If you were to summarize the top five rules of successful businesses, what would that list entail? In order to answer this question, think of how some companies thrive regardless of the odds, while other companies falter and seemingly can’t keep up. When I thought about coming up with a list of best practices, I decided to look back on all the successful companies I had worked with during my career. I was looking for commonalities among these top companies and wanted to develop a list of not only the most important rules of running a successful business, but a complete list of best practices. At first, the list was long, almost too long. Gradually it was narrowed down.
1. Know Your Market
The first rule of successful businesses is that they are first and foremost, market experts. They are not concerned about being market leaders, market followers or market challengers. They concentrate first on being market experts, and then use this knowledge to decide how and when to approach their market with a new product or service offering. Sometimes they lead the market, sometimes they follow the market. They don’t follow one philosophy and instead live by using the information their market provides.
This knowledge involves knowing about their market’s future, competing markets, outside threats, as well as customer trends and the constant threat posed by competition. They are embedded in their customer relationships, aggressive in sales and are constantly in search of market information. To these companies, market information is essential to success and no opportunity is ever ignored.
2. Protect Your Gross Profit!
All of these companies understand the importance of protecting their gross profit. They use their market knowledge to capitalize on market pricing. When possible, they use premium pricing strategies to increase market share and grow revenue. If they anticipate a product’s volume will decline towards the end of its life, they will use any competitive advantage they have to lower pricing to increase market share. They trade price for market share if the net result is increased gross profit. However, they don’t just stop at maximizing their gross profit within their market.
They cultivate a company wide doctrine of protecting gross profit. Their employees talk gross profit. Their sales people are paid commission on gross profit and never on the sales total. The mindset is that if there isn’t any gross profit, then nobody should care what the sales total is. Profit is their goal and all of their internal departments are tasked with coming forward with ideas on cutting costs, eliminating waste and improving efficiencies.
Your salespeople must be able to defend your position in your market. To learn more about the most important aspects of defending market share, please read: Five Sales Competencies Every B2B Salesperson Must Master
3. Control Your Costs
These companies manage all aspects of their cost structure. They turn fixed costs into variable costs by outsourcing internal company functions they deem too time consuming and repetitive. However, they don’t just outsource anything and everything they can to save money. They measure the benefits of outsourcing relative to the impact it will have on their service capabilities. If the company can outsource without impacting service, they do so.
They understand the importance of strong customer service – not just from the mindset of their own customers, but from the mindset of their internal departments. Improving service means reducing costs, faster decisions and timely use of resources. Everyone in the company is made aware of who their “internal” customers are, and what kind of service they should expect.
To be successful, these companies empower their employees to make decisions on their own. This means that the company’s operations are never tied down with cumbersome work procedures, and time consuming approvals. They control their costs by constantly coming up with new and innovative ways to save money. Who do they rely upon for these ideas? Is it only the responsibility of high level managers? Nope! They rely upon all employees, and anyone and everyone who takes part in the day to day functions of the company.
4. Match Inventory Approach to Your Business Model
This is perhaps the most important rule in this list. Granted, knowing your market, protecting profit, eliminating costs and having solid cash flow, are all important. However, the best companies manage their inventory in a way as to reduce its impact on their bottom line. Companies can have everything going for them; great products, good customers and solid financing. Yet, these companies can still lose considerable amounts of money by running an inventory system that is simply not conducive to their business model.
If your company isn’t properly managing your inventory, then you’re simply wasting money. Match your company’s inventory model to your business model. Don’t discount Min-Max inventory management out of a concern of high holding costs. Don’t run Just in Time (JIT) or a Push-Pull inventory system because it works for Dell, Honda or any other gigantic company. Go with what works for your business. If you have cyclical, infrequent and seasonal demand patterns, then look at a variation of Min-Max. If your company has high volume, linear & constant demand spread across a small family or products, then take a look at JIT. However, don’t run something because you read it worked for some other company.
To learn about choosing a supply chain strategy, please read: Choose the Right Supply Chain Strategy: Make it an Easy Choice
5. Defeat Your Daily Cost of Money
The best companies understand the daily cost of capital and its impact on the company’s bottom line. The daily cost of money is constantly present. It’s in the inventory that a company holds and doesn’t sell. It’s in the customer invoices that go unpaid. The daily cost of money is simple and straightforward. Most businesses use business credit lines or business loans to finance the purchase of their inventory. These credit lines or loans have a yearly interest rate that can be reduced to a daily interest rate. Because inventory is financed by these credit lines, every day an invoice goes unpaid, or every day inventory is held and not sold, is another cost in a company’s daily cost of money.
You can read more about the impact of financing on your bottom line by going here.
When I came up with my top five rules of successful businesses, I began to realize that most of these fell under my client’s biggest issues or concerns. Aside from working in manufacturing, most of my experience was in making simple changes that produced significant results. There are a myriad of tools available on this blog. Take the time to search for what concerns you most, and if it isn’t here, email me and I’ll put it up.
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