In a tough economy, making a profit is hard. Maintaining profit is even harder. But doubling and tripling it is a whole other ball game.
It’s not all about the money, but without money you cannot realise any of the dreams that you have for your business. You have to first make money before you can start changing lives.
We have managed to more than triple our bottom line profit from the previous year. Our team is now applying the keys and practices that enabled this growth to our clients’ companies with similar success.
I would like to share five of the most important learnings with you:
1. Focus on a specialised niche
People are willing to pay more for specialised skills than for generalists. Select a profitable niche and ensure that you are an absolute expert in the area of business you work in. Know your market and your focus area within the market.
Be at the cutting end of trends and technology within your niche and make sure that you have what it takes to serve them well. Identifying your perfect profitable niche requires both an inward and outward focus.
First, look inwards. What are your passions, purpose, natural talents, knowledge and experience. Think about what has been placed in your heart and decide what your personal message is. It’s important to position yourself to do something that you love.
Running a business will always include challenges and tribulation, but doing what you love and what you were made for will help you to persevere.
Secondly, look outwards. Focusing on what you love will only convert into profit if it’s something that sells. Health, wealth and success. Beauty, relationships and sex. Personal development and spirituality. Relationships and happiness. Technology and innovation. Make sure that your niche is something that has a definite market.
Then drill down to find that ‘inch wide and mile deep’ part of the market that you want to speak to. Instead of being just another law firm, if your passion is entrepreneurship and technology, be a law firm that specialises in tech start-ups using the latest technologies to service them.
2. Brand eminence
A hard process of cost cutting is required to grow profit without growing top line revenue. Growing profit is a lot more achievable when revenue growth is high. Establishing yourself as a thought leader in your industry goes a long way towards building your brand and ensuring that new business seeks you out.
Make sure that the differentiating factors of your offering have some superiority over those of the competition and that this fact is made visible. Your brand must command eminence. Being seen in such a light drastically changes what foot you start on when negotiating with a new client as well. Drive new business to fuel top line growth through an established, visible brand.
Writing good content for press distribution, taking up sensible invitations to speak at industry conferences and events, ensuring positive social media engagement and streamlining all of your communication material are all low cost ways in which to start adding bulk to your brand.
Once you are established within your industry and seen as a leader in your niche, work should be flowing in. Now the secret is not to be overwhelmed. Biting off more than you can chew could lead to non-delivery on those big promises that you and your brand have made. Delivery as promised will be required to turn once-off projects into long term, retainer clients.
Working harder and longer is not sustainable. New staff cannot always be found, trained and equipped fast enough. What you need is systems. Some work will always require your personal touch, but a large portion of work and business processes can be automated.
Yes, material hours will go into developing systems and processes. Hours that are not billable. But these sacrifices ensure that you can handle volume as your business scales. Good systems ensure that nothing falls through the cracks and that your delivery is on time and up to standard. Over time, it also enables you to perform tasks faster, which increases profit margins.
Work flow, client relations management and financial reporting are three of the first areas that you need to automate. Planning workflow and keeping track of billings can be done well using an online tool like Harvest. Managing leads and saving client information can be done for free using online CRM systems like Zoho.
Bank transactions can automatically be drawn into cloud accounting packages like Xero, making month-end reporting and live financial records possible. There are amazing automation tools out there to suit almost all business processes.
4. Cash flow management
The age old concept that cash flow is king applies. Managing cash in and cash out well is a big management challenge. When sales are soaring and new contracts are coming in, careful planning is needed to ensure that short-term obligations can be met.
Accounting profit is not cash flow profit and ignorance on this topic could cost a fast-growing company the ultimate price. Be sure to build enough detail into your cash flow model to be able to effectively plan and manage the lifeblood of the business.
Start with cash in the bank at the beginning of the period (normally a month, could be a week) you are analysing. Add all expected cash inflows for that period, taking careful note of when debtors are expected to pay. Subtract all expenses that you know will need to be paid in that period.
Make sure that all repeated transactions (like rent, telephone bills, salaries) are kept in mind for each month. Also remember to prepare for the payment of all non-standard items (like that annual licence renewal or the new asset purchase due).
The end result of this sum would be your cash balance at the end of the period. If you make use of more than one bank account, be sure to add the cash movement in each of them to your calculation.
Having all of these figures plotted out for a period like a month shows you very well where your cash is coming from, where it is going and what you have left to work with.
It is far more valuable to monitor than just to look at the profit and loss for the month. As the saying goes — turnover is vanity, profit is reality, cash flow is sanity.
5. Expand revenue streams and profit centres
Once work-flow is automated and cash flows are being controlled well, your success should be reflected in your bottom line. The final step is to diversify your streams of revenue.
Explore various other avenues of revenue generation within your area of expertise and within your niche. For each new revenue stream, follow the same process of establishing eminence, engineering automation and monitoring and managing cash flows. You already have the recipe — now rinse and repeat.
The easiest way to establish a new revenue stream is to look at your existing client base and to ask — what else do they need that I am not yet supplying? If you’re a Software-as-a Service provider offering a solution to the finance industry, you might not consider offering ready-made meals to your client pool next.
Related: How Smart Managers Drive Profits
Adding a consulting arm to your solution that you also offer to your existing clients, or adding a new functionality that solves a different problem could however be good for business.
Applying these learnings to your business with persistence will ensure an uptick in profit. Patiently think them over and incorporate them in your company to ensure that critical bottom line success.
5 Winning Ways To Strengthen Your Bottom Line This Year
Let’s get down to the nuts and bolts of your profitability.
The beginning of the year is upon us, and the question everyone is asking is, “How are we going to make this year more profitable than 2018?” Break away sessions to strategies are always good, however, the most effective organisations know that the best ideas didn’t come from high-level planning, rather, they come from the field.
1. Your winning market
The saying goes, ‘The riches are in the niches.’ This year, stop spreading your sales focus thinly across several markets. Review your data on the which niche or subgroup of buyers make up your best customers. Then laser focus your best sales efforts and talent on these prospects this year. If you don’t have data on your buyers, then make a commitment to invest in your CRM software this year, so that next year your focus can be accurate.
2. Your winning product or service
Don’t let chance dictate which sale you focus on, rather identify which of your products or services has the highest margins. Your data will tell you which products or services you should focus your sales efforts on this year, and which you should phase out, or simply terminate immediately.
3. Win more customers
You have a big budget for your lead generation, but invest more this year on optimising your lead conversion rate. No matter what industry you are in, or if you convert leads digitally or face to face, your ability to turn leads into sales is a potent leverage point to increase profits. For example, if you increase your conversion from 20% to 25%, that 5% increase in conversion will lead to a 20% or more increase in profitability (assuming your costs stay steady.)
4. Whittle down waste
One immediate way to see your bottom line improve this year is to keep a tight rein on your sales team giving out discounts and freebies, and on your production team’s unregulated wastage. You’ll be surprised when you add it all up how much profit you’ve lost this way. Set boundaries over what is and isn’t okay for your sales team to do during the sales cycle.
Rather create bonuses or value adds that they can add in that have high perceived value but low cost of goods sold. For example, you might offer two free training classes to a new customer when they buy a year’s subscription to your software service.
A training class has a high value, but likely costs very little to add more seats to the room. As far as your production team goes, if you haven’t already, you should invest in business software that tracks productivity in your team, as well as in your machinery and equipment, to improve efficiency and reduce wastage. This alone is worth the investment costs of the software.
5. Say ‘No’ to scope creep
Scope creep is when your customer alters the scope of your product or service after the initial agreement of work has been signed off, but with no alteration to the initial quote. It is excessively common and can be very detrimental to a bottom line in service businesses.
This year, be clear about what is and isn’t on offer in the quote, and if there are any adjustments down the road, inform the client upfront of these additional costs. Wait for approval before starting the work. Be clear about prices for common extras that clients may want and let them know you’d be happy to provide these additional items for them at these pre-agreed prices. This could also be an opportunity for gentle upselling.
With this in mind, may 2019 see your bottom line grow from strength to strength.
Are Your Scalable?
Here’s how you can assess if you’ll make it, or if you need to first make some fundamental adjustments before pursuing your growth goals.
Pete is a classic entrepreneur. He spent 15 years building his manufacturing firm to a R30 million outfit, before his big opportunity came to take on contracts worth R120 million, allowing him to scale to R150 million within five years. This was everything he’d worked towards. This was his retirement plan.
Five years later, instead of running a R150 million business, Pete is burnt out and broke. His company is closed and he’s lost everything. The crisis has even torn his family apart. How did this happen?
A common fate
Unfortunately, it’s a far more common story than most of us would like to admit. 70% of the top 1% of businesses (by growth potential) land up failing to scale. Sometimes, like Pete, they lose everything and close the doors. Other times, they land up bigger, but managing a chaotic hell of their own creation: A daily sprint to survive, a never-ending treadmill of frantic hustling to keep things together, with the horizon never coming closer.
The most common reasons? Either scaling something that fundamentally is not scalable, or scaling poorly; not making the right changes at the right time.
In this article, I’ll be focusing on the first reason: Attempting to scale a business that is fundamentally not scalable — because not every business can be scaled. If your ambitions are focused on high-level growth, step one is to determine if you have the right business model to do so. Because if you don’t, that’s the first change you need to make.
Some companies scale easier than others. And some don’t scale at all. Let me illustrate with two extreme examples:
Very scalable: Dropbox makes an extra $10 for every user they add, while adding $1 of cost, and zero operational capacity. That is very scalable.
Not easily scalable: A start-up ad agency is soon faced with a growth ceiling created by the limits of the founder’s time and energy. This normally occurs somewhere between ten and 20 people. An ad agency is not a scalable business model because growth requires top, senior creative talent. Such individuals are rare, have attractive options, and usually prefer to either work for big multinationals, or run their own businesses. It’s therefore tough for smaller agencies to attract and retain talent without offering large chunks of equity, which can be a zero-sum game. It sometimes even works out net-negative. Unless you find a way of breaking that constraint, this is not a scalable business model.
So, what makes me scalable?
Building a scalable business is a bit like picking a spouse. There are a number of criteria to consider, the absence of any one of which is a deal killer, even if all other criteria are amply present. A suitor may exceed your fantasies in every regard (looks, smarts, fun, caring, etc), but if they are also prone to parallel relationships, that’s enough to pull the plug and look elsewhere.
Just as in relationships, a number of things must come together to make your business scalable. Here are the ten most fundamental drivers of scalability grouped into three core areas: Scalable market, scalable business and scalable team.
- Size (Total Addressable Market, or TAM): The market must be big enough to achieve your ambitions. As a rule of thumb for ambitious entrepreneurs, TAM must be at least 4X your business size goal. If you want to build a R500 million business, you need a R2 billion market.
- Economics: It’s expensive to scale. You need to invest in great management and top talent, plus spend on infrastructure ahead of actually seeing growth. To make that sensible, it must be very profitable serving your market.
- Growth: The market must be growing, and preferably faster than the rate of new competition.
- Number one: Highly scalable businesses almost inevitably are number one, or will become number one in their market or niche. If you can’t lead the market, you must be able to lead a sizable niche.
- X-Factor: Every market has a bleak outlook: More competition, lower prices, lower margins. Unless you have some fundamental reason to continue to lead the market despite competitive intensity, such as proprietary tech. It must be good enough that you can be and stay number one in your market.
- Scalable channels to market: Some customers are just impossible to reach profitably. A scalable business has access to channels to effectively target, market to and sell to customers profitably.
- Scalable operating model: Scalable businesses have unconstrained access to all critical materials and talent, without breaking the economic model.
- Scalable economics: You can calculate the scalability of your economics with a simple formula: [Gross Profit per R10 million new revenue] / [new cost required to manage each R10 million new revenue (managers, systems, facilities, etc)]. Highly scalable businesses have a 2X or higher ratio. 1 to 1,2 is borderline and scaling will be like walking on glass. Most businesses have a ratio <1, which means they will lose money by scaling.
- Scalable founders: Statistically, most founders are not scalable. They lack the experience, skills and personality profile to make the required shifts as the business scales, and to develop the organisation through its various lifecycle stages. Scalable entrepreneurs are able to:
- Build a great culture for >100 people
- Attract and build an A-Team of truly impressive senior leaders, and delegate large parts of the business to them
- Be ‘builders’ and ‘managers’ — that is, graduate from ‘entrepreneur’
- Submit their interests to the best interests of the organisation, even when it’s painful — we see this when founders step down in favour of CEOs with corporate experience
- Lead the transition of the business to a professionally managed company, introducing systems, processes and policies in a way that does not break the company’s culture.
- Leadership team: Particularly in the most painful scale up stage — going from ten to 100 staff — the key driver of scaling well is the quality of the top team. That’s why quality of early hires is a great predictor of scalability. Leaders who can adapt and be effective in a business of ten, then 20, then 50, then 100 staff are truly remarkable, and therefore exceptional. Not many manage this transition. These leaders can be effective in three completely different ‘modes of organisation’: The hustle (at ten people); The build (from ten to 100 people); The operate and grow modes. By implication, they are — or can grow into — executives. They can hustle. But they can also shift from a tactical focus (immediate fires and opportunities, action focus), to a strategic focus (future focus and system focus). They are able to run operations while transcending operations, bridging the long-term strategy, the short-term strategy, operations, culture, team, and finances, and they can do that in a company of ten people, or 100 people. Of course, you can bring in new leaders and you can replace leaders that are not scalable, but this dramatically slows the scale-up journey and can even derail it.
The result of having founders and leaders who are capable of scaling with the organisation will be the automatic development of the other key ingredients for a scalable team: Great talent, a highly engaged team, a great culture, and an effective organisation.
The key to growth
If you’re following the path to scale, or investing in a scale-up, it’s important to be aware of the causality amongst the above ten factors. Typically, the main factor that drives the speed at which a business can scale is how quickly founders can delegate major areas of responsibility, so that the business can continue to make rapid progress at scale.
This in turn is driven by the ‘next level’ (non-founding) leaders, as well as the leadership abilities of the founders. The problem is that early-stage companies struggle to attract top talent, unless they find people who want to be a part of the equity-incentivised leadership team pursuing an exciting opportunity. This type of career opportunity can usually attract top talent, despite the various reasons these individuals gravitate towards well-paid corporate roles and their own ventures.
But that sort of opportunity does not typically happen by accident: It’s the function of the founders getting points 1 to 9 right. In a nutshell, the first thing you need is an amazing team of founders who work smart to nail points 1 to 9, find and pursue an amazing opportunity, and then harness that to attract amazing talent in order to delegate effectively, so that you can scale beyond the limits of the founders’ time and energy.
Leon Meyer GM At Westin Cape Town Shares 4 Experience-Driven Tips On How To Keep Your Team Productive
Productivity is a fundamental requirement for an organisation – it’s the seed that builds a business and contributes to higher profit margins.
Productivity is a fundamental requirement for an organisation – it’s the seed that builds a business and contributes to higher profit margins. But what’s the best way to ensure employees remain productive, and happy in their day job?
The answer is simple and highly effective and I choose to sum it up with three short phrases – respect, trust and teamwork.
In partnership with my management team, which consists of about eight staffers across various disciplines, we strive to tick these boxes.
In total we’re ultimately responsible for managing roughly 500 employees.
Five hundred employees across several departments is a mighty job. But with teamwork, good listening skills and the right attitude from the top to filter down, any business can run like a well-oiled machine.
I’d like share with you the essentials for building and maintaining a productive workforce, and these apply to all industries, not just the hospitality sector:
1. What’s your definition of a productive team and how do you achieve that?
We need to keep in mind that productivity is a result, one that CEOs and managing directors strive for with their teams. But what happens beforehand in order to achieve that result determines whether it will be achieved at all, and is equally important. I suggest the following to ensure a productive team:
Define roles and responsibilities: Direction is incredibly important; everyone needs to know exactly where they’re going and how they need to get there, so KPIs are essential.
Often when roles and responsibilities are unclear, things go pear-shaped. I am an advocate for setting clear KPIs, it’s a good way to steer us in the right direction, and in turn helps to grow the business and the individual in his/her role.
Be flexible: Rigid environments are the worst kind, allow your employees some flexibility and the opportunity to be themselves in the workplace. We spend so much of our time at work, we need to be ourselves there.
Celebrate the team: When there are achievements, celebrate them, single out individuals who are excelling and living the company values. This builds morale and is indicative of appreciation, which is fundamental when running and building a business.
2. What has and continues to be your philosophy since managing a large team?
Know your strengths and weaknesses, as well as your team’s and leverage off that. Be prepared to learn from others, no one can operate in isolation, regardless of the level on which you operate. Accept criticism and don’t bulldoze someone’s ideas, that’s how you build trust.
3. What in your view are the top characteristics the team look for in a leader?
- Be consistent – inconsistency screams bad leader
- Provide guidance – this is key, don’t turn a blind eye, give input and council
- Listen – always listen intently
- Be impartial – always be fair
- Give credit – it builds morale and shows you recognise good work
- Be patient – Rome wasn’t built in a day, and remember not everyone thinks the same as you do
4. What’s your view on an open door policy and how does it assist with managing a team and ensuring everyone remains productive?
I believe in an open door policy. It’s essential to build and develop trust. I’m the first to admit that it takes a while to build that trust, but once the team (on all levels in all departments) know your door is always open, and that they can trust you implicitly, half the battle has been won.
I host a GM’s roundtable every two months, just to establish how everyone is feeling and where everyone is at. It gives staff the opportunity to bring their challenges to the table, and I deal with them the best I can.
It’s 100 percent confidential and line managers are not allowed to attend. During this meeting we try reach common ground, and I commit to addressing and ultimately solving the problem(s).
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