I talk a lot with business owners about their business model.

A business model is simply the true underlying structure that drives the financial results for any business.

It’s kind of like the engine room and infrastructure on a cruise ship.  The things that go on “behind the scenes” create the end result for that ship – amenities, luxurious surroundings, great food, attentive service (or not), and many other things just like that.

The same goes on in your business.  Behind the scenes, there are key activities, products, services, customers, and team members that all combine to create the “outward appearance” that you, as the owner, see.  Specifically, those things create the financial results you see manifested in your business.

That may intuitively make sense to you.

The problem is that, almost without exception, I have found that business owners are mistaken about their true business model.

Mistaken?

Yep.

Almost every business owner I have ever met has an incorrect perspective of what their business needs to do to create the financial result they want – they simply are EXACTLY sure what SPECIFIC things the need to do, when they need to do them, and how often they need to be done in order to create their desired financial result.

Even worse, many business owners THINK they do know their business model.  And that sets them up for disappointment, sub-optimal financial results, and quite often outright failure.  This situation is like trying to navigate South America while using a map of Canada.  It doesn’t matter how hard you try, or how many “good” decisions you make based on that map – if the map is wrong you will still suffer frustration, hardship, and failure.

Are you using the right map?

Are you sure?

If you aren’t sure, and aren’t afraid to admit, shoot me an email

I love talking to business owners and I’m looking for a few business owners who are willing to look inward and discover their true business model.

Imagine yourself driving along a picturesque highway on a sunny fall afternoon.  You spy an absolutely beautiful fruit orchard.  Its trees spread out before you almost as far as you can see.  You are so stricken by the beautiful sight, you quickly stop your car and go into the orchard.

As you walk into the beautiful surroundings, you notice something doesn’t seem quite right.  Although you’re not a fruit farmer, you can’t help but thinking there seems to be a whole lot of fruit that seems very ripe on the trees.  But there are no workers around picking fruit.  In fact, you can see where ripe fruit has started to fall to the ground and go to waste.

You keep walking, and finally you hear the sounds of workers and equipment working.  You follow the sound over the next hill and are amazed by what you see.

There must be several dozen workers and several different types of machines all working at a feverish pitch.

But all the workers and equipment are working in the dirt.  They scurry around the orchard, digging in the earth, and using the equipment to move dirt and dig holes.

You wonder why on earth all this activity is being focused on putting stuff into the ground.  After all, there’s all that fruit ready to be harvested further up the orchard.

It’s too much for you to take so you walk over to the man that’s obviously in charge (the owner of the orchard you find out), and ask him what he and his workers are doing.

“Can’t you see?” the orchard owner asks in a hurried tone.

“We’re really busy trying to plant these new trees.  Trees take several years to grow before they put out fruit, so we’ve really got to get going.  I don’t have any more time to talk with you now.  Good day.”

“How can this owner of the orchard be so blind?” you ask yourself.  He’s got all those wonderful trees with all sorts of fruit just ripe for the picking.  You wonder to yourself about how much effort, and how many resources he’s wasting by refusing to take advantage of his obvious assets.

Does the orchard owner sound familiar to you?  Sound like anyone you might know?

Does he sound a little bit like, maybe, ummmm, you?

It’s a fact that most businesses have a tremendous “orchard” already established.  There are many customers who have purchased in the past.  And those same customers would very likely purchase again if given the chance, and a bit of a nudge.

But the paradox is that many business owners instead spend an awful lot of time and energy trying to “plant more trees” in an effort to get more fruit (clients).  And they spend much less time and effort simply “picking” the fruit that’s already ripe (going to back to customers they already have).

That’s a lot like walking by the apple trees in the orchard, picking only the largest apples that happen to be ready for picking on any particular day.  And then never returning to those same trees again later to pick the apples that have subsequently become ready to be picked.

So stop ignoring your “apples” in favour of trees.

Put your creativity to the test.  Try to come up with at least one different thing you can offer your customers each month.  Plan a marketing campaign to “harvest the fruit” in this way.

Your profits will make some tremendous leaps forward.

And you will find yourself needing to spend less time “planting new trees”.  Instead you will find yourself simply harvesting more apples.

Go ahead.

Continuing to grow trees is important.  But don’t forget to pick the fruit that’s in front of you, ready to pick, too.

I need more customers!

So goes the battle cry I hear almost every day when I talk with business owners. Almost every single small business owner I’ve ever spoken with has said some variation of this.

And no matter how often I hear it, I just help but be bitterly disappointed.

Why?

Because in many situations a single-minded focus on getting more customers can be the absolute WORST thing that can be done. It can cause financial results to deteriorate – or even result in the outfight destruction of your business.

Now let me just say that I’m all for quickly growing a business to the point where it serves your Dream Lifestyle. But it is absolutely critical that you have your business model nailed down so your business creates money instead of consuming it.

Most small business owners (and you are most likely squarely in the middle of this camp) sincerely believe that the key to creating better financial results and growing their business is to get more customers.

The truth is that more customers DO NOT create better financial results. Getting more customers can be part of how better financial results are created (but often you don’t even need to do that). But simply getting more customers IS NOT the solution.

What counts is getting the right customers.

Once you have the “right” customer clearly defined for your business, THEN you can go out and get more customers that match the characteristics of your “right” customer.

So how do you know who a “right” customer is for your business?

There are three elements you should look at for each of your customers in order to determine which ones are the “right” ones on which to focus your efforts at improving your financial results.

1. How much they have purchased from you since they first became a customer;
2. Which of your products and services they have purchased from you (customers who have purchased more of your total “basket” of products and services are generally better customers from a profitability point of view); and
3. How frequently each customer patronizes your business.

Once you have analyzed your customers this way you will see patterns emerge.

What you are looking for are the group of customers that have spent a lot of money with you, purchased a relatively large proportion of your total basket of goods and services, and buys from you often.

Take a close look at this group of customers and try to determine specific characteristics that are shared amongst them (or a good number of them). For example, you may find that a large proportion of this group are customers who all come to you via a specific lead source, such as referrals.

Now you can step back and plan your growth based on better customers, not just more customers.

The subject of pricing is always an interesting one for small business owners.  There seems to be literally millions of pieces of advice about pricing tactics and strategies – just do a Google search and you will quickly feel overwhelmed.

But I like to simplify pricing by thinking of there being only three approaches to it.

Price Taker

This approach is simply one of  “pricing emulation” – you base your prices on what your competitors and your market are charging, and what customers have come to expect.  This approach, while very easy to apply, is such a weak form of managing your pricing that it should be made illegal.

This approach makes you a helpless participant in a business destined to suffer mediocre financial results.  And you will NEVER be able to truly get control of the financial results your business creates for you.

In other words, despite being an easy pricing approach; and despite being the most common pricing approach – DON’T DO IT!

Price Dictator

This approach is the exact opposite of the Price Taker.

In this approach, you set your prices where you think they should be and simply force them down your market’s throat.

This approach CAN be financially rewarding.

But it has it’s share of problems too.

The Price Dictator approach can lead to customer resentment because they feel you are charging too much, or are charging an unwarranted amount.

Price Dictators often do very well financially for a period of time, and then find their business under attack from another, more agile and smarter pricing competitor.

And that more agile and smarter competitor is the…

The Value Trader

This is the most effective pricing approach for any small business.  It’s also the one that requires the most effort, and the most thought.

Which is also why this pricing approach is the least frequently used among small business owners.

In this approach, you carefully analyze the value your products and services deliver to your customers – from their perspective.

For example, if you sell personal training services, part of the value you bring to your clients IS NOT feeling better.  That is a result you deliver, but that’s not where the value is from your client’s point of view.

Rather, one of the values you provide is the ability to play “horsey” with the kids and not get a sore back, and feel exhausted after a few moments. In other words, you are providing improved relationships with a client’s children and more fun to their leisure time.

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?

Deer-Saving Heroics

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”).

Adrenaline Hangover

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.

Nagging Doubts

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?

Good question.

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