What do the most successful companies in the world do to create wealth that we can learn from as owners of small to medium sized bestbusinesscommunity I want to share one big business wealth creation idea that applies to all of us, no matter the size of our business.
When I looked at the profit and loss statement, I was astounded by the fact that it showed $1.5 billion in operating costs (yes that’s billions). More concerning was the less than 5 percent return for the massive investment in creating the business.
As I stood there talking to the leaders of that company, I could see the stress in their faces and the tension in their bodies, I could hear the frustration in their voices and I sensed their desire to solve the problem they had been pondering for ages; how to generate the profits they knew the company was potentially capable of yet had failed to deliver on all these years.
It doesn’t matter whether you run a billion dollar company or one of the 1.95 million small businesses that exist in this country, you are continually challenged to grow your business and achieve levels of profitability that make your time in the business worthwhile. I’ve been working with leaders in billion dollar companies for the past decade. My role is to help them maximise the profitability of their companies through more effective business execution methods and systems. Not only do these big business leaders have similar challenges as owners of small business, I’ve noticed we all have similar desires around the outcomes we want to achieve.
We all want to: – Grow and succeed in our businesses; – Become financially independent; and – Do it in such a way we have lifestyle and get to enjoy our wealth.
The opportunity exists for all owners of small and medium sized business to learn the principles behind the success of big business, and adapt these to their own situation. There’s no doubt in my mind that Seth Godin got it right when he said ‘small is the new big’.
THERE’S ALWAYS BARRIERS TO CLIMB OVER First let’s take a moment to understand some of the most common barriers that prevents any business owner from experiencing the real wealth potential of their business.
1. Sheer Busyness
Sheer busyness creates a time compressed, reactive environment where the capacity for growth is virtually non existent. The true valuation potential of a business will never be fully realised while growth limitations persist at the individual and management levels
2. Reactive Psychology
Unconsciously people are driven to live a reactive life where they continually act in response to approaching deadlines. They take action to fix their health, wealth and relationships when they realise they are breaking down, inadvertently and unconsciously conditioning a reactive mindset.
3. Cost Focus Before Value Focus
The obvious fall back in tight financial times is to cut costs; the cost mindset undermines the idea of value-based investment (of time and money). Cost of time and cost of money become the primary decision criteria etched into the screens of our unconscious minds.
4. Retaining Existing Customers, Attracting the New
Globalisation brings with it increased market access, thus the ability to attract and retain customers has been hampered by increasing competition in all of our marketplaces The squeeze on our customers own revenue streams and resulting survival focus drives risk averse behaviour on their part
CATCH THE WAVE BEFORE IT PASSES BY
Like the most successful companies today, we all need to recognise and work with the inter-dependence of people, strategy, process and business value creation. The question remains, how do we do that? How do we utilise this inter-dependence in such a way we are moving positively towards the level of wealth we desire?
A paradigm shift is taking place in the business world right now. There is growing recognition in the big end of town that far greater wealth can be created by following a simple four-step strategy, a strategy that we can map across to our own small businesses.
STEP 1 – Unleash the Potential of People FIRST
As Richard Branson says, “people are the lifeblood of any company”. Help them learn how to become more effective [not efficient] in achieving outcomes and how to take control of every aspect of their personal and professional lives as a foundation to business execution. The strength of any business is the collective strength of its people, conversely, the limitations of a business are the limitations of its people.
STEP 2 – Define and Execute Your Strategy and Business Plan
Be very clear about how you will compete in your chosen market, what your financial targets are, what objectives must be met in order to achieve those targets, and how you will turn those objectives into key focal points that drive daily actions. With the right culture in place and a workforce of inspired and incredibly effective people, execution is a snap…. provided you actually have a system of execution. Remember this – a plan without a clear system to execute it is no plan at all.
STEP 3 – Maximise Cash Flow
You may have heard this said before – cash is king. There’s no doubt about it, cash flow is everything in keeping a business alive. The six major outcomes that contribute to cash flow are these – retain existing customers for repeat business, attract new customers, minimise cost per unit to deliver [a service or product], deliver with speed, deliver quality and create the next generation of products or services.
The way you go about achieving these outcomes will be defined by five functional level strategies that make up your business plan – marketing and sales, operations, finance, human resources, and research and development.
The major mistake made by many owners of small business is to rely wholly and solely on a marketing and sales strategy, and neglect to think about the rest. While marketing and sales is the vehicle that drives customer transactions, overall business success requires that it is works in conjunction with the other four functional strategies.
STEP 4 – Create Business Value
Now we get to the business end. When it comes to the crunch, your financial worth will not be determined by cash flow. Though it is clearly a major element in business success, you can be successful but not wealthy, you can have cash flow but no cash. As all billionaire investors know, your financial worth will be based on the value of the assets you possess.
A key determinant in positively valuing your business as an asset is its reportable earnings. Do not fall into the trap of not reporting earnings. With a few notable exceptions, a business with no positive earnings has no value.
Conclusion
Let me leave you with one question to ponder. Are you sufficiently inspired to do what it takes and make a shift in your thinking? As I say to our clients, an evolution in results is always preceded by a revolution in thinking; the challenging part is allowing that revolution to take place in our own minds.
