Last week we talked about the basic math of making a business work and the 5 numbers you have to know to run and grow one. The math is critical, but it’s not enough. Yes, you can optimize a business from the numbers alone, but to see really stellar gains, you need to focus on where those numbers actually come from.
Consider this analogy. Olympic sprinters obviously know, and maybe even obsesses over, their times, but they can not reduce their time by looking at just their times. They have to look at the technique and training that go into making those times. Stride, breathing, race strategy, and the frequency, intensity, and timing of their training are factors likely to influence their performance.
I really have no idea what a runner should be looking at, but for business, there are three big factors that influence success – at least up 8 figures.
The first big factor (of three) is your “business model”. Loosely defined, this is what, or how much, you do to add value. For example, we talked about how to increase Gross Profit Margin (GPM) by changing from drop-shipping to manufacturing. The manufacturer takes raw materials and creates a product – that clearly adds value – and the drop-shipper finds customers and delivers products to them – that likewise adds value. When you do both, you now add more value than you did before. At the other end of the GPM spectrum is “affiliate marketing” which has the slimmest margins because it adds the least value.
In a future article, we’ll look at the related art of “business modeling” where we dive into how to find and quantify the value chains in your business. What we call business model is really just an approximating of what any one business does – most companies will end up being hybrids.
By combining models you can typically improve any company will only modest effort. Maybe you manufacture some items and drop ship or affiliate market related products – you don’t have to make everything yourself! This is a great way to test additional products to your market and then decide if you want to be the manufacturer or not. If is also a very low risk way to increase revenue while also building an even stronger bond with your customers.
Conversely, at some point you may be selling enough of a product via drop-shipping that you can afford to setup your own importing or manufacturing. We used that example in last week’s article and it’s a very common way to grow.
Now, lest your service companies are feeling left out of this discussion … a “white labeled” service is a lot like drop-shipping and passing a client to another company for a referral fee is really just affiliate marketing. All the different models work for services in much the same way they do for products.
As your business grows, you fill find yourself adding to, dropping, or entirely changing, the business model. This is normal and healthy – just go ahead and expect it now.
One thing all business models have in common is the need for marketing. This will vary widely from one company to the next, but is an overall multiplier for all companies, of all kinds. If you have to pick one single skill that is most important to success in business, it would have to be marketing.
That said, some business models depend more thoroughly on marketing than others. Affiliate marketing in particular – there’s almost nothing to do except marketing! By contrast, building a viable manufacturing company requires some additional skills to be sure, but you sill need to do highly targeted marketing to OEMs, wholesalers, channel partners, and the like or no one know one will be buying what you make.
Our focus will normally be online marketing, but you should not restrict yourself to just online. Outbound phone sales, print advertising, and direct mail may sound a bit “old school”, but it’s still how the very largest brands remain the very largest brands.
The lesson here is twofold.
First, consider every avenue. Different marketing media will attract different prospects. Being seen in more mediums also enhances your brand and ability to sell in all the others so in all cases your marketing should be diversified over multiple platforms and channels.
Second, if you are unhappy with the performance of your company – and who of us isn’t really? – take a hard look at your marketing. How do you stack up against your competition? How do you measure up against what you know you could, and therefore should, be doing?
Which segues nicely to my final topic …
The One Ring to Rule Them All
Businesses do not grow and run themselves – people do that – and the highest leverage component in any business is the management team. Until you pass $10 million, that means you. As the founder of your business, you are the primary source of the drive and inspiration that will make the company successful … or not. Your company will never grow larger than your own concept of not just the company, but of yourself as well. In helping small business owners for more than two decades, one of those entirely online, I’ve yet to see a business growth problem that I could not trace to a founder’s Mindset problem.
So yes, the Math matters; the Business Model matters; and your Marketing matters. But in the final analysis, what drives every one of these is Your Mindset. To change your business, the thing you must do first is to change your mind. How? Well, that’s an article (or 10!) for another day, but you likely already know many of your strengths, weaknesses, and the way you are actually holding your business back. Crazy right? But what part of starting a business would we ever call sane!
In the coming weeks, look for more Math, Modeling, Marketing, and Mindset to help you to understand and grow a successful business.