Post date: Oct 15, 2010 1:52:31 PM
What can we learn from the most successful companies in the
world about creating wealth as owners of small to medium
sized business? I want to share one big business wealth
creation idea that applies to all of us, no matter the size
of our business.
When I looked at the profit and loss statement, I was
astounded by the fact that it showed $1.5 billion in
operating costs (yes that's billions). More concerning was
the less than 5 percent return for the massive investment in
creating the business. As I stood there talking to the
leaders of that company, I could see the stress in their
faces and the tension in their bodies, I could hear the
frustration in their voices and I sensed their desire to
solve the problem they had been pondering for ages; how to
generate the profits they knew the company was potentially
capable of yet had failed to deliver on all these years.
It doesn't matter whether you run a billion dollar companyor one of the 1.95 million small businesses that exist inthis country, you are continually challenged to grow yourbusiness and achieve levels of profitability that make yourtime in the business worthwhile. I've been working withleaders in billion dollar companies for the past decade. Myrole is to help them maximise the profitability of theircompanies through more effective business execution methodsand systems. Not only do these big business leaders havesimilar challenges as owners of small business, I've noticedwe all have similar desires around the outcomes we want toachieve.We all want to: - Grow and succeed in our businesses; -Become financially independent; and - Do it in such a way wehave lifestyle and get to enjoy our wealth.The opportunity exists for all owners of small and mediumsized business to learn the principles behind the success of
big business, and adapt these to their own situation. There's
no doubt in my mind that Seth Godin got it right when he said
'small is the new big'.
THERE'S ALWAYS BARRIERS TO CLIMB OVER First let's take a
moment to understand some of the most common barriers that
prevents any business owner from experiencing the real
wealth potential of their business.
1. Sheer Busyness
Sheer busyness creates a time compressed, reactive
environment where the capacity for growth is virtually non
existent. The true valuation potential of a business will
never be fully realised while growth limitations persist at
the individual and management levels
2. Reactive Psychology
Unconsciously people are driven to live a reactive life
where they continually act in response to approaching
deadlines. They take corrective action to fix their health,
wealth and relationships when they realise they are breaking
down, thereby conditioning a reactive mindset.
3. Cost Focus Before Value Focus
The obvious fall back in tight financial times is to cut
costs; the cost mindset undermines the idea of value-based
investment (of time and money). Cost of time and cost of
money become the primary decision criteria firmly embedded
in our unconscious minds.
4. Retaining Existing Customers, Attracting the New
Globalisation brings with it increased market access, thus
the ability to attract and retain customers has been
hampered by increasing competition in all of our
marketplaces The squeeze on our customers own revenue
streams and resulting survival focus drives risk averse
behaviour on their part
CATCH THE WAVE BEFORE IT PASSES BY
Like the most successful companies today, we all need to
recognise and work with the inter-dependence of people,
strategy, process and business value creation. The question
remains, how do we do that? How do we utilise this
inter-dependence in such a way we are moving positively
towards the level of wealth we desire?
A paradigm shift is taking place in the business world right
now. There is growing recognition in the big end of town that
far greater wealth can be created by following a simple
four-step strategy, a strategy that we can map across to our
own small businesses.
STEP 1 - Unleash the Potential of People FIRST
As Richard Branson says, "people are the lifeblood of any
company". Help them learn how to become more effective [not
efficient] in achieving outcomes and how to take control of
every aspect of their personal and professional lives as a
foundation to business execution. The strength of any
business is the collective strength of its people,
conversely, the limitations of a business are the
limitations of its people.
STEP 2 - Define and Execute Your Strategy and Business Plan
Be very clear about how you will compete in your chosen
market, what your financial targets are, what objectives
must be met in order to achieve those targets, and how you
will turn those objectives into key focal points that drive
daily actions. With the right culture in place and a
workforce of inspired and incredibly effective people,
execution is a snap .... provided you actually have a system
of execution. Remember this - a plan without a clear system
to execute it is no plan at all.
STEP 3 - Maximise Cash Flow
You may have heard this said before - cash is king. There's
no doubt about it, cash flow is everything in keeping a
business alive. The six major outcomes that contribute to
cash flow are these - retain existing customers for repeat
business, attract new customers, minimise cost per unit to
deliver [a service or product], deliver with speed, deliver
quality and create the next generation of products or
services.
The way you go about achieving these outcomes will be
defined by five functional level strategies that make up
your business plan - marketing and sales, operations,
finance, human resources, and research and development.
The major mistake made by many owners of small business is
to rely wholly and solely on a marketing and sales strategy,
and neglect to think about the rest. Marketing and sales is
clearly the vehicle that create and drives the transaction
between the business and customer, overall business success
requires that it is works in conjunction with the other four
functional strategies.
STEP 4 - Create Business Value
Now we get to the business end. When it comes to the crunch,
your financial worth will not be determined by cash flow.
Though it is clearly a major element in business success,
you can be successful but not wealthy, you can have cash
flow but no cash. As all billionaire investors know, your
financial worth will be based on the value of the assets you
possess.
A key determinant in positively valuing your business as an
asset is its reportable earnings. Do not fall into the trap
of not reporting earnings. With a few notable exceptions, a
business with no positive earnings has no value.
Conclusion
Let me leave you with one question to ponder. Are you
sufficiently inspired to do what it takes and make a shift
in your thinking? As I say to our clients, an evolution in
results is always preceded by a revolution in thinking; the
challenging part is allowing that revolution to take place
in our own minds.
About the Author:
Based on more than 36 years of work experience and research,
George Lee Sye's business execution framework, business
performance systems and leadership education is breaking
paradigms and now leading the way in industry today. You can
read more about his approach to business execution and
business leadership by visiting his website here –
http://www.soarent.com.au/business-leadership/academy-business-leadership