Business Advisory

Stop trying to squeeze blood from a stone. A cash rich business concentrates on creating value

Stop trying to squeeze blood from a stone. A cash rich business concentrates on creating value

Spending too much time and effort shaving valuable layers off your margins to remain competitive is literally death by a thousand cuts for your business.  It’s excruciating, time-consuming and unfortunately futile.  But as someone wise once said, “if you don’t like the answer, change the question.”  That is to say, instead of focusing on discounting (sabotaging your margin), work on ways to enhance the value of your product or service.

Some business sectors call them upgrades, others - enhancements and others still prefer to rebadge the evolution of their services or products as “next gen”, “series x” or even tap into market segmentation (e.g. value, mainstream and premium).  Whatever the case may be, thought and effort invested in increasing the perceived and/or actual value of the product or service will pay off.  Admittedly, it can go too far as is the case with some dashboard screens.  They display attention-grabbing warnings telling you that staring at your dashboard screen can cause accidents.  That said, the intent to add value is front and centre.

 

The consequences of a common mistake

As the owner of a small business who not only feels the weight of family responsibilities but also accountability to employees and the business, it’s all too easy to fall into a common trap.  Paying attention to noise like, “Desperate times call for desperate measures” in your business, could influence you to:

  • Pay a company debt from your profit, share, wage or dividend
  • Lower your price to match a low cost competitor
  • Devalue your product or service by advertising a sale for the wrong reasons

Sometimes, these measures are effective when used judiciously and/or as part of a broader strategy.  However, using them time and time again sets and establishes a dangerous precedent because it:

  • creates unhelpful expectations in your market
  • threatens your cash flow and literally
  • takes food off the family table and limits quality time with them

Can things spiral out of control from there?  They often do. So treat margin squeezes like a cliff’s edge – don’t get too close.

 

Develop a higher value product or service

When your business is running well, you the owner have a very pleasant dilemma.  Do you spend more time with the family and develop more of your own hobbies or should you spend more time with the family and invest a little time working “on” the business?  Well of course the answer is, “all of the above”.  However, with systems in place and good people doing great work and freeing you from the operations side of the business, you can think about increasing the value of your business.  Most business owners who do not do this find that they can’t because they are bogged down with everyday stuff.  With so little time to come up for air, assess the situation/market/business, there’s very little time to devote to clear and innovative thought to adding value.

You got into this business as a means of providing a sustainable lifestyle for your family and to work on something that excites you.  Focusing on value will do that while adding value to your life and the lives of those around you.