Business development by the numbers

January 10, 2018

business developmentLast week we started to identify some key financial metrics that you need to have a handle on as you plan your business development for the upcoming year in a smart way. If you did the math I outlined last week, you now know:

  • How much of every earned dollar you actually get to keep to spend on your business (salaries, overhead, and profit)
  • How much you can expect to produce per employee
  • If you have capacity with your current staff or if you get new clients you’d need more help to support them
  • If your business is profitable and if so, by how much

Those are the facts you need to make the following decisions:

  • Are you content with your business being the size it is now?
  • Are you happy with your current net profit (amount and percentage)?

If you decide you’re good where you’re at, it’s just a matter of trying to increase efficiencies to be even more profitable or trading up to better-fit customers who will also be more profitable.

But if you think there’s some room for growth, then let’s talk about what you really need.

I want to provide a caveat here. I am really simplifying this process. There is lots of averaging and rounding going on. I want you to understand the concepts and have some ballpark estimates of where you want to take your business and what it will take to get you there. My goal is not to make you a CPA. My goal is to give you some simple tools and metrics to use so that your business development planning isn’t just a shot in the dark.

When businesses set annual growth goals, they usually just pick a number based on historical trends or an impressive milestone they’re trying to reach. “Hmm, we grossed $3 million last year, so how about $3.5 million this year?” Have you already set growth goals for 2018? How much was it? 10% growth? 25% growth? More important than the number – the goal was based on what?

The truth is that most businesses set a growth goal but they rarely know what that actually means or what it’s going to cost them to get there.

This year, I’m going to suggest you do it differently. Let’s use the numbers we discussed last week to put together a projection and a plan that actually has a financial foundation under it.

You’ve now got a significant advantage. You know how much in gross revenue you need to generate to earn (approximately) whatever profit increase you’d like to have. You also know how many additional people, if any, it’s going to take to support that new opportunity.

Let’s assume you have decided you want to grow your profits by 10%. Do the math to determine what that means in gross revenue. If that means you need to have another $250,000 in client work to make that happen, we now know your 2018 gross revenue goal, right?

Will you need to add staff to support the new revenue goal? If so, don’t wait until you’re stretched too thin. Start looking for the right additions now.

Usually, when a business goes through this exercise, they discover that they don’t need as much new business as they feared. It puts the effort into perspective and allows them to build a business development program that’s tailored to their actual need without throwing them into an unnecessary panic.

I’m not suggesting that these are the only financial metrics you need to monitor. But in terms of understanding how to set realistic growth goals, even these basics will give you a factual foundation to put you on the right path.

 

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How many customers do you need?

January 3, 2018

customersBy now, it’s occurred to you that the holidays are not coming back, it isn’t getting warmer any time soon and you’d better get at it. It’s about this time every year that businesses really get serious about attracting and winning new customers.

What happens next is as predictable as the gyms being packed in January. Businesses put together these elaborate, grandiose plans that come with Gantt charts, calendars, and color-coding.

But even with all that planning, two key questions are rarely asked or answered.

How much do we need? And of course the follow-up question should be: and how much could we even handle?

Most business development plans fail because first we get all excited about them but we behave as if we’re trying to create the Mona Lisa and second because we have no idea how much is enough. The truth is most businesses create plans that, if they actually executed on them consistently, would bring too much opportunity their way. They bite off more than they could possibly chew and then they choke on it.

Why are the gyms empty again by February? Two reasons. First – the New Year’s newbies tried to tackle too much and couldn’t sustain it. Second – they didn’t have realistic goals. If they did, they would have been able to scale back their plan to better bring them what they actually needed.

That’s true of the business development patterns of most organizations. We try to do too much because we don’t know the answer to the “how much” questions.

To get to those answers, you need to make some decisions and gather some data. It’s not difficult but it will take a little bit of time and requires us to do some simple math. But if you hang in there with me, I promise it will be worth the effort.

Gather up the following facts from your 2017 financial data.

  1. Total gross billings (Everything you billed/charged your customers)
  2. Cost of goods (All the hard costs you incurred on behalf of your clients. This does not include any costs related to your employees or your overhead. COGS are hard costs like raw materials, what you paid a wholesaler for what you sell retail or if you act as an agent for your clients – buying printing or some other service on their behalf and then charging them for it.)
  3. Your net profit (What’s left over after you pay out all your expenses, including your staff and overhead.)

When you subtract your COGS from your gross billings, you get your net income or adjusted gross income. That’s the number we’re going to focus on. You’ll want to know what percentage of your gross billings turns into net income. Let’s say you bill $1 million dollars and $500,000 is COGS. That means your net income is 50%.

Now, figure out how many FTEs (full-time equivalents) you have on staff. Divide your net income by the number of FTEs you have. That tells you how much net income you earn per employee.

If you’re happy with your net profit number, then your employees are producing approximately as much net income per person as you need them to. If you’re not profitable or the profit number is too low, then you need to increase that per person average by helping your people be more efficient or by re-thinking your pricing model (or one of a million other things).

Next week, I’ll show you what to do with these numbers (I figure you need the week to gather them up) and what decisions you need as you define just how much business development you should be doing.

Gather the facts and next week we’ll use them to get realistic. I think you’ll be both relieved and surprised.

 

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One thing

October 11, 2017

one thingIn the wake of what we’ve been talking about over the last couple weeks, I’ve received a lot of emails asking about this idea of how to define who your organization is, who you best serve and what you do for them. Ironically, this all boils down to doing less, to focusing on just one thing. It’s so counter-intuitive that most business owners and leaders reject the idea. I get it – you want to offer as much as possible to your potential customers and surely more potential customers means more revenue, right?

Actually, no. Our world today is about specialization. In most cases, people have a specific need. I need someone to tune up my BMW not just I want an auto mechanic. I need someone to come to the house to tune my piano not just I need a piano store. I need long-term disability insurance for my company of 43 employees not I need someone who sells every kind of insurance under the sun.

We get it when we are the consumer. We want someone who has a depth of knowledge so we can be confident that they will not only understand my need but they’ve met my specific need many times for customers who have gone before me. But when it comes to the selling side of our world, we somehow forget the value of this distinction and want to sell a little something to everyone.

Here’s why that’s a flawed premise:

Your most profitable sale is the repeat sale: You know the least profitable of all sales is the first one. The sales cycle is longer. The concessions are often greater and the risk of a client mismatch or dissatisfaction is greater. But when you delight someone and meet their need to such a degree that they buy again – there’s hardly any sales cycle, they are happy to pay your price because they’ve already seen the value and they know they’re going to be happy.

You don’t need that many: I think one of the reasons businesses take the generalist route is because they haven’t done the math. If you could secure new customers that were going to be repeat buyers and great referral sources – how many do you really need? The truth is, you can only handle so many new clients. So why not narrow your focus so you only secure the best possible new clients?  Why not focus on the one thing?

Generalists are commodities: If you sell everything to everyone, you become the dollar store of your industry. You have to be less expensive because you are a generalist and generalists have to compete with everyone out there. So it becomes a price issue. Is that really where you want to be?

It diminishes the experience for your team: Being pretty good at a lot of things does not feel the same as being incredible at a few things. Everyone wants to take pride in their work. Everyone wants to be perceived as being best in class. Everyone wants to be appreciated for adding incredible value. With today’s shrinking workforce – you want to offer your team the luxury of being a rock star, not a garage band so that you can attract and retain the best talent out there.

Part of your work in defining your company’s values, mission and vision should be focused on the question “where can we truly over deliver that will add tremendous value to our clients?” Odds are the answer will not be everywhere. What is our one thing? Define the playing field where you have the shot at winning almost every game and refuse to play anywhere else. That sort of discipline is difficult but the short and long-term rewards are worth the effort.

Don’t try to be everything to everyone. Be indispensable to a few who will help you attract more just like them.

 

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What’s your mission?

October 4, 2017

MissionLast week we explored how critical it is for a business to have a clear idea of who they are and what they’re all about –  mission, vision and values. My worry is that few owners have ever taken the time to actually articulate what their business is all about or made the effort to weave it into the fabric of the company.

Hopefully you invested some time last week to really define your core values and are ready to dig into the mission and vision portion of defining your organization’s core.

Many people confuse mission and vision. Here’s how we define them.

Mission — what you do best every day

Vision – what the future is like because you do what you do best every day

No matter what you sell, from legal services to multi-million dollar medical devices – someone else sells what you sell. Yours might be a little better, a little faster or it might last a little longer but it’s got lots of decent competition. Our best clients don’t love us for what we sell but how or why we do it. That’s where our mission and vision come in.

Why would you invest the energy? First, we have to acknowledge that there are no bad customers. But there are definitely bad customers for us. Every dollar is not earned equally. We’ve all suffered from a wrong fit client. Because we’re not in alignment with them – it’s harder to make them happy. We end up investing a ton of time and energy trying to fit a square peg in a round hole. That hardly ever works. We expend an incredible amount of time, money and energy trying to meet their needs when the truth is – we weren’t the best fit for them.

That’s the beautiful thing about really understanding why your business exists and what matters most to you. That clarity will attract right fit customers to you and it will also repel the wrong ones.

Another big benefit of that clarity is that when you define your why, as Simon Sinek encouraged us to do in his book, Start With Why, it also helps you find employees who share those beliefs and will stand along side you as you delight your right fit customers.

So how do you figure out what your mission and vision are? The key to doing this well is not settling for a superficial answer. Remember that your mission statement is what you do best every day. This statement should be from your customer’s point of view.

Why do you work so hard? How are you changing your sliver of the world?

If you’re having trouble articulating what you do best, try this. You know that feeling you get every once in awhile when everything falls into place and deep in your soul you think — THIS is why I do what I do? Figure out what triggers that feeling and odds are it’s a pretty good clue to your organization’s mission.

Unlike the mission, the vision is from your company’s point of view. Why are you putting in the effort? What are you trying to accomplish? What will be true for your organization if you deliver on your mission every day?

The trick to doing this well is pushing past the expected. If most of your competitors could claim your mission or vision – you haven’t dug deep enough. It needs to be uniquely yours, so keep pushing until you get to that level.

When you do this well, it’s evergreen. Just like our personal values and purpose rarely change – the same should be true of your company’s mission, vision and values.

Invest the time to do this well and then reap the benefits of knowing exactly who you are and who you are not.

 

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Mission, vision and values

September 27, 2017

mission, vision, valuesIt’s vital to every business that they have a clear idea of who they are and what they’re all about. Few owners have taken the time to distill it down or made the effort to weave it into the fabric of the company. What do the mission, vision and values for your business look like?

Many people confuse mission and vision. Here’s how we define them.

Mission — what you do best every day

Vision – what the future is like because you do what you do best every day

And the values that your company are built on is what influences your mission and vision. Each of these is critical. If you believe you’ve already sorted these out for your organization– revisit them to make sure they’re still on target and meet the following criteria:

  • Are your mission and vision statements a single sentence?
  • Are your values short enough that everyone on your team could memorize and recite them?
  • Are all three components written in common, easy to understand language?
  • Are they unique to you? Could any other business claim the exact same set?
  • Are they all from the client’s/an outside perspective? Remember this is how you want others to see you.

This kind of work looks simple enough, but the truth is, it’s incredibly difficult to dig deep enough to get to answers that fit all of the criteria.

If you’ve never developed a mission, vision or defined your company’s values, it’s long overdue. Let’s start with your values.

Go someplace that inspires you to clear your head and really do some deeper thinking. For some, this will be a quiet place like sitting by a lake or in an art gallery. For others, it will be putting on some headphones in a coffee shop and immersing yourself in the energy. Hopefully you know what kind of an environment triggers your best thinking.

Most people find it’s easiest to tackle the values first. Make a list of all of the values that you want your company to have. At this stage, don’t edit or censor. Just brainstorm the list and capture every thought.

Now, pick the 5-6 that are most important to you. These are the values you are not willing to compromise on, for love or money. These should not be aspirational. These need to be foundational to your business – you should already be using them as a guide, whether you’ve articulated them before or not.

The finalists should get a yes answer to the following questions (borrowed from Jim Collins in Good to Great):

  • If you were to start a new business, would you build it around this core value regardless of the industry?
  • Would you want your company to continue to stand for this core value 100 years into the future?
  • Would you want your business to hold this core value, even if at some point in time it became a competitive disadvantage?
  • Do you believe that those who do not share this core value—those who breach it consistently – do not belong in your organization?
  • Would you change jobs before giving up this core value?
  • If you awoke tomorrow with more than enough money to retire comfortably for the rest of your life, would you continue to apply this core value to your productive activities?

Rank them in terms of importance. Why does this matter? Because sometimes values are in conflict with one another and you need to know which ones trump the others.

Now, that you have the values defined, are you happy with the words you’ve chosen to communicate each one? This is your opportunity to wordsmith them. After you’ve done that – you’re done with step one. Next week we’ll dig into your mission.

 

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Get Ready for Hibernation

December 7, 2016

Hibernation

You may not realize it but you’re starting to feel very sleepy. In a couple weeks, you’ll be in full “business hibernation” mode. Everything comes to a screeching halt as you go from full steam ahead to a sleepy stroll towards the New Year.

Even if you want to keep going at breakneck speed, everyone around you is already yawning and shifting into a very lazy gear. Between the holiday shopping, parties, travel and those long weekends that seem to start on Wednesday – productivity is doomed.

Customers don’t want to start anything new. No one’s in the office to review any proposals or contracts and even if you have work in progress, tracking anyone down to give you an approval is almost impossible.

The New Year doesn’t snap everyone back to attention either. It’s usually the middle of the month before things get cooking again. We are slow to wake from our winter solstice slumber.

But, if we know the hibernation period is coming, is it possible we could actually use it to our marketing advantage?

Here are some suggestions for some ways that you could enjoy the slow down but also feel like you’re planting some seeds for a strong new year.

Ponder and plan: You know you should already have your next year’s business plan done, right? You know why you don’t? Could it be because you haven’t had a free moment to think? Guess what – the hibernation season is the perfect time to dream, wonder and put at least a skeleton of a plan together.

If you’re looking for a system to turn your plans into accomplishments, check out the book Traction: Get a Grip on Your Business by Gino Wickman. I’m betting that you’ll have time to read it before the end of the year!

Reach out and connect: Think of a few people who are important to your business but you rarely slow down long enough to have an actual conversation. They might be a key vendor or a referral source. Make the time to invest in your connection. Grab coffee or a hot toddy and ask them how you can help their business in 2017. You’re going to like where the conversation goes.

Prune for future growth: Gardeners and arborists will tell you that pruning sparks new growth and I think there’s a lesson there for all of us. It’s time to trim. Trim your email lists, trim marketing tactics that just haven’t delivered the ROI and trim all the data that you’re buried under. This is a great time of year to get down to the essentials.

Spruce yourself up: You know that website that you keep meaning to update? Now’s the time! You need to freshen up your content, take down the bios of employees who’ve been gone for 10 months and give the whole site a fresh feel. Don’t forget to give the back end of the site some attention too. There are probably plugins, updates, and other technical aspects of the site that need your attention as well.

Build up the team: Everyone who works for you has been going all out for months too. Why not use the forced slow down to strengthen your team’s bond? Do something together that fosters team and holiday spirit. Adopt a family and go shopping for them together. Or work a shift ringing the bell for the Salvation Army or wrapping gifts for charity. Why not create a Toys for Tots drive among your employees, vendors, and customers? Let the holidays give you the perfect team building exercise.

Don’t get me wrong. I think you should enjoy the slow down. You’ve earned it. But, there’s no reason you can’t mix the holiday festivities with some business activities that will give the next twelve months a leg up.

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