to be a waste of my time.

This time, it was very different. After opening pleasantries, he immediately said, he should have taken my advice a year ago and now his situation was desperate and that he had no idea what to do and it showed. Now, from my stand point, I went from being prepared to blow off this meeting as soon as possible, to trying to formulate a rescue plan.

During the year between meetings, he had dug himself into such a hole, I wasn’t sure if the business could be salvaged. However, nothing ventured, nothing gained. The plan was to strip his expenses to as close to zero as possible. That meant letting people and premises go which he was reluctant to do because of the perceived in-house expertise, as well as losing a place to meet with clients.

I made him aware that he didn’t have any special in-house expertise that couldn’t be hired on a freelance basis as his needs demanded. He reluctantly agree that what I was proposing made sense. However, giving up his office space would give him nowhere to meet with his clients. To this I asked, how many clients visit your premises? His answer, “hardly any”. I wasn’t surprised in his answer. The reality is that people want convenience and that usually means visiting the client at their place of business as it saves them time.

So, during the hour we met, I laid out exactly what had to be done or else he would be finished. Within a few days he executed everything we talked about and moved his business into his spare bedroom in his apartment. Within six months, he was making and keeping more of the money flowing through the company and was far happier than he had been. In addition, he had lost a bunch of weight that had accumulated during the previous year as a result of the stressful environment he had created.

He offered up a very lengthy testimonial to me that states in part “Greg’s no-nonsense, action-oriented wisdom saved my business (and maybe even my life – I’m not kidding)”. Check out my LinkedIn profile to read the full text of this testimonial.

The Contracting Company

My second example is with a contracting business that had been in business for 12 years when I first met the owner. Throughout that time, they made money some years and lost in others. On average they were breaking even. They had a staff of 10 and were doing some impressive revenue numbers, but not making money.

Once again, shrink to greatness was my prescription. It was clear that the nature of the revenue couldn’t support the expenses. One of the first steps was to reduce both the administrative and field personnel staff by a third and to relocate to smaller premises. None of this could happen though, unless they cut their revenue by 30-35%.

Generally cutting revenue is not part of the plan, except in this situation the revenue to be cut was a service contract that was coming up for renewal after 5 yrs. This contract was very low margin that required 24/7 on call capabilities. Not renewing this contract would relieve tremendous pressure in both the financial and human resource areas of the company

Over the 18 months this plan was put into place, total headcount was reduced by 50%. The business was also relocated to much smaller premises. The net result was that revenue dropped by 30%, but profitability skyrocketed.

These two examples illustrate that sometimes trying to grow your way to profitability may not be possible. Whether the reason for this are internal or external really doesn’t matter. What does matter is to recognize that the current business model isn’t sustainable nor profitable and sometime drastic, uncomfortable decisions need to be made.

Shrink to greatness, may be exactly the prescription your business needs so that you can achieve your goals and dreams.

You also enjoy SBM#81 – Burnout

Get More LIFE Out of Your Business

You shouldn’t be the hardest working person in your company.

Many small business owners find that even after the struggling start-up years, they’re working too many hours and still managing every aspect of their businesses.

Greg Weatherdon has been there, done that. As an entrepreneur, he learned not only how to get a business to the point of running smoothly, but also how to reduce the number of hours he worked, delegate more responsibility to his employees, and take longer vacations while his business chugged along like a well-oiled machine. And now he is providing the secret to success.

Do you suffer from any of the following?

1. Business ownership isn’t living up to the dream.
2. Endless workdays.
3. You can’t find good people.
4. Profits are less than expected.
5. You can never take a vacation.

You’re not alone. But there is a solution. As Greg demonstrates, with some time and effort, you really can Get More Life Out Of Your Business.

I have worked with hundreds of entrepreneurs helping them to shape their businesses into their vision. One problem that I frequently come across is the quality or I should say, the lack thereof of some 3rd party service providers e.g. bookkeeping, IT specialists, etc.

For the record, I’m all about outsourcing non-core or mission-critical activities to individuals who specialize in a given area. But time and again I find that many of these providers never consider the best interests of their clients.

Most of my entrepreneurial ventures have been as a service provider and one of my key mandates was to always be searching for ways to reduce our costs to our clients. That may sound treasonous, but in fact, it helped to grow our profits and our roster of clients, most of whom were divisions of global packaged goods companies.

“Clients are always looking for cost reductions…suppliers are always looking to increase their billings”

The premise was simple. Clients are always looking for cost reductions on the goods and services they buy, so my thought was to pre-empt that thinking. Without boring you with the details, we provided telemarketing and communication services to the packaged goods industry, servicing their small or orphaned accounts.

Our normal program recommendation was to execute 3-4 telemarketing sales programs a year. The targeted accounts would range between 3,000-5,000 retailers. By the end of the second program we had accumulated sufficient information to go back to the client looking to adjust our original agreement-downwards!

Of course, this is not the norm. Most suppliers always look for ways to increase their billings by recommending the program be expanded. Our approach on the other hand, was very disarming to clients but was based on solid business premises.

Our typical recommendation after the second wave, was to reduce the number of calls by around 20%. Because at this point we usually had enough data to determine which accounts simply weren’t interested, for whatever reason, in dealing with us. We were in effect, wasting our clients money and therefore they should be culled from the program.

So, what did this approach do for us? It positioned us as a trusted partner and an organization that had our clients best interest at heart.

  1. It dramatically increased our sales ratio performance e.g. a 35% sales ratio automatically jumped to over 40%.
  2. Our revenue per call would also soar. Clients always like that.
  3. Our profit margin jumped significantly as we kept a percentage of the savings. The clients never questioned us as we passed on about 80% of the savings.
  4. More often than not, clients would reallocate the savings to another program for us to execute. So, we really didn’t lose anything.
  5. Our efficiency increased as we were able to service more clients, at higher margins, without increasing our manpower or physical space. All while growing our revenues.
  6. Our clients regularly referred us to other divisions within their organizations.

The best part of this strategy was that we rarely had to justify our fees. Not many service organizations have that luxury.

“When I uncover these duplication, clients begin to lose faith”

Unfortunately, in working with my clients today, I find that many of the service providers they use, never look to help them. They simply focus on maintaining the status quo to protect their billings that often results in the duplication of efforts. When I uncover these duplications and bring this to my clients attention, they quickly begin to lose faith in these individuals.

These service providers think that by helping the client be more efficient or show them a better way, that they will put themselves out of job. Nothing could be farther from truth. It would in fact solidify their position in the eyes of their clients.

To be fair, clients are not innocent in this by any means. I’ve talked about this in The Small Business Minute #56 Delegate not Abdicate. Too many entrepreneurs eagerly outsource tasks that they don’t like doing or have no knowledge and then immediately ignore it assuming they no longer have to worry about that area of the business.

Too be fair, there are many great individual service providers that are engaged in their clients’ business. They provide valuable assistance and insights but, there are just as many that don’t.

So, if your service providers are not helping you run your business and don’t regularly suggest improvements, it’s probably time for you to demand more.

 

Copyright © Greg Weatherdon 2018

Sign up above to receive email notification of the latest update to this blog.

 

Get More LIFE Out of Your Business

You shouldn’t be the hardest working person in your company.

Many small business owners find that even after the struggling start-up years, they’re working too many hours and still managing every aspect of their businesses.

Greg Weatherdon has been there, done that. As an entrepreneur, he learned not only how to get a business to the point of running smoothly, but also how to reduce the number of hours he worked, delegate more responsibility to his employees, and take longer vacations while his business chugged along like a well-oiled machine. And now he is providing the secret to success.

Do you suffer from any of the following?

1. Business ownership isn’t living up to the dream.
2. Endless workdays.
3. You can’t find good people.
4. Profits are less than expected.
5. You can never take a vacation.

You’re not alone. But there is a solution. As Greg demonstrates, with some time and effort, you really can Get More Life Out Of Your Business.

Profit, that elusive goal that frustrates many a business owners. To be sure, many businesses are just bad ideas that never should have been started in the first place. However, there are plenty of others that are well run with decent revenues but for some reason they aren’t as profitable as they should be.

When helping business owners, one of the first places I look is their pricing model. Other than suggesting some adjustments, their pricing doesn’t appear to be the issue. Take a minute and checkout episode #47 Pricing For Profit for more insight into pricing.

A little probing into customers and marketing initiatives often uncovers a flaw in their sales and marketing activities – namely geography! The problem is rooted in the fact that these businesses are casting their nets too wide. As a result, they fail to generate critical mass for their services in a single geographic area. This is where the concept of clustering can help increase awareness for certain businesses and profits for most.

What is Clustering?

Clustering, is nothing more than grouping your service deliverables or offerings around key geographic areas. Clustering can be applied to many types of businesses and services.

Most major sales organizations have been using clustering for decades. Sales forces use clustering as a way of making the maximum sales calls with minimal travel time between each location. Most delivery companies do the same to generate the necessary efficiencies needed to stay competitive.

Although you would think the concept of clustering is common sense, it has been my experience that it’s not.

To better illustrate, the following are a couple of examples:

Clustering for Service Businesses

Consider the example of a service company. This could be anything from a landscaping business, to equipment repair or a roofing company. It’s not uncommon for many of these companies to be running all over the city, performing their services throughout the day.

For many this comes about because of their marketing and promotion activities. Countless businesses owners wrongly assume that they need to advertise to the widest possible group of customers in the largest geographic area. Often, they have been convinced that, for just a few dollars more, they can blanket the whole city or region instead of focusing on a tighter geographic area.

Appealing as that sounds, this shotgun approach can lead to huge inefficiencies as they now run around the city burning fuel and man hours going between jobs. When you consider that many service company use lawn signs to promote their companies, having many signs in a tight geographic area drives higher customer awareness of your company. As an added bonus, this may help your business development initiatives because people are familiar with your company name.

Granted, every city and business is different and focusing on just one area may not be feasible. However, clustering can still be effective in these situations by limiting your service to certain areas on specific days of the week. For instance, we work in the East end on Monday, South end on Tuesday and so on.
Clustering in this case, ultimately allows you to service more customers during a single day with a greater number of billable hours at reduced costs.

Clustering for Retail Businesses

Retail businesses can also benefit from clustering and save significant money in their advertising and promotions costs. The first thing you need to do is to understand where most of your customers are coming from. By simply collecting their postal or zip code, you’ll quickly see a pattern emerge from key geographic areas. One thing that may surprise you is that most of your customers aren’t coming from as far as you think.

A survey by Brightlocal found that the average time that people will spend in a car to travel to a business, ranges from 12-23 minutes. They have a wonderful infographic that depicts various types of businesses and the time people are willing to travel to them.

Graphic courtesy  of www.brightlocal.com

Driving Times to Local Businesses Infographic

In todays highly competitive environment, finding efficiencies in every part of your business is mandatory and can’t be left to chance.

So, if you want to increase your profits and the effectiveness of your promotions, you should consider the concept of clustering.

.

Copyright © Greg Weatherdon 2017

Sign up above to receive email notification of the latest update to this blog.

 

Get More LIFE Out of Your Business

You shouldn’t be the hardest working person in your company.

Many small business owners find that even after the struggling start-up years, they’re working too many hours and still managing every aspect of their businesses.

Greg Weatherdon has been there, done that. As an entrepreneur, he learned not only how to get a business to the point of running smoothly, but also how to reduce the number of hours he worked, delegate more responsibility to his employees, and take longer vacations while his business chugged along like a well-oiled machine. And now he is providing the secret to success.

Do you suffer from any of the following?

1. Business ownership isn’t living up to the dream.
2. Endless workdays.
3. You can’t find good people.
4. Profits are less than expected.
5. You can never take a vacation.

You’re not alone. But there is a solution. As Greg demonstrates, with some time and effort, you really can Get More Life Out Of Your Business.

I’m frequently asked how one goes about pricing their goods and services for profit. It sounds like a simple enough question, but in reality, it can very complex. Get it right and all should be well. Get it wrong and you’ll be constantly chasing revenue, if only to pay the bills.

Now if your product is a “me too”, you don’t have a lot of flexibility, as the existing products have already established the pricing parameters and therefore you must compete accordingly. Raising your price becomes almost impossible. The only way to improve your profitability is either to reduce costs or add real value for which your customers are willing to pay a premium.

First Mover Advantage

Moving to higher quality or higher value allows you to break free of the commodity pricing, but with potential trade-offs. Chances are you’ll reduce the number of customers but add much higher profits on every sale.

Conversely, if you have a unique product or service, you can leverage the “first mover advantage” and command higher prices. This is because there is no opportunity for your customers to do any comparison pricing, because you’re the only one.

I leveraged this “first mover advantage” when I started the Marketing Resource Group. I expected to maintain my higher margins until such time as competitors caught on to what I was doing. Once that happened, I fully expected to reduce my margins, but that never happened and I maintained my premium pricing and margins.

Unfortunately, the vast majority of businesses, especially new businesses, are not sufficiently unique to enjoy unlimited pricing power. So how do you establish an initial price formula for that new product or service?

A Formula

What I have found to be an effective jumping off point is to use the 1/3, 1/3, 1/3 formula. This formula simply breaks down your costs into fixed and variable and then add the profit element. In practice, it would look something like this:

Fixed Costs                 $1 (33%)
Variable Costs            $1 (33%)
Profit Margin             $1 (33%)
_____________________
Selling Price               $3

Is this a definitive formula? Absolutely not! But it does give you a wonderful starting point to establish your initial pricing target. In reality, many businesses have higher fixed or variable costs, in those cases, the fixed and variable costs shouldn’t exceed 2/3rd in order to protect your profit margin.

I’m sure there are many more complex pricing theorem out there, but this has worked me and my clients in helping to establish some pricing parameters. It forces you to identify all the actual costs that go into your product or service. Once these costs are identified, you can then layer on your expected profit margin starting with a 1/3.

Adjust Your Profits

By using this simple formula, you will actually be able to see how much profit you expect to make. This is of particular value when you end up in a competitive situation and need to be a little more aggressive in your pricing. Chances are you can’t adjust your cost base, but you can adjust your profit. Seeing how much or how little profit you’ll make on a given proposal, let’s you decide whether it’s worth doing as you’ll no longer be guessing at how much, if any profit you’ll make.

Over time, you will build up enough information on this new product or service to be able to refine or develop your own formula. In the meantime, this Pricing For Profit formula takes out some of the guesswork.

You may also like Revenue Without Profit Is Pointless

Copyright © Greg Weatherdon 2017

Sign up above to receive email notification of the latest update to this blog

Get More LIFE Out of Your Business

You shouldn’t be the hardest working person in your company.

Many small business owners find that even after the struggling start-up years, they’re working too many hours and still managing every aspect of their businesses.

Greg Weatherdon has been there, done that. As an entrepreneur, he learned not only how to get a business to the point of running smoothly, but also how to reduce the number of hours he worked, delegate more responsibility to his employees, and take longer vacations while his business chugged along like a well-oiled machine. And now he is providing the secret to success.

Do you suffer from any of the following?

1. Business ownership isn’t living up to the dream.
2. Endless workdays.
3. You can’t find good people.
4. Profits are less than expected.
5. You can never take a vacation.

You’re not alone. But there is a solution. As Greg demonstrates, with some time and effort, you really can Get More Life Out Of Your Business.

 Successful entrepreneurs have long learned that identifying internal deficiencies can increase profitability far more quickly than the chasing new ideas.

These owners do not like waste. Wasted time, wasted effort equals wasted profits. Doing something over again because of carelessness, doesn’t sit well with them.

We’re all human

I’m not talking about the occasional mistake, heck, we’re all human. What I’m talking about is those recurring situations where individuals are just not paying attention, like sending a technician out after a job has be completed to adjust a setting or flip a switch that should have been done at the time of the initial install. Or what about the installer who continuously leaves items on the dock that then requires a separate trip to complete the job.

Creating checklists is a simple way of avoiding or least minimizing errors and errors cost money. When you consider a commercial airline pilot who performs hundreds of takeoffs and landings every year, you would think they could do so without a checklist, yet they go through the procedure every single time.

Adopting checklists may help you keep a little more profit in your pocket.

 

Copyright © Greg Weatherdon 2015

 

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Get More LIFE Out of Your Business

You shouldn’t be the hardest working person in your company.

Many small business owners find that even after the struggling start-up years, they’re working too many hours and still managing every aspect of their businesses.

Greg Weatherdon has been there, done that. As an entrepreneur, he learned not only how to get a business to the point of running smoothly, but also how to reduce the number of hours he worked, delegate more responsibility to his employees, and take longer vacations while his business chugged along like a well-oiled machine. And now he is providing the secret to success.

Do you suffer from any of the following?

1. Business ownership isn’t living up to the dream.
2. Endless workdays.
3. You can’t find good people.
4. Profits are less than expected.
5. You can never take a vacation.

You’re not alone. But there is a solution. As Greg demonstrates, with some time and effort, you really can Get More Life Out Of Your Business.