It’s no secret that over 80% of small businesses don’t make it past the first five years in business.
Then, for those small businesses that do make it past five years, the majority of them are smaller than 5 employees, and then, most barely make a profit.
And that begs the question … why do people even start a business in the first place?
Of course, everyone believes their new business idea is awesome, they’re going to defy the odds, and that customers are going to beat a path to their doors begging for their product.
The unfortunate reality for most is that unless you pull the right triggers, your business will end up in small business purgatory. That’s the secret place where businesses go to die a slow and painful death.
OR, your business will grow to a point, and then you’ll end up stuck at the same revenue and profit level for years.
But wait, you say. I want to grow my small business.
And that brings me to the secret sauce. The secret sauce is what separates a barely growing, not so profitable, stagnant business, from a thriving successful business that’s ready to conquer the world.
Well, maybe not the world, but, conquer your market and make oodles of profits.
And what’s that small business success look like? And what are those ingredients and business tips for success?
I can’t promise you that your business will be successful, but, if you have the following five “ingredients”, then this would be my recommendation for a business to be successful:
5 Business Success Tips That Make For An Outstanding Small Business
I’m going to detail what are the most important characteristics that make for an outstanding business. Better yet, I’m going to detail, in order of importance, from most important, to least, what you must have in your business in order to grow. Grow and thrive. Grow and thrive and make oodles of profits.
At the beginning of this article, I wrote: “everyone believes their new business idea is awesome, they’re going to defy the odds, and that customers are going to beat a path to their doors begging for their product.”
I’ve seen the most basic of ideas, and most basic of businesses, thrive.
Why? How did they thrive?
Because the person at the top understood …
1. Marketing: You Understand Marketing, Your Business Will Thrive
You understand marketing, your business will thrive (well, it’s a good start anyway). And among all of the five business success tips, or ingredients that I review, marketing, is by far, the most important.
I’m so continually impressed with some of the small business owners who I frequently speak to who have managed to build their business at warp speed.
How’d they do it?
They took what would otherwise be a fairly basic product or idea, and pulled the right marketing triggers.
And before I dive too deep into this one, let me just say that marketing isn’t a logo.
Marketing isn’t slapping a pretty looking website online, pushing your prospects to your website, and then calling it a day,
How much does it cost you to bring in a new prospect/lead?
Do you know?
What’s your business’s gross margin?
Do you know?
What percentage of people who visit your landing pages convert?
If you know, for example, that it costs you $100 to bring in a lead, and that your close rate is 50%, then some simple back of the napkin math will suggest that it cost your business $200 to close each deal.
If your average sale price is $2,000, and your average gross margin is 50%, then you make $1,000 gross margin per deal. Subtract your marketing cost of $200, and you’re left with $800.
The above is a very simplified version of what you need to understand. And by the way, there’s so much more to understand in the world of marketing including social media, branding, PPC, SEO, content, and I could go on.
As an FYI, you can read about how I was able to increase my Google search impressions by 6,150% inside one year using the SEMrush.
Incidentally, SEMrush is a marketing SEO tool I use every single day. You can watch this video for a quick demonstration (and you can sign up for a free 7-day trial using this link – and note, I will receive a small commission if you buy from this link).And that brings me to the second most important thing …
2. Cash Flow, Profitability, and Strong Cash Generation
For those of you who have been reading my blog posts for a while will know how strongly I believe that profitability is probably is at the heart of small business success.
No profits mean no business, and while you can compromise on profits for a year, or two, in order to reinvest in the business, at the end of the day, you need to ensure that your business is producing a sustainable and healthy level of profitability.
What’s considered a healthy profit margin?
What’s considered “healthy” will vary from industry to industry, and although the number is somewhat subjective, if you take your EBITDA (earnings before interest, taxes, and amortization) and divide that by your total revenues, a healthy EBITDA margin would be anything greater than 10%. 15% is really good, and approaching 20% is amazing.
One word of caution here: if you’re running a solopreneur type business, with little overhead, no office or warehouse, and a few freelance contractors, you can expect a very different and likely higher margin then if your business has an office, full-time staff, and revenues of $5 million or greater.
The bigger the business, the more structure, management, and process there will be in place, and consequently, the more expenses and lower profits. As your business approaches $10 million in revenues, once again, you will find that you have additional layers of management and departments,
The bottom line is (and no pun intended), profitability is at the heart of any business, and for those of you struggling with how to grow profits in your business, I published a course of How to Turn Your Small Business Into a Profit Machine in 60 Days. This course is a step-by-step instructional course to teach you how to dramatically improve your business’s profitability and put more money in your pocket.
3. Sustainable Competitive Advantage
What is your business’s competitive advantage?
If your business is in the pest extermination, landscaping or roofing industry, for example, then finding a competitive advantage is more challenging then if you’re in the SaaS business with a product like Salesforce that has high switching costs.
Regardless of your product, service, or industry, you need to find those elements that will make your business stand out from the competition, and create a competitive moat around your company.
The best moat you can build around your business is high switching costs, and I’m going to cite Salesforce as an example. The company I founded and ran for 27-years used Salesforce as its primary CRM product. It took us close to 500-hours to switch from our previous CRM product and move to Salesforce, and the move was highly disruptive both to our staff and customers.
The transition impacted every department including accounting, customer service, marketing, sales, the warehouse, dispatch, and so on. Every staff member across the organization needed training. Switching off of Salesforce would be an extremely difficult and risky move fraught with business risk that extends beyond simply switching software products, and could potentially impact revenues and profitability.
Salesforce has a built-in competitive advantage and moat around their product and company. The potential loss of, or corruption of data on transition makes the move to another CRM challenging and potentially costly.
4. Deliver The Customer Smile – Net Promoter Score
In a Bain Consulting study done a few years ago, they found that the industry NPS (net promoter score) leader outgrew their competition by a factor of two to one.
And just as I said above that no profit means no business, the same can be said of no customer means no business. Unless you’re the Federal government handing out checks, where callers will wait for hours and hours on hold, you need to treat your customers with the love and attention they deserve.
Not only should you be measuring your NPS, but, you should also measure each department based on their NPS, and better yet, bonus those managers who are able to consistently deliver consistently high customer service scores.
5. The Founder Fight and Growth-Oriented Mindset
I’m going to assume that if you’re reading this, that you’re a small business owner and not the CEO of a Fortune 500 company (if you’re from a Fortune 500 company, then welcome to my blog).
As the president of your small business, not only do you need to have a successful work ethic and desire to succeed but, and of equal importance, is that you have the right mindset. You need to have a growth-oriented mindset that constantly challenges both you, and your business, to new heights.
As a small business owner, you need to have a depth of knowledge of all facets of your business. You don’t need to necessarily be an expert in all areas, but, you do need to understand how your business is run, and that includes every department including, of course, accounting, sales, technology, and so on. Your deep level of expertise will help you better understand how to keep your business at the forefront of the industry.
The above five tips to make a small business successful aren’t a panacea, they’re suggestions. Business success happens with a thoughtful level of guidance around all facets of the business, starting with marketing as the most important lever, followed by profitability, sales, your competitive advantage, and the owner’s drive to succeed.
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If you liked this post, you might also enjoy this one: Do you Have the Most Important Trait Required to Become a Millionaire?
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