“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” — Abraham Lincoln
It was the same old story last week. Chelsea Football Club were once again accused of playing boring football in the crucial English Premier League match against Arsenal. Jose Mourinho’s team is now well known for “parking the bus” when playing against other big teams. They play defensively, slowing the game down in order to disturb their opponents’ flowing passes and attacks.
From a strategic point of view, Mourinho’s style works as it makes the team win and avoid losing. It is more important to avoid defeat than to play fast and exciting football just to please the fans.
Many people work hard daily, only to find themselves still at the bottom after years of toiling. This can be seen in the thousands of small businesses that remain at the small level for decades. Sometimes the business owner might just be satisfied with operating at the same level as it is less stressful. Other times it is because of lack of guts and vision to achieve greater things.
Stephen Covey said, “Before scrambling up the ladder of business success, make sure it is leaning against the right building.” Imagine after running a 40-kilometre marathon you find that you have been going in the wrong direction. There is no reward for all that hard work, blood, sweat and tears that you would have put in.
Winning in business means attaining your business goals. These goals represent a picture of where you want the business to be at the end of a particular period. They are specific, measurable, long-term results that you want to achieve in one, two, three or more years in the future.
The majority of small businesses that fail do so because the owners would have failed to set clear goals. The result is that one spends time being pushed back and forth by the winds of the environment. It is hard to perform at your best when you are busy putting out fires and worrying about whether you will be able to meet your employees’ salaries and the business rentals at the end of the month.
Successful businesses succeed because the owners spend time planning. They plan in detail for the main components of the business’ activities; they have production plans, financial plans, marketing plans and personnel plans.
Take the marketing function, for example. Big firms employ skilled and experienced marketing and sales directors or managers. These people spend considerable time developing brilliant marketing and sales strategies. And they work hard on the implementation to ensure the firm’s objectives, as set by the board, are met.
Developing and implementing the best marketing strategies is crucial, especially in our environment characterized by high competition, low consumption and poor liquidity. Businesses that will survive and thrive in this environment are those that make more sales. High sales at the right margins are the primary reason for business success.
If you see a business struggling, the main cause is most likely that it is not making enough sales at good margins to meet its costs. No matter how much capital or loan funds are invested into it, such a business will remain unsustainable as long as the optimum sales levels are not being met.
How do you determine your business’ optimum sales level?
You start at the bottom line. This is the minimum net profit that remains after all costs and expenses have been met. The net profit figure tells you whether it was worth investing your precious capital into the business. If the bottom line shows a low return on your invested capital, then you are making a loss. You would have been better off putting your money into a high yield investment and earning guaranteed returns. Some business owners are in trouble now for continuing to operate while making losses and therefore making returns below their cost of capital.
Your goal for the bottom line, if you add back production costs and operating expenses, will give you the target figure for the top line. This is the turnover, or sales revenue, that you need to achieve. From that figure you can work out the required unit sales, which is what your marketing efforts must achieve. Guess work will not work, you need to calculate the real figures and plan accordingly.
According to Brian Tracy’s 20/80 rule, “the first 20% of time that you spend planning to achieve your goals will save you 80% of the time in execution.” I have found this rule to be valid. Without a plan, you will waste valuable time and resources on things that add nothing to your goals. Remember, brilliant action without brilliant planning is futile.
If you wish to receive my free newsletters, just sign up at my website shown below. Until next week, plan brilliantly, act brilliantly and accelerate your growth.
l Phillip Chichoni is a business development consultant who works with SMEs and entrepreneurs. You may contact him by email, email@example.com. You can also visit http://smebusinesslink.com