The Two Things Which Determine How Well Your Business Succeeds
It goes without saying that you need adequate cash flow, good marketing, and profitable products and services to succeed. But what determines the degree of your success? What determines how large your bottom line will be? What determines whether your profitability will merely allow you to get by, or whether your startup becomes a run-away success?
The answer, it seems to me, is shaped primarily by two factors. The first is the throughput capacity of your business. And the second is the usefulness and utility of what you produce.
If we refer to what you sell — whether services or products — as widgets, your throughput capacity sets the upper limit on how many widgets you can bring to market. Or to put it another way, the output of your business can never exceed what your throughput capacity allows.
For the sake of comparison, think of two garden hoses, one five-eighths of an inch in diameter, the other three-quarters of an inch in diameter. You can never get as much water from the first hose as you do from the second. The first hose is simply too restricted in its throughput capacity.
The Utility Factor
All things being equal, the more widgets that you bring to market, the more financially successful your business should be. But that's not necessarily the case. What if no one purchases your widgets? What if you maximize your throughput, only to have no buyers for your output?
For people to lay out money for your output, they have to see your widgets as useful enough that they will pay you a profitable price for them. In a word, potential customers have to see the "utility value" of what you produce.
Key Questions for a Startup
The planning and thinking that go into starting a business should therefore address these issues:
- How will I structure this business, and continue to restructure it as it grows, so that opportunities for financial success are never limited by our throughput capacity?
- How will I take maximum advantage of our throughput capacity at any given moment? That is, how will I minimize the amoung of throughput capacity that is going untapped?
- How will I stay abreast of what utility value my customers or clients want in the widgets that I produce?
- In light of changing customer preferences, how will I design the business so that it quickly adjusts the utility value that it delivers?
These questions are important for any business. But they are particularly relevant to micro-businesses. They are especially prone to hitting their maximum throughput capacity very early in their existence.
By "micro-business" I mean one in which the skills or expertise of the owner are the company's only revenue-generating product.
An example would be a law firm in which the owner is the only attorney. Or an accounting firm where the owner is the sole accountant. Other examples would be the encore entrepreneur who hangs out his or her shingle as a consultant or trainer, delivering these services personally, perhaps without even the help of an administrative assistant.
Clearly the maximum throughput capacity of businesses like this is limited to the number of hours that the owner can give to revenue-generating activity. Because of this total dependence on the owner's productivity, the business has an absolute cap on the amount of income that it can ever produce.
Expanding Throughput Capacity
Whatever the size of your startup, here are some strategies to use to expand its throughput capacity.
1. Look for time-saving efficiencies. Wherever you can save time, you are freeing up more time for generating revenue.
2. As an extension of being efficiency-minded, automate as many processes in your business as possible. Even where you cannot automate a process completely, design it in such a way that it requires as little intervention from you as possible.
3. Outsource as many functions as you can. Let someone else be responsible for things that would otherwise take your time away from producing revenue. Today almost every function in a business can be outsourced, and usually quite economically.
As with automation, outsourcing frees up more of your time for creating revenue. But outsourcing also has added benefits. It allows you to draw on external expertise for portions of your business in which your own competency is quite limited. And psychologically, outsourcing can boost your enthusiasm by taking off of your shoulders aspects of the business that are not stimulating for you and thus drag your spirits down.
4. Look for opportunities to deliver your products and services online rather than entirely in person.
5. Find ways to re-purpose and recycle intellectual property that you have already developed. This might include recording something you do repeatedly and substituting the recording for live presentation in the future.
- If you use a periodic webinar to attract new clients, record it and reuse the recording for future webinars.
- If you have a small retail business and you are regularly training new employees, make a video of one of these training sessions, then use the video to train future employees.
- If you have a blog or newsletter, take some of the content that has particular value to potential clients or customers and repackage the content in booklet form as a marketing tool. This may help you streamline the amount of time that you spend in marketing, as your booklet sells your expertise and capability to people considering your services.
These few examples are by no means an exhaustive list of ways to increase the throughput of your business. I offer them only to get you thinking in capacity-building terms. Be constantly be looking for ways to expand your throughput capacity. It's your revenue pipeline.
Now let's turn to the utility factor. No matter how large your throughput capacity is, no matter how much you maximize it, customers will only buy if your widgets pass the usefulness and utility test.
"Usefulness" here does not refer to the theoretical usefulness of your product or service, but instead its practical utility for would-be customers. Utility takes us into such considerations as these:
- Does what you produce directly address a pressing felt need on the part of potential customers?
- Does it address this need more effectively or more completely than the solutions offered by your competition?
- How readily can people gain access to what you offer? Can they access it more easily from your competitor?
- Is it easy for people to implement or learn to use what you provide them?
We could extend this list considerably. But I've mentioned enough examples that you see the gist of what I mean by "usefulness and utilty."
The danger to startups is that owners are often enamored with their product or service. They love it so much that they are absolutely convinced that other people will love it, too. I regularly see businesses go under, not because their product, marketing, or customer service were poor, but because there simply were not enough potential buyers who saw the utility of the product.
And take special note that several of the utility questions above have to do with how easily people can obtain and make use of what you offer. If you and your competition offer similar products at reasonably similar prices, in the mind of the customer the product with the greatest utility is the one easiest to obtain and use.
Don't Handicap Your Business
In conclusion let me offer an observation. Of all the startups that I've coached, I don't think I've ever seen a business plan in which the business spelled out its strategies for continually enlarging throughput capacity and for keeping the utility of its output at the highest possible level. But these endeavors are just as strategically important for a startup as are such traditional concerns as securing appropriate financing and developing an effective marketing program.
The success of a startup is always a challenge. We should never handicap the effort by settling for throughput capacity and utility that needlessly impair the company's chances of success. If capacity building and utility maintenance are not part of your present business approach, start giving these matters you attention today.
This article first appeared in Encore Entrepreneur inbox magazine on January 13, 2014.