If you read my previous two articles in this series you will now have (at least in theory) a simplified, strategized business. From the previous article, you may recall that a strategy is a plan built around what your company is best at in providing value to your customers or clients. The primary idea behind the strategy is that it provides clarity about how your business should change with the wants and needs of your customers or clients.
So, let’s say you detect that your customers or clients are looking for some other value that you can provide. Because you have your strategy, you now know whether you can provide it. The question is, can you provide it profiitably. In business language, doing this is sometimes referred to by the unfortunate term of execution (not a very inspiring term, right?). But it is the key to changing profitability. Here is a great article from Inc Entrepreneur Magazine on execution.
If your customers or clients want more of the same – great! But will your profits scale up with your increased or changed business? You can only answer that question if you have a handle on your profits per unit and fixed overhead costs. If your profits per unit (gross margin) declines, you’ll need to sell more to maintain your profits. If your gross margin will increase, you don’t need to sell as much to maintain your profit. Here’s where a strategic choice comes into play. Do you stay in your current model and let the opportunity pass? If so, will the competition take market share from you? Will your current product demand decrease? If you choose a higher margin/lower volume route, are you comfortable with the increased risk that your income is concentrated in fewer customers?
Tough questions, right? You need a solid, comprehensive way to measure your cost – total cost – tax, overhead, and of course direct costs. This is where step one in our journey pays off big time! You have an advisor you can turn to. Here, again, you are saving time. Ask them key questions and educate them about your dilemma. They will be delighted to help you.
So, in summary, if you have traveled all three parts of this trip, you are spending more time doing want you like and what makes you money (simplified), you have a plan that flexes with market demand (strategized) and you have the space and advice to make decisions about your business’ future (actualized).
Don’t hesitate to reach out with questions.
All the best!