I was driving along the highway a couple of days ago very early in the morning. Real early – as in still pitch black out early.
Suddenly a deer jumped out of the long grass at the side of the road and ran from right to left in front of me.
I veered to the right – trying to put my truck where the deer had been rather than where it was going to be.
And all you deer lovers out there will be very happy to learn that no deer were hurt in the making of this post. Yes – I managed to avoid hitting the deer, and it avoided hitting me.
So why am I telling you about this little incident?
I promise you it’s not to bore you with my deer–saving heroics.
I’m telling you this story because I want to compare my deer-miss to the way the majority of small business owners run their business on a daily basis.
You see, most small business owners fall into a rut of “just going along” day after day, hoping they get to the destination (read, financial results) they really want. It’s a lot like that “road hypnosis” you get when you are driving on a long trip and you kind of “zone out” (but, for the record, I’m a good driver – you know what I’m talking about – everyone has done this at some time when driving).
The problem is that when you get lulled into that sense of serenity and security you tend to let your guard down and forget to “scan the ditches”. Then when something unexpected pops up that you didn’t’ see coming, you are forced to react in panic mode.
In most such instances, you manage to avoid the threat through your fast thinking, just plain luck, or a combination of both. It’s usually a combination of both – just like my deer-saving heroics – I zagged and luckily the deer zigged. But if we both zagged – well all I can say is “deer me”).
But even though you have averted a crisis, there is still a legacy left by that incident. You are left with a fight or flight adrenaline hangover – that feeling of lingering stress and worry.
Now if there was only the odd unexpected event (like the odd time a deer jumps in front of my truck) that lingering feeling of stress and worry would dissipate and you would go back to your state of serenity and security.
But when it comes to your business, there isn’t just the “odd” thing jumping out at you, is there?
There are literally hundreds of things that could threaten your outcome (desirable financial results) jumping at you all day, every day, every week, every month.
That means you never really get to recover from those fight or flight feelings of stress and worry. You end up feeling those nagging feelings continually.
Instead of the state of serenity, security, and confidence you find yourself in a perpetual state of worry, doubt, and uncertainty.
You know the doubts that creep into your thoughts – Do you need to spend that money to advertise to get new customers?
Should you really hire that new employee?
What if something unexpected happens and you can’t afford to keep them on?
Can you afford to take that vacation?
What if an unexpected bill rears its ugly head and you are tight on cash because of it?
The list could be endless (but that would be a super-boring post, wouldn’t it?)
The result of this perpetual state of worry, doubt, and uncertainty is that you start burning through emotional and relationship capital at a furious rate.
You burn through emotional capital because it wears you down, and ultimately numbs you to all the good things on which you could focus. You end up a hollow shell of a business owner, zombie-like – just trying to hold on.
And you burn through relationship capital too. Because of the emotional toll your business takes on you, there are spillover effects into your key relationships – friends, family, yourself.
A Better Way…
What’s the alternative?
What’s the better way to run your business?
You should do the same thing I SHOULD HAVE been doing while driving. I should have been carefully scanning the ditches to be alert for any approaching threats – seeing situations develop before they truly became threats.
And that’s exactly what you need to do in your business to slay the damaging emotional damage that otherwise creeps in.
Then you will give yourself “time and space” – to see trouble (or potential trouble) developing before it becomes a major threat. And then you can decide how to react to those developing threats and make corrections or changes to avoid the situation from developing into a true threat.
The most common source of panic in most small businesses is unexpected financial results. These can be unexpected cash drains; poorer than expected revenue generation;, the departure of a key customer; or an aggressive move by a competitor (either existing or new to your market).
Give Yourself Time And Space
So how do you give yourself “time and space” in your business?
The best way to give yourself “time and space” and avoid the Panicked Reactive Mode (PRM) of running your business is to develop a small number of key performance indicators (KPI’s).
KPI’s are specific measures that will provide you with “advance notice” of the financial results your business is about to create.
They are your business equivalent of scanning the ditches while driving.
They let you see trouble way before it becomes trouble. And that means you earn yourself “time and space”. That will allow you to calmly analyze the situation and take the informed actions to correct the situation before it ever does major damage to your financial performance.
Developing KPI’s is often made out to be a difficult task in a lot of business literature. It doesn’t have to be that way, however.
Don’t Get Spooked – This Can Be Very Simple (but oh, so powerful)
So get spooked over the concept of creating a set of KPI’s for yourself.
Just follow these simple steps, based on the approach I use to help business owners identify their KPI’s.
Step One – Make a list of your “Crystal Ball” items
These are the things that, if you had a crystal ball for your business, you would absolutely want to know so you could predict the future financial performance for your business. For example, one thing you may want to know from your Crystal Ball is how many new customers you will be getting each month. Limit your list to a small number to force you to really drill into the key things you would need to know. A list of 3 – 5 Crystal Ball Items generally seems to work best.
Step Two – Identify the precursors for each Crystal Ball Item
The best way I can describe to identify such components is to think of identifying “Crystal Ball Items” for each Crystal Ball Item you identified in the first step. For example, if you wanted to know the how many new customers you would be getting (the Crystal Ball Item in the example from Step 1), you would want to know how many leads you would get each month. And you would also want to know how many of those leads became sales appointments, etc.
Step Three – Select one precursor from Step 2 for each of your Crystal Ball items
You have now identified your initial KPI’s for your business. It wasn’t rocket science, and it was kind of fun (admit it, damnit). When selecting your KPI’s it is best if you can select the precursor that is earliest in the process. Back to our example, selecting number of leads as an initial KPI would prove better than selecting the number of sales appointments (you can always add that one later once you get used to running your business using KPI’s).
Step Four – Measure your current baseline for each of your new KPI’s
This will give you a benchmark against which you can measure changes in your KPI so you can work toward improving it, and also identify negative trends before they become problems.
Step Five – Report and track your KPI’s over time
This is how you will be able to track improvements and move toward creating better financial results. And it is also how you will identify developing threats.
Not A Reason In The World
There isn’t any reason, in the world, for you to not try this. Go ahead and develop your set of 3 – 5 KPI’s. I promise you it can’t make your financial performance worse than it is now. And in all likelihood, it will give you drastically better control over your financial results, and drastically improved financial results too.
More control. Less stress. Improved financial results.
That’s what you can achieve by defining some KPI’s and using them in your business.
If you are still a little puzzled, or just need a kick in the behind to get you going on this, you can request a free half hour consultation with me by going to www.foundmoneymovement.com/consult
Every business has them.
Some businesses have a lot of them.
What are they?
Those small, nagging things that continue to bug and annoy you, your team, and your customers. At least until something is done about them.
Every business has faults. Lots of them. And that’s because every business is simply a set of systems and actions, being done by a group of people.
And anytime you have “people” doing “things”, you’re going to have areas of weakness. And these areas of weakness create huge opportunities to create massive results and improvements in your business.
These weakness are usually “small things”. But like a grain of sand inside an oyster, these small things chafe, rub, and irritate unless something is done about them.
An oyster creates a pearl around the sand, and turns the irritation into a gem.
With a little effort, you can do the same thing in your business.
By identifying where you want your business to go (it’s goals), and analyzing the people and their activities that move your business toward those goals, you can make some SMALL changes that create your own gems.
The problem many times is pinpointing what the “grains of sand” are in your business.
The easiest way to specifically identify them is being in tune to your feelings, and those of your team. Pay attention to things that your “gut” tells you just aren’t working as smoothly as they could.
Pay attention to those little frustrations that keep popping up. The chances are really good that they keep bothering you and your team because a “grain of sand” is causing irritation.
Ask your team members and customers to identify those things that annoy them.
If your business is like most other businesses, you will quickly uncover several irritations. They key is for you to get active trying to test different ways to eliminate them.
Don’t just “put up” with them. Acknowledge them, and start turning them into “pearls.”
By consistently looking for these irritations, and trying new ways to eliminate them, your business will very quickly produce some very valuable “pearls” from them.
A lot of business owners feel like they should make delighting their customers a top priority.
This belief seems to be driven by popular books that make you believe if you aren’t delighting your customers, then you are doomed to suffer business defeat at the hands of competitors. I’m certainly not against pleasing your customers. But the whole focus on delighting them has always bothered me.
Not that I don’t think delighting customers is bad thing. But making that your overall focus can be dangerous to your financial results. Delighting customers can easily become an excuse for not paying attention to overhead costs, costs of acquiring customers, their true profitability, cash flow, and ROI .
In other words, if you fall into this pattern of belief, it becomes WAY too easy for you to avoid making tough financial and business decisions. It becomes WAY to easy because you can tell yourself that they will take care of themselves – because you are working on delighting customers.
For example, imagine you have a customer who has made an unrealistic demand on your business. Following the doctrine of customer delight (I’ll abbreviate that by the acronym DOCD) you would pull out all the stops. You would work overtime (on top of your already long day), pay your staff to work overtime, incur expenses and efficiency losses as you juggle other clients and tasks to accommodate this customer.
And all this insane and inefficient effort would be done in the name of “delighting” the customer.
But here’s the problem with that.
Experience has shown that there is almost a 100% likelihood that the extra costs of trying to delight that customer will be absorbed by your business. They won’t be passed on to that particular customer – where they belong.
So I’ve always been against the rabid pursuit of “customer delight” . It just doesn’t produce better financial results.
Recently I came across an article in Harvard Business Review that tells about research findings that have revealed a flaw in trying to delight your customers. The research has shown that delighting customers simply has NO effect on their loyalty.
No effect on their loyalty!
Think about that.
You work like crazy to impress them – to try to “delight” them. By definition, you try to delight them in a way that YOU must define before you can give it to them. And you try to delight them in a way defined using YOUR biases and perceptions about what “delight” even means.
And then all that effort has ZERO effect on how likely they are to do business with you again.
So what DOES matter?
The research found was that was does have an impact on the loyalty of customers is…..
….. reducing their effort.
Reducing their effort!
Despite seeming insanely simple, THAT is what really matters when it comes to creating loyal (and profitable) customers.
So don’t worry about “delighting” your customers any more. It’s meaningless to your customer and it’s an artificial construct that exists only in your mind.
Instead, focus on making it easier and easier for your customers to reap the benefits of your products and services. That WILL delight them. But the delight is a result of reducing their effort. And their delight will be created in an effective way that will positively impact your financial results.
Look at the various interactions with customers that occur in your business. Look at the cycle of interaction between your customers, your team, and the various steps in the process of delivering your products and services to them.
Then look at all the ways you can reduce the effort required from your customers. Relentlessly focus on making it easier for them, and to continually reduce their effort. In many cases, making it easier for your customers will result in more streamlined processes that have the added bonus of reducing your costs.
So not only will you make your customers happier and more loyal, you will increase the gross profit of each transaction and make more money as a result.
Can it get any better than that?
Would you willingly give up 16 customers?
Depending on how many customers you have and which ones you are thinking about, your answer may be “yes”. But most small business owners answer with a clear “no”.
So imagine your business has an average sale of $250 with an average gross profit per transaction of $125 (50%).
Now if I asked you to give up 16 of your customers over the course of a year, would you? What about giving up 16 customers each month?
The answer business owners give is almost always a clear “no” when I ask them.
They quickly realize that doing that would involve them making either $2,000 less in a year (16 customers x average gross profit of $125), or even worse, $2,000 less each month. This assumes each of those customers buys from you only once a year, which is fine with where this post is going.
You’re probably thinking you wouldn’t part with those 16 customers either.
But what about a smaller number of customers. Say 4. Would you willingly give up 4 customers a month?
I know, I know. You still wouldn’t agree to it – you would have $500 less money each month ($6,000 less over the course of a year). Of course you wouldn’t willingly give up $500. It’s a no-brainer, right?
So what’s my point in all this?
My point is that you don’t have a problem dealing with this question because it is framed in a way that reflects how money is made in your business – in terms of customers, products, and services. In other words, when it comes to thinking about your customers and selling to them things are pretty clear, and decisions are fairly easy to make.
However, when it comes to making many other decisions in your business, all of which have financial implications, it be tougher. The reason is that most business decisions are framed in terms of dollars. That’s logical since it’s dollar that get spent or earned at the cash register. The problem, however, is that dollars are removed from the “down in trenches” perspective of customers, products, and services where most business owners are accustomed to dealing.
It’s kind of like taking driving lessons in a compact car – you become very comfortable with it’s size and how it reacts – but then going for your driving test and having to use a huge truck. It’s the same “principles” but it’s removed from what you got good at dealing with so you don’t feel nearly as comfortable, nor perform nearly as well.
For example, when a radio ad sales rep presents you with a slick presentation about how many times your business could be exposed to listeners, and how many listeners you could reach, it sounds great. And when that sales rep tells you that you can have that exposure for $2,000 per month, you feel yourself tempted to say yes. After all, you reason, $2,000 a month for that kind of exposure is bound to lead to more sales. Right?
The problem is that the sales rep is talking about your investment in dollars, and forcing you to make a dollar-based decision. The sales rep is making you take your road test in the big truck. You know the end result is “dollars” and that you will need to spend “dollars” if you decide to go ahead. But thinking “dollars” takes you just enough away from the core that you are temporarily blinded to the fact that “dollars” are created by the combination of customers and products and services.
To make great business decisions that will help move you toward creating the financial results you want for your Dream Lifestyle, you should strive to translate every financial decision into a basis that relates to where financial results are created – your customers and products and services.
For example, that radio ad offer for $2,000 per month will “cost” you the same as giving up 16 of your customers each month.
Remember how easy it was to say “no” when you asked if you would give up 16 customers each month?
You easily declined in that case because you could clearly identify what you were going to lose.
But spending $2,000 per month on the radio ad has the same cost as giving up 16 customers each month.
Taking that perspective, it’s obvious that the radio add needs to bring you 16 new customers each month, who spend the same amount as your average customer with the same average gross profit, just to be no worse off. If it brings in any less than 16 new customers in a month then the financial impact is exactly the same as simply giving up customers.
For example, if the radio ad brings in $3,000 worth of new sales each month and you earn the same gross profit as before (50%), you will have increased your total gross profit by $1,500. Compared to the $2,000 cost of the ad, you are $500 worse off every month.
And if you take that $500 and divide it by your average gross profit on each transaction of $125, then the effect is exactly the same as if you had just given away 4 customers each month.
The same 4 customers you REFUSED to give up at the start of this post.
So what’s the message here?
To give yourself the perspective you need to control and manage your financial results you need to have an effective decision frame. When it comes to money and dollars, translate them into meaningful measures like customers and products and services.
You will find financial decisions that used to be difficult to suddenly become much clearer and easier. You will have better clarity, and have better control over your financial results if you do.
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Every business loses customers. We all like to think we won’t; we all like to think our businesses are amazing enough—and provide enough value—that we won’t lose any customers.
But the reality is—EVERY business loses some.
Sometimes it’s our fault—maybe one of your processes or systems didn’t work and a customer didn’t get the service or value they should have.
Sometimes their needs simply weren’t a good fit with what your business provides (and in those cases, you probably didn’t do an adequate job qualifying them when they were still a prospect).
Sometimes their needs change and you just can’t adequately help them anymore.
And sometimes, who knows?
When it comes to improving the financial results you get from your business, however, one of your best sources of “new” customers is “old” customers who have left.
And these potential “new” customers have a major advantage over any other new customers you are trying to attract. You know who they are – you have all (or at least some) of their contact information so you can reach out to them. And you also know how much they used to purchase from you, what they used to purchase, and what they were like to deal with.
Having all that information makes it tempting, and potentially very profitable, to launch a customer reactivation campaign. But before you do, please wait.
Roll up your sleeves and do some analysis first.
If you don’t, you may just find that, like in vampire movies, you have invited a monster inside. And once they have been invited in, they will suck the life out of you.
What Kind of Analysis?
The first type of analysis is to list your inactive customers along with the amount of business they did with you before they left. Inactive customers often become inactive over a period of time by slowly purchasing less and less from you. That means you should look at how much business they did with you each year for the last two or three years before they became inactive.
That way, you can identify their true potential. For example, an inactive customer may have purchased $1,000 of your products and services in the last year before they became inactive. But they may have routinely purchased $5,000 each year prior to that.
A customer like this would be a better reactivation target than one who spent $1,500 with you in the year before they became inactive, but that is all they ever spent with you in any one year.
By only looking at how much they purchased in the last year before becoming inactive, you would probably pick the $1,500 customer instead of the $1,000 customer. But it’s the $1,000 customer who has the most potential to you.
What you are looking for is the potential gain in revenue (and gross profit) from reactivating a customer.
Another thing you should analyze is how much of an investment each inactive customer required from you. For example, a customer who routinely purchased $3,000 of products and services before they became inactive may seem like a good reactivation target.
However, if they were slow to pay and therefore forced you to tie up capital, they may not be as good of a reactivation target as you first thought (remember, it’s not just gross profit that counts – return on investment, and cash flow each factor into how much money a customer makes for you).
Doing this type of analysis is an important step in planning your reactivation campaign. The worst thing you can do is “win” back a bunch of inactive customers who will cause you to tie up excess capital, or that don’t have much upside potential for gross profit.
Not doing a proper analysis can actually cause your reactivation campaign to cost you money rather than improve your financial results. And to make it even worse, you have caused the worse results because YOU asked them to come back.
Getting old customers back is often surprisingly easy. You just need to ask.
But before you do ask them to come back, make sure you aren’t inviting people who will cause you repeat problems, not help you improve your financial results, or even worse, make you worse off than before.
Remember, reactivating customers can be like a vampire movie. If you’re not careful, you may just invite the “undead” inside. And once you do they will sink their fangs into you and suck the life from your business.
So do some analysis first, and then reactivate customers. Only then can you be confident that you will actually improve your financial results and move your business toward serving your Dream Lifestyle.
I was driving along the freeway this morning, off to see a client. It was quite cool this morning with bright sunshine starting to warm the day up.
At one point along my route, the freeway started to dip down into a steep valley, across a bridge, and up the other side.
As I approached the drop, there was bright sunshine on top, thick fog obscuring the bridge below, and bright sunshine on the other side of the valley where I could see the road climbing up out of the fog. It was an absolutely beautiful sight that literally took my breath away. I wasn’t worried that I couldn’t see the bridge and road down in the fog. I know where the road was going and that it would lead me out of the fog when I got into it.
When I got down into the valley the thick fog obscured my view of the landscape around me, and ahead of me. I couldn’t see much, but I could see enough of the road ahead to continue driving. I wasn’t, for a moment, worried about where I was going – even though my view was limited by the thick fog. I knew where the road I was on was leading me to where I wanted to go. That meant I didn’t have to worry, and I could relax and focus on the road, knowing it would soon lead me out of the fog and up into the bright sunshine again.
At that moment I thought of how similar that experience was with running a small business.
Many times, you see “fog” coming up in your business. And many times you find yourself stuck in the middle of the “fog” unable to see much in front, behind, or beside the spot you are in at that moment.
Often those times can make you feel anxious, scared, and nervous.
But if you have a clear road laid out, then it doesn’t matter if you find yourself inside a “fog” in your business. Because you can still relax and focus on following the road that you have laid out for yourself – knowing that you will get where you want to just by continuing to follow the portion of the road you can see ahead.
If you haven’t laid out a clear road for yourself, however, getting into a “fog” can cause you to miss where you want to go, or even worse, cause you to have a wreck.
Do you have a road carefully planned for you and your business?
Have you taken the time to decide where you want to get to, and what route you will take?
If you have, fantastic. Enjoy the beauty of the “fog” whenever you encounter it in your business. Because you know you will soon be traveling out of it. Even if you can’t see your destination – you know the road will lead you where you want.
And if you haven’t mapped out the road to get you where you want, STOP!
Plan your road now. Then start driving.