Build a Business With Growth in its DNA 1. Profit Margin It’s easy to work out whether or not your business has profit margin, or to at least estimate it early on. Imagine not being involved in your business at all—everything the customer experiences gets handled by a team of people or systems. How much does it cost you to keep that customer and how much revenue do they generate? The actual, acceptable percentage will depend on a lot of things, but obviously you have to be making more than it’s costing you to service each customer. For our services startup I decided a reasonable figure was double. That is: half of our revenue is costs, half is profit, so I’d have a 50% margin. If it costs $50 / month to service a customer, I would price the service at $100. I solved this problem by cutting out 99% of what I offered and only offering a service that I knew affordable contractors could excel at it. This enabled me to have an acceptable margin in the business of around 50%. 2. Large Market I’m not into niches. I want to make sure whatever I start could be a $1,000,000 business in a few years, ideally more. I hope you are the same. If you want something that grows, it has to have something to grow into, and the last thing you want is to kill your momentum by hitting a ceiling. I’ve mentioned serving a large market previously, but since it’s such a big growth inhibitor, it bears repeating here. 3. Asset Building When I sold my business, I learned that project clients were worth very little. The website and the recurring clients were transferable assets. The historical revenue from project work wasn’t worth much at all. 4. Simple Business Model Having a simple product and a simple value proposition makes everything else easier. From elevator pitches to growth tracking to hiring—the more complex a model, the harder it is to know when things are going well. If you can’t measure it, you can’t manage it. 5. Recurring or Predictable Revenue Having a simple MRR model makes everything easier. There are other benefits like predictable revenue, simple metrics, simple goals, easy-to-see growth/growth sources, easy resourcing/scaling, and constant sources of motivation. A year in and I am still manually updating the MRR on a daily basis and giving my team members virtual high-fives. The 7 Day Startup: You Don't Learn Until You Launch Join our mailing list and we will send you one to two emails a week for 12 weeks teaching you the basic body weight exercises, nutrition guidelines, and mindset tools you need to be Indestructible.
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The point of launching a business quickly is that you can get real data from real customers. This will help you determine if the business is having an impact. But how do you know what a good result is? In examples where companies really take off, you don’t need to worry about this step. Companies like Buffer and Dropbox never had to worry about whether or not they were onto something; thousands of people were signing up. It was obvious! Similarly, when companies are an outright flop, that tends to be obvious as well. They are the one-percenters. Most companies fall in the middle, so it’s important to have some sort of framework around whether or not your business is going well. The way I like to think about this is to focus on the One Metric That Matters (OMTM) at different stages in your business.52 When you launch, it makes sense to focus on the number of people who sign up and pay you. Set a reasonable target that takes into consideration your reach and your marketing efforts and price point. With any business I’ve started, my primary goal has been to get to a point where I’m paying myself a reasonable wage as early as possible. The figure I’ve always used is $40,000 per year. If I can get to the point where I’m paying myself a wage of $40,000, I know I have enough there to keep the business going. Eventually I have the faith that I’ll continue to improve this number. Here are some general principles around setting your OMTM target: Make it a financial metric, not a vanity metric like website visits or Facebook likes. Pay particular attention to who is signing up. If it’s just your friends, then that’s very different from the general public. Set a goal for the first month and re-visit it each month after that. My team uses a live Google doc for tracking financials. It requires manual updating, but it’s great for motivation and it allows you to have live estimates instead of relying on old data in accounting systems. There’s a free template at wpcurve.com/7daystartup. Don’t measure something that no longer represents an important metric for your business. The OMTM will change over time. The 7 Day Startup: You Don't Learn Until You Launch Join our mailing list and we will send you one to two emails a week for 12 weeks teaching you the basic body weight exercises, nutrition guidelines, and mindset tools you need to be Indestructible. Once you know your assumptions, devise specific tests to validate them as cheaply as possible.10/11/2014 Once you know your assumptions, devise specific tests to validate them as cheaply as possible. These first tests in a channel are often very cheap: for instance, if you spend just $250 on AdWords, you’ll get a rough idea of how well the search engine marketing channel works for your business. With limited resources, it’s almost impossible to optimize multiple strategies at once. Running ten social ads and testing everything about them (ad copy, landing pages, etc.) is a full-time endeavor. That is optimization, not testing. Rather, you should be running several cheap tests (perhaps two social ads with two landing pages) that give some indication of how successful a given channel or channel strategy could be. “The faster you run high quality experiments, the more likely you’ll find scalable, effective growth tactics. Determining the success of a customer acquisition idea is dependent on an effective tracking and reporting system, so don’t start testing until your tracking/reporting system has been implemented.” Traction: A Startup Guide to Getting Customers Join our mailing list and we will send you one to two emails a week for 12 weeks teaching you the basic body weight exercises, nutrition guidelines, and mindset tools you need to be Indestructible. The watchwords were discipline, efficiency, and eliminating waste.
Sinegal explained the Costco model to Bezos: it was all about customer loyalty. There are some four thousand products in the average Costco warehouse, including limited-quantity seasonal or trendy products called treasure-hunt items that are spread out around the building. Though the selection of products in individual categories is limited, there are copious quantities of everything there—and it is all dirt cheap. Costco buys in bulk and marks up everything at a standard, across-the-board 14 percent, even when it could charge more. It doesn’t advertise at all, and earns most of its gross profit from the annual membership fees. “The membership fee is a onetime pain, but it’s reinforced every time customers walk in and see forty-seven-inch televisions that are two hundred dollars less than anyplace else,” Sinegal said. “It reinforces the value of the concept. Customers know they will find really cheap stuff at Costco.” Costco’s low prices generated heavy sales volume, and the company then used its significant size to demand the best possible deals from suppliers and raise its per-unit gross profit dollars. Its vendors hadn’t been happy about being squeezed but they eventually came around. “You can fill Safeco Field with the people that don’t want to sell to us,” Sinegal said. “But over a period of time, we generate enough business and prove we are a good customer and pay our bills and keep our promises. Then they say, ‘Why the hell am I not doing business with these guys. I gotta be stupid. They are a great form of distribution.’ “My approach has always been that value trumps everything,” Sinegal continued. “The reason people are prepared to come to our strange places to shop is that we have value. We deliver on that value constantly. There are no annuities in this business.” The Monday after the meeting with Sinegal, Bezos opened an S Team meeting by saying he was determined to make a change. The company’s pricing strategy, he said, according to several executives who were there, was incoherent. Amazon preached low prices but in some cases its prices were higher than competitors’. Like Walmart and Costco, Bezos said, Amazon should have “everyday low prices.” The company should look at other large retailers and match their lowest prices, all the time. If Amazon could stay competitive on price, it could win the day on unlimited selection and on the convenience. That July, as a result of the Sinegal meeting, Amazon announced it was cutting prices of books, music, and videos by 20 to 30 percent. “There are two kinds of retailers: there are those folks who work to figure how to charge more, and there are companies that work to figure how to charge less, and we are going to be the second, full-stop,” he said in that month’s quarterly conference call with analysts, coining a new Jeffism to be repeated over and over ad nauseam for years. Drawing on Collins’s concept of a flywheel, or self-reinforcing loop, Bezos and his lieutenants sketched their own virtuous cycle, which they believed powered their business. It went something like this: Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop. Amazon executives were elated; according to several members of the S Team at the time, they felt that, after five years, they finally understood their own business. But when Warren Jenson asked Bezos if he should put the flywheel in his presentations to analysts, Bezos asked him not to. For now, he considered it the secret sauce. The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone When picking a goal early on, you’re drawing a line in the sand — not carving it in stone.8/12/2013
When picking a goal early on, you’re drawing a line in the sand — not carving it in stone.
You’re chasing a moving target, because you really don’t know how to define success. Adjusting your goals and how you define your key metrics is acceptable, provided that you’re being honest with yourself, recognizing the change this means for your business, and not just lowering expectations so that you can keep going in spite of the evidence. Lean Analytics: Use Data to Build a Better Startup Faster (Lean Series) by Alistair Croll, Benjamin Yoskovitz Build on what you have learned from taking that step. Every time you act, reality changes. If you pay attention, you learn something from taking a smart step. More often than not, it gets you close to what you want. (“I should be able to afford something just outside of downtown.”) Sometimes what you want changes.
In other words, when facing the unknown, act your way into the future that you desire; don’t think your way into it. Thinking does not change reality, nor does it necessarily lead to any learning. You can think all day about starting your businesst, but thinking alone is not going to get you any closer to having one. Just Start: Take Action, Embrace Uncertainty, Create the Future by Leonard A. Schlesinger, Charles F. Kiefer Things simply aren’t as predictable as they once were.
Our intellectual journey—as teachers, innovators and businesspeople—was to answer the question of how can you achieve success in an uncertain world. To find out, we looked to those who thrive best in uncertain environments: serial entrepreneurs. When we did, we learned they not only think differently, but act differently, too. It is a pattern of thinking and acting based on the assumption that the future is going to behave in a way similar to the present and the immediate past. Instead of thinking your way into a new way of acting, which is at the heart of using Prediction, you need to act your way into creating the future you want. If you can’t predict the future—and increasingly you can’t— action trumps everything. In the face of an unknown future, entrepreneurs act. More specifically, they:Take a small, smart step (see “What’s a Smart Step?”) forward;Pause to see what they learned by doing so;and Build that learning into what they do next. It is the action you take based on the resources you have at hand and never involves more than you can afford to lose, that is, your acceptable loss. It can involve bringing other people along, although initially it does not have to. Having taken the step, you pause to reflect on what you have learned. From there, you take another smart step or quit if your desire has waned (or you have discovered something else that you want more) or if you have exceeded your acceptable loss. You repeat this process until: You succeed. Or You no longer want to continue. (You changed your mind; something else is more appealing.) Or You exceed your acceptable loss. Or You prove to yourself it can’t be done. Just Start: Take Action, Embrace Uncertainty, Create the Future by Leonard A. Schlesinger, Charles F. Kiefer The unique selling proposition is the nucleus around which you build your success, fame, and wealth.7/8/2013
In order to stand above the crowded marketplace, you or your company must offer your prospect or client a unique and distinctive benefit or advantage above and beyond that of your competitor. If you don’t, people have no motivation to do business with you instead of your competition. You must identify and understand what it is you or your company do or can start doing for your clients that provides them with a result or an advantage superior to the competition’s. This is called the unique selling proposition (USP). Your unique selling proposition is that distinct, appealing idea that sets your business apart from every other “me too” competitor.
How do you pick a USP? You must first identify which needs are going unfulfilled within your industry, such as: 1. A broad selection 2. Big discounts 3. Advice and assistance 4. Convenience (i.e., location, fully stocked shelves, immediate delivery) 5. Top-of-the-line products or services 6. Speedy service 7. Services above and beyond the basics 8. A longer and more comprehensive warranty or guarantee than the norm 9. Any other distinct advantage, tangible or intangible benefits, or valuable advantages you can give that the competition doesn’t. The point is to focus on the one niche, need, or gap that is most sorely lacking—provided you can keep the promise you make. You can even create hybrid USPs—combinations that integrate one marketing gap with another. Before you decide on a USP, be sure you can always deliver that USP through your whole organization. You and/or your staff must consistently maintain high levels of quality or service. The USP is the nucleus around which you build your success, fame, and wealth. So you’d better be able to state it. If you can’t state it, your prospects won’t see it. Whenever a client needs the type of product or service you sell, your USP should bring you or your company immediately to mind. Clearly conveying the USP through your marketing and business performance will make business success inevitable. But you must boil down your USP to its bare essence. Try it. Write a one-paragraph statement of your new USP. At first, you will have trouble expressing it tightly and specifically. It may take two or three paragraphs or more. That’s okay. Ruthlessly edit away the generalities, and focus on a crisp, clear statement that promises the most you could possibly offer. Hack away excess verbiage until you have a clearly defined unique selling proposition that a client or prospect can immediately seize upon. Let’s say you run display ads, and your USP offers a greater selection than any other competitor. There are several ways to integrate this into your ads. State the USP in the ad headline: We Always Have 168 Different Widgets In No Less Than Twelve Different Sizes And Ten Desirable Colors In Price Ranges from $6 to $600 (Or) Five Times the Selection, Four Times the Color Choice, Three Times the Number of Convenient Locations, Two Times the Warranty, And Half the Markup of Any Other Dealer Getting Everything You Can Out of All You've Got: 21 Ways You Can Out-Think, Out-Perform, and Out-Earn the Competition by Jay Abraham Acquiring clients at a breakeven or a slight loss and then making substantial profits on back-end7/6/2013
Acquiring clients at a breakeven or a slight loss and making substantial profits on back-end repurchasing is one of the most overlooked and underutilized methods of client growth and generation available to you. But it can’t work for you until you first recognize a very important fact. If your business or practice is one that has a high probability of clients coming back, again and again, to repurchase from you the same or different products or services, you owe it to that business or practice to do everything within your power to get clients into the buying stream as quickly and easily as you possibly can.
Many companies increase their clients and profits merely by shifting their focus from trying to make a huge profit on the acquisition of a new client to making their real profit on all the repeat purchases that result from those new clients. Knowing how much a client will spend with you over a period of years tells you how much you can spend on the process of acquiring a client. The most profitable thing you’ll ever do for your business or career is to understand and ethically exploit the marginal net worth of a client. What is the current lifetime value of one of your clients? It’s the total profit of an average client over the lifetime of his or her patronage—including all residual sales—less all advertising, marketing, and incremental product or service-fulfillment expenses. If you haven’t calculated your clients’ marginal net worth yet, here’s how to do it: 1. Compute your average sale and your profit per sale. 2. Compute how much additional profit a client is worth to you by determining how many times he or she comes back. 3. Compute precisely what a client costs by dividing the marketing budget by the number of clients it produces. 4. Compute the cost of a prospect the same way. 5. Compute how many sales you get for so many prospects (the percentage of prospects who become clients). 6. Compute the marginal net worth of a client by subtracting the cost to produce (or convert) the client from the profit you expect to earn from the client over the lifetime of his or her patronage. Once you’ve calculated the lifetime value of a client, you have many ways to accomplish your break-even objective. Remember, the goal isn’t just to cut the price of the first purchase. The goal is to make that first purchase so much more appealing that people find it harder to say no than yes . . . please! While reducing the price of your product or service is the most common and obvious way to get the first sale, there are other powerful ways to obtain first-time buyers. For example, you can calculate your allowable marketing or selling cost, which is how much money you’re willing to either spend or forgo receiving (by reducing the selling price), in order to make that very first purchase more appealing to a prospective client. Let’s say your product or service sells for $200 and your cost is $100. Also assume your average client repurchases several times a year for several years and you will realize a good long-term profit. Obviously you can reduce your price by $100 on the first sale to reach a break-even point and gain a new client. But you could put that $100 to a number of other uses. You could keep the price at $200 and use the $100 as “spiff” or extra selling incentives to your salespeople. Giving salespeople greater financial incentive to bring in new, first-time clients can produce tremendous results in the right situation. You could also use that same $100 to buy more of your product or service. So you still charge the full $200, but you give prospects twice the quantity on the first purchase. Or you could take the $100 and use it to buy other complementary products or services (at wholesale) to package and add to your product or service without raising the $200 price—so the value of your offer becomes far greater and thus more attractive. Or you could use that $100 to invest in advertising, sales letters, additional salespeople, free seminars, or any other marketing and selling programs. Or you could rent promotional space in someone’s store or trade-show booth and pay them the $100 for every new client you gain through their facility. The only limitation you have on how to use your allowable marketing or selling cost to help you strategically break even on the initial sale is that it must be ethical and legal. And after testing it out it must be economically viable in the long term. Getting Everything You Can Out of All You've Got: 21 Ways You Can Out-Think, Out-Perform, and Out-Earn the Competition by Jay Abraham As you work to free up your mind and give it the power to alter its perspective, remember the following: the emotions we experience at any time have an inordinate influence on how we perceive the world.
If we feel afraid, we tend to see more of the potential dangers in some action. If we feel particularly bold, we tend to ignore the potential risks. What you must do then is not only alter your mental perspective, but reverse your emotional one as well. For instance, if you are experiencing a lot of resistance and setbacks in your work, try to see this as in fact something that is quite positive and productive. These difficulties will make you tougher and more aware of the flaws you need to correct. In physical exercise, resistance is a way to make the body stronger, and it is the same with the mind. Play a similar reversal on good fortune—seeing the potential dangers of becoming soft, addicted to attention, and so forth. These reversals will free up the imagination to see more possibilities, which will affect what you do. If you see setbacks as opportunities, you are more likely to make that a reality. Mastery by Robert Greene |
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