The Secret Ingredient to Business Success
Last month was my 20th anniversary as a business consultant with the Florida SBDC at USF. During that time I have provided approximately 18,000 hours of business consulting to almost 5,000 Tampa Bay area business owners. So what have I learned? Is there a secret ingredient to business success? I have wondered about that question during my entire career. Now, I have come to believe that there is such a secret ingredient.
As a business consultant in order to help business owners become more successful, I am trained to primarily look at the following areas:
- Industry Trends and Competitive Environment
- Target Market’s Customer Profile, their Buying Patterns, their Location , and Size of the Target Market
- Features, Benefits, and Uniqueness of the Products/Services
- Marketing Strategies and Tactics of the Business
- Financial Potential to generate Sales, Profits, and Cash Flow
- Management Team’s Experience
Frequently, I look at these six areas in-depth in an attempt to determine where improvements can be made. Now, I realize that this is an incomplete list. It is missing the one item that can be found in most long-term successful businesses. This came to me while reflecting upon the success and failure of two long-term clients and how each acted in similar circumstances.
Each client had substantial sales growth in the past and obtained sales in excess of $3M per year. Each of the clients was in the Business Services sector with their major expense being payroll. Yet, each had struggled in achieving profitability.
At the time each of the clients came to the Florida SBDC at USF, each of them was losing more than $200,000 per year. After reviewing and analyzing the six areas above for their business, I was able to provide them with recommendations for improving the profitability and sales growth of their businesses. These recommendations centered on the following areas:
- Understanding and Reviewing Financial Performance Measures
- Gross Profit Margin
- Operating Expenses
- Payroll Efficiency
In each case, within six months the results were almost identical. Each of these businesses went from losing $20,000 per month to making a profit of more than $20,000 per month. So the future looked bright for both of them.
Not having heard from them in some time, I recently requested that each of them send me their 2014 financial statements for review and analysis, which they did. To my surprise, the sales of each had fallen by approximately $1M dollars due to the business losing a major account. Yet, one of these companies was still making a profit of $15,000 per month, while the other one was now again losing $20,000 per month. Because each reacted differently to their financial crisis, each obtained different results.
In the business which maintained its profitability, the business owner immediately recognized the potential financial damage to the business caused by the loss of a major account. So the owner acted swiftly. He increased the company’s marketing efforts to its existing customers and qualified prospects. He focused the business on improvement of its gross profit margin while controlling its operating expenses and adjusted his payroll to efficiently meet the new sales volume of the business. So the future continues to look good for this successful business.
In the business which became unprofitable, the business owner hoped things would improve, but they didn’t. The business was no longer fun for the owner so he became disinterested and even tried to sell the business. However, there were no buyers wanting to buy a failing company. Once he ran out of cash, he laid off 10 employees. However, this meant he could no longer service his remaining customers. So he hired five new employees to replace some of those who were let go. He ended up paying those five new people more money than he was paying the 10 he had fired. The future appears bleak unless the owner makes substantial improvement to how he runs his business.
In the now unprofitable company, the owner returned to his old habits in running his business in spite of those habits having created the business situation, which caused him to come to the Florida SBDC at USF in the first place. He had not learned anything from the initial consulting.
In the profitable business, the owner learned from his initial experience with us and was able to apply those same techniques to his new business situation. So the business remains a financially successful company.
As illustrated in the stories of these two clients, I believe the secret ingredient to business success is you, the business owner. You want to improve your business? You need to constantly improve yourself. You must constantly learn, be focused, and know when and how to react to changing business situations. You want your business to be more successful? You must grow as a business owner. I believe that you are either growing as a businessperson or your business is dying. There is no in-between.