The financial author, coach, and speaker offers invaluable advice to small business owners looking to expand.
What are some common mistakes small business owners make when growing their business, and how do you avoid them?
One of the biggest mistakes small business owners make in scaling their business is falling in love with their product or products more than their customers and their needs. The truth is that real business growth begins when your customers start talking about you and your small business. To get there, you and your team need to ask an important series of questions that include, “How do we enrich the lives of our customers?”
Have you ever seen a business that has inferior quality products or services and yet dominates the market? It’s because the business knows who its customers are, what they want and need, and how to tell the business story in a way that compels prospective customers to buy. Really successful businesses that sustainably grow over time get inside the minds of their customers. They sit and listen to them over coffee about what’s happening and what matters to them now, not two years ago. You must understand, anticipate, and consistently fulfill the deepest needs of your customers. The more value you are able to add to your customer, the more your small business will grow and dominate the marketplace.
Another common mistake small business owners make is that they begin to grow, but they have not effectively mapped out where they want and need to go next to sustain their success. Every small business needs to have a business map, not just a plan to take their small businesses to the next level. A business map will help you master vital stages of the business cycle, like scaling. Explosive growth can be tempting, but not scaling in a mindful manner is one of the biggest reasons why businesses fail – you have to strike the right balance between growth and what infrastructure your business needs to sustain the growth.
A third common mistake small business owners make is understanding the difference between growing a small business and growing a profitable small business. Money coming into a small business is not profit, it is just revenue. Before the money hits your bank account, you’ll have to cover business costs such as payroll, taxes, supplies, and other expenses. What’s left is your profit margin – the magic number that determines whether you’ll stay in business, experience explosive growth, or be forced to close your doors. To become a profitable growth business, you need to understand financial statements and basic financial terms. You can’t fly a plane without knowing how to read the gauges; the same applies to business. It is important to learn how to read a balance sheet, income statement, and cash flow statement. With this vital knowledge, you can participate in conversations about how to best make a profit.
How can small business owners leverage their strengths and unique selling points to stand out in a competitive market?
Why is Starbucks so successful? Its operators recognize they’re not in the business of coffee — they’re in the business of bringing people together. Like Starbucks, to really stand out from the crowd as a small business, you need to ask yourself, “What business am I really in?”
Also, be prepared to ask and honestly answer this key question: “What do customers get from me, and what do they get from my competitors?”This is the essence of the customer experience, and it’s what differentiates your business. The better you are at shaping that experience, the greater your reach — and your profits.
Part of this effort is to make sure that you tailor your products and services to the needs of your customers, not the other way around. Your product development, marketing/customer outreach, and business branding should all be aligned with customer needs at the forefront.
To stand out in a competitive market, make sure that as a small business, you are:
- Delivering your customers more than you promise. Surprise and delight your customers with added value, and they will reciprocate in kind, sharing stories of your terrific service with their friends and contacts — who are then primed to become your next customers.
- Moving your customers to a better place. Empower your staff to take the initiative and make the on-the-spot decisions that inspire lifetime loyalty. You have to create a structure and a system that allows everyone in your organization to consistently meet your customers’ needs.
- Rewarding your best customers. Remember, the most expensive thing you can do as a business is to acquire a new customer. For most businesses, this takes up most of your time, energy, and money, and it is one of the hardest things you do. Therefore, the easiest way to make additional money is to better serve the customers you have continually.
- Asking your customers constantly what they want and need. Your business must continue to evolve to effectively meet your customers’ needs. Ask your customers what the biggest challenge is that they are facing. Why is it important that they find a solution? Then, figure out how to help them in ways that they can’t help but rave about to others.
What advice do you have for small business owners trying to expand their customer base and reach new markets?
Small business owners who want to expand their market share and reach new markets of potential customers need to have an effective business map that provides them with a clear route to the growth success they envision.
A business map designed to take you from where you are to where you want to be in the shortest amount of time requires small business owners to take a more holistic approach than required in the development of a mere business plan. A business map ensures that the big picture of your company is always front and center. It not only helps with your company’s long-term goals, but it also helps you and your team keep the business vision in sight on a day-to-day basis. You don’t just use your business map during the growth phases of your business – you use it for the life of your business.
As I detail in depth during Business Mastery, a powerful 5-day experience developed to improve the business skills of entrepreneurs, developing a business map for growth and success will allow you and your team to have more certainty about what your business needs to grow now and what needs to happen to better steer your organization in accordance with that vision. Most importantly, you’ll understand what business you need to be in to become the dominant force in your market.
As part of this process, you can explore pursuing a number of strategies to drive the growth you envision. These include:
- A Market Penetration: Focus on your current product or offering and growing its use within your current market. Because you’re not developing new products or entering new markets, this is the lowest-risk strategy.
- A Market Expansion Strategy: Take one of your current products or offerings into a new market. Businesses often do this when growth opportunities in the current market are limited. Market expansion is eventually required for most businesses – if you don’t find new markets, revenue will always be limited.
- A Product Development Strategy: Focus your business resources on improving current products. This growth strategy is a part of constant and strategic innovation and provides more value than anyone else. Businesses must find new ways to fulfill customer needs and develop better, faster, cheaper technology – or get left behind. You have to always be strategically innovating. You must be constantly looking for ways to create something more, new, or better than what currently exists. Consumers are no longer impressed with any one new feature or service for very long — they expect a constant evolution of improvement, or they will go elsewhere.
- A Diversification Strategy: Expand your business product offerings by creating an entirely new product – a dog food company starting to make leashes or a paper company making printers. When the markets are related, it’s called horizontal diversification. If the markets are not related – like an auto manufacturer getting into the telecoms industry – it’s called conglomerate diversification. Of the four market growth strategies this is the riskiest.
In your book, The Holy Grail of Investing, you discuss the concept of compounding as a key strategy for long-term financial success. Can you explain how this works and why it’s so powerful?
We all have a tendency to want the biggest and best results as fast as possible, rather than focusing on small, incremental changes that compound over time. The best way to win the game of wealth-building is to achieve sustainable long-term returns.
Compounding is perhaps the most powerful tool in your investment arsenal. Albert Einstein once called compound interest the most important invention in all of human history. Said Einstein, “Compound interest is the eighth wonder of the world. Who understands it earns it, and who doesn’t, pays it.”
The power of compounding happens when you earn on both your principal savings and the interest you’ve accumulated on those savings so far over a period of time. Every time you earn interest, it’s reinvested back into your account along with your initial principal.
In other words, compound interest is interest on interest. It occurs when you reinvest interest rather than take it as a payout. This means that interest in the next period is earned not only on the principal sum but also on any interest that was previously accumulated. The amount you earn is based on how much money you have invested, the percentage of interest that is paid on that amount and on the compounding frequency or number of times per year interest is paid out. Compounding frequency could be yearly, half-yearly, quarterly, monthly, weekly, daily, or continuous. The more frequently interest is compounded, the more interest you will earn.
Let’s say you put $100 initial investment into a money market account that pays out 5% a month and you hold it there for three years, you will have $116.15 after 36 months. Your initial $100 investment grew by 16% in compounded interest over that 36-month period.
However, let’s say you invested that same $100, and you also put away an extra $10 a week into that same money market fund paying out 5% a month, you would have $1,666.28 after 36 months. You contributed only $1,540 in total over the three but because the amount in your base amount in your account grew by $40 new dollars plus 5% in compounded interest each month, you made an extra $126.28 – more than your initial $100 investment by more than 26%.
The power of compound interest means that you’re earning interest on the total amount, or “interest on interest.” When that total amount grows each month or year, this makes your investment grow more quickly, especially when you put away a bit extra each month. It gives you an insurmountable edge by allowing you to continue building your net worth for life.
However, never forget that true financial freedom isn’t really about a number in a bank account, but empowering yourself by developing money mastery and an abundance mindset that is ingrained into your everyday life. The right road to building wealth is paved first with financial literacy.
Do you have any other helpful advice for small business owners looking to grow their businesses?
Over more than four decades, I have built and been involved in building dozens of growth businesses. Nearly every one of them started as an entrepreneurial small business. What I have learned and shared with business leaders looking to become masters is there are seven forces of business mastery that all successful business leaders I know learn first. Mastering how to manage these seven areas helps create a framework and system that improves your business by empowering business operators with the skills and tactics required to gain an invincible advantage in any environment. They are:
- Developing an effective business map
- Constantly strategically innovating
- Becoming a world-class marketer
- Mastering sales systems
- Mastering financial and legal analysis
- Optimizing core processes the business is already doing
- Creating raving fan customers
To succeed at mastering No. 7, you must continue to focus on creating, not competing. What do I mean by this? While many companies mistakenly equate technology innovation with value innovation and then later scratch their heads when the latest technology and all their social media channels fail to pull in customers, many also get sidetracked from achieving the success they want by an obsession with the competition. As they focus on benchmarking the competition and striving to beat competitors, they unknowingly let the competition, not the customer, set their strategic growth agenda. A downside of this is that it only drives potentially disruptive imitation to do what competitors are doing better, not non-disruptive creative innovation that positions your small business as a leader.
When businesses focus on improving what a competitor is doing, they are effectively pitting their small business against existing market players – many of whom have deeper pockets, wider market reach, and will most likely come out slugging.
By contrast, non-disruptive creation occurs when a business creates a new innovation and a market where there wasn’t any before. What happens: your small business is not pitted against Goliath, letting your business stand alone above the competition.
To achieve this, a small business may or may not need help. If operators do, they should remember that their business is not an island. Every business, no matter how big or small, depends on others to make that business work (e.g. suppliers and customers).
Another option to innovate and grow market share for a small business is seek help from others. One way to grow is to build a partnership with another business. You might think that your business is too small or too niche or too new to build a partnership and grow market share. That’s where you’re wrong. It’s all about finding the right fit. Don’t cut out potential because your business lacks financial capital. If you know that you can provide the skilled labor to make another business run more effectively, then you can focus on how to grow market share by approaching a larger business. Expand share by knowing what your business does well. Then, approach another business with a clear proposal of what you can do for them. It’s okay if you’re not bringing financial capital to the table. Having the full force of your business behind you is your capital.
Rather than forming a formal business partnership, business owners may want to consider using a business results coach for support. Through the decades, thousands of small business operators and would-be entrepreneurs have gone through the business results training and coaching program I designed to help them move past chokeholds that cost businesses hundreds of thousands of dollars. While you may have a great growth strategy on paper, having the outside independent voice of a business results coach can keep you and your team accountable in executing and reaching the strategic goals you set out.
