I spoke with a multi-millionaire this morning. He’s a client and at times has also been a mentor; generous with his time and advice. This morning was no different.
I asked him, having grown several businesses from next to nothing to million-pound entities, what he considered to be the most important principles in achieving that success.
He only had two pieces of advice.
The first: cashflow. Manage it forensically. Don’t get yourself in a hole early on.
The second: keep people happy. People will always pay for a job well done, so do a good job and you’ll always have a business.
It sounds simple. Good advice always does. But here are three mistakes I see small businesses making that go directly against this advice.
Mistake Number One: Discounting.
For small businesses it’s often just about survival. Small business owners feel the importance of cashflow more than they understand it. It’s emotive because it’s positive cashflow that puts food on the table every month. When panic sets in and sales need to be made, prices are cut.
It’s understandable. The fear of empty plates is real. But price reductions are a slippery slope – especially for small brands. Take a look at the table below; it shows that with an original 20% profit margin, a 5% discount means having to sell 33% more product to make the same amount of profit.
| Unit Price | Unit Contribution | Volume | Total Contribution | |
| Full Price | £50 | £10 | 1,000 | £10,000 |
| 5% Discount | £47.50 | £7.50 | 1,000 | £7,500 |
While discounting can seem like an intuitive way for small businesses to increase sales, the effect on the bottom line is often more devastating. Some of the most important work I‘ve done with small businesses has been to help them to maintain or increase their margins. It gives the owner breathing space and the business room to grow.
Mistake Number 2: Trying To Offer Everything.
The second mistake is born of the same emotive relationship with cashflow. For fear of not making sales, small businesses offer as broad a range of services or products as they can, thinking that they are maximising their chances of making a sale.
Again, this is a logical fallacy. Offering more makes a business proposition less clear. Humans are creatures of least resistance and uncertainty creates friction which turns people off. One of the immutable laws of marketing is that a narrower focus creates a stronger brand. Stronger bands are easier to remember, easier to choose, and can charge higher prices. Doing less, but doing it better, should be every small businesses mantra.
Mistake Number 3: You Are Not Your Customer
The second point, keeping people happy, is just as misunderstood. To begin with, there is almost always an over-reliance on a small group of regular customers. While it’s easy to keep these customers happy and to imagine that this means the business is successful, it’s impossible to grow without attracting new customers. Even more fundamentally, small business owners have a tendency to focus on their product and not the customers problem.
This isn’t new-age bullshit. It’s a question of market orientation. I’ve had many uncomfortable conversations with owners of small businesses wherein I’ve had to tell them that the reason no one is using their business is because there isn’t the demand for it. They’re pleasing themselves not their customers.
I call it the “build it and they will come” mentality. People seem to think that a good idea will be enough to attract customers, but while it’s an important starting point, an idea alone is rarely enough to overcome the most pervasive force in human behaviour: inertia.
What’s inertia? It’s as the force that keeps people doing what they’ve always done. When a new sandwich shop opens up in town, they don’t just have to remind you that you want a sandwich, they also have to convince you that it’s worth switching from your tried and trusted go-to lunch option. Again, humans are creatures of least resistance; we tend to take the road most travelled, sticking to what we know.
Keeping people happy is about more than having an idea and finding a small group of people who agree. There is a job to be done in creating something that is either so much better, or so much easier to access that current solutions and delivering consistently on that promise. Achieving that means starting with the customer, not the product.
What Does This Mean For Small Businesses?
If I could wrap up these two pieces of advice in to one guiding policy it would probably be: do one valuable thing extremely well. Or even shorter again: focus.
I often start with small businesses by finding one business unit, be it a market segment, product category or even individual product, that has high potential to create profitable growth. This laser-like focus makes decision making easier and communicating with the target audience more effective.
