Is your business really profitable?
Great ideas are two a penny, but great businesses are rare. At its root, the reasons for this are poor vision, a lack of strategy, or an inability to identify and implement a successful business model to exploit the opportunity.
In my book, From Vision to Exit - The Entrepreneur's Guide to Building & Selling a Business, I describe the entrepreneurial journey, outlining the twists and turns along the way. I talk about the entrepreneur's mantra - "Never, ever give up!" And I share my own motto, "If it isn't broken, break it", regarded by some as a potentially destructive approach, but intended more benevolently to highlight the fact that there's always a better way, even if it hasn't been discovered yet!
And so we get to the core of a successful entrepreneur- the ability to stay focused but flexible, embracing innovation and visualizing the real and the ideal side by side. As Henry Ford once remarked, if he had asked what people wanted, they would have said a faster horse.
There's no easy route to success and many great ideas fall by the wayside. Much of what does succeed emerges as a result of experimentation, delivering the so-called 'pivot-point'. The pivot-point is the discovery that changes the business model, driving future success.
It's not just early stage businesses that reach pivot points. According to a survey by Burson-Marsteller, 64% of CEOs re-evaluate their business goals on a quarterly basis or more frequently, seeking to maintain flexibility alongside focus to build their businesses and beat their competition.
De Beers, the world's leading diamond company, is an example of a large business that has evolved its business model, which was originally focused on controlling supply. The emergence of competitors and consumer concern over blood diamonds led them to shift their focus to the demand side, going direct to consumers with branded jewellery and creating a certification process in conjunction with governments and other organisations.
It's worth noting that not all companies that pivot are successful. Pivoting can sometimes mean stepping into the unknown and Kodak is a good case in point. Having had its core business disrupted by the digital revolution, CEO Antonio Perez summoned his executives to a 'no turning back' meeting where he told them they'd have to 'burn the boats' and shift direction towards digital imaging and services. He even founded the R Group (the 'R' stood for 'Rebels') to figure out what new digital services could be created. The journey has not been easy for Kodak and their recent woes are well known.
Irrespective of individual results, businesses that succeed are those that constantly challenge what they do and why. This inquisitive approach, led by entrepreneurial management, helps to evolve the business model and create pivot-points which can dramatically alter performance, often increasing scale or improving profitability.
Here are some examples of pivot-points that can help drive business success.
Simplify your offering. Darren Shirlaw, founder of Shirlaws, the coaching company, says that businesses need to be clear about their focus. To ensure customer loyalty and maximum profitability, he says it should be on product (eg Apple/ iPad), market (eg Saga/ over 50s), service (eg Amazon/product recommendations), or price (eg easyJet/ low cost flights).
Consider changing your sales channel by selling through partners, distributors or franchisees.
I am reminded of a former manufacturing client who lost their biggest customer. As a result of the loss, the business needed less working capital, staff were happier and profitability increased, enabling investment in more profitable areas.
• Top end niche
Position your brand at the top of the table eg Bentley, Aspreys, Louis Vuitton.
• Bottom end niche
Position your brand at the bottom of the table eg Poundland, Lidl, Primark.
• Micro niche
Technological innovation/ the internet means that micro-niches can become sustainable businesses.
Outsource services or product development to gain specialist capability and service at lower prices.
• Strategic Alliances
Collaborate with non-competing, complementary providers. According to Accenture, the management consultancy, Fortune 500 companies have 50-70 alliances each.
Make acquisitions to turbo-charge your business. Buy game-changing features rather than growing them in-house eg IP, market access, management, production and supply chain.
Poach key staff or management from competing businesses.
• Brand crossover
Making utility products into fashion items eg Barbour.
• Brand extension
Think Caterpillar machinery and their gifts & apparel.
A company that distributed prepaid calling cards through CTNs ensured that their commission structure was higher than any of their competitors. The supply of competing cards shrank.
These are just a few of a myriad of game-changing opportunities that can lead to pivot-points in a business. Success comes from constantly challenging the business model and making affordable, experimental steps.
So remember, "If it isn't broken, break it!"
Why not get my book, From Vision to Exit, The Entrepreneur's Guide to Building and Selling a Business, available in hard copy or downloadable from Amazon or iBooks now?