Five Mistakes Business Owners Make That Kill Growth and Destroy Profit

Taking your company to the next level is never an easy thing to do. However, it’s worse when you intentionally shoot yourself in the foot. Somehow, someway, you’re bound to make a mistake. It’s the nature of owning and operating a business. Fortunately, some of your mistakes are easily avoided: You identify the error and remove it as a going concern. However, there are other less obvious mistakes, ones that continue to repeat themselves and ones that directly impede your company’s growth. What are these common mistakes and how can you correct them?

1. Relying Too Much on Outside Influences: Does This Apply to my Business?

Business owners are always reading, and that’s a good thing. Gaining another perspective is always important. Unfortunately, following through on a strategy that has no relevance to your company is a bad strategy. I am amazed at the number of times I see a business owner go with a strategy based on something they’ve heard or read works for another company in a different market, with different customers ,and a completely different business model.

I constantly see business owners try to fit a square peg in a round hole. This leads them to all kinds of issues: Running a supply chain strategy that doesn’t fit their business model is one example. Another is relying upon marketing and sales strategies that aren’t conducive to your customers and their buying patterns. The list goes on and on. By all means read and learn as much as you can. Just make it a point to understand whether it’s relevant to your business and your market.

2. Not Having an All-Encompassing Plan: “The BHAG”

The term BHAG is an acronym for “Big Harry Audacious Goal”. So what is so special about having a BHAG? Surprisingly, not much. In fact, the only thing that makes the BHAG worth looking into is that it forces business owners to work together with employees and management towards one all-encompassing goal. By making the BHAG known to all, a business owner is held accountable. They can’t continually move the yard sticks. They clearly state their goals and objectives and set up periodic reviews to assess whether the company is on track.

A BHAG is a strategic planning tool that won’t allow a business owner to alter course. Sticking to “the plan” is critical. It’s the ideal top-down strategy, one where a business owner defines the ultimate goal, establishes objectives and benchmarks, measures results and adjusts the plan to account for a new reality. If the plan needs adjusting, then so be it. However, there’s no way to do that unless you make your plans known. Identify your BHAG. Make it known to all. Put it out there, and then put a strategy together that makes it a reality.

 

Strategic Business Planning: Use TOWS to Move SWOT to an Action Plan

3. Penny Wise, Pound Foolish: Identifying Cost Drivers

Every dollar saved goes right to your bottom line. It’s the simplicity of the $1.00 savings rule. Ask yourself the following: How much in sales does it take your company to generate $1.00 of net profit? Is it $5.00, $10.00, $15.00 or higher? Every dollar saved is the equivalent to a 500%, 1000% or 1500% return on investment. Unfortunately, far too many business owners focus entirely on hard costs – while completely ignoring soft costs. Better yet, they focus only on the costs they can see. It’s the perfect example “of out of sight, out of mind”.

It's easy to focus on the costs you can immediately identify, but it’s something else entirely when you have to delve into individual cost drivers. By all means, focus on cost reduction. However, don’t make it a laborious, time-consuming pursuit. Don’t be cheap. Nickel-and-diming your employees is no way to keep them motivated and no way to run a business. Instead, work with them to identify your company’s biggest cost drivers and then focus on removing them as going concerns.

4. Ignoring Marketing: "Your Value Assertion" 

The most successful companies have a well-defined value assertion. They know that success begins and ends with how well they know their market and how well their product or service addresses their customers’ needs. This doesn’t merely involve chasing customers for orders. It doesn’t involve responding after the fact. It doesn’t involve maximizing gross profit on a single sale, and it definitely doesn’t involve waiting for customers to tell you how and when to act. Instead, it involves becoming a market expert, one that anticipates customer needs and one that is able to immediately adjust to a changing marketplace.

Far too often I’ve worked with business owners who have no clue what marketing is or how it should be used. They want their customers to know everything they do, and do well, but they simply don’t know how to deliver that message. More importantly, they don’t know how marketing can help. Simply put: Everything you ever wanted your market to know about your company can only be delivered through a clearly defined marketing strategy. Take the time to understand what marketing truly is. Next, put a cohesive plan together that delivers that message. Focus on where your customers are and how best to reach them.

Your Value Chain Defines Your Value Assertion: B2B Marketing Essentials

 

5. Setting Conflicting Goals and Objectives: "Defining Common Benchmarks"

Does it make sense for individual departments to have separate goals and objectives? It does, but only if those goals and objectives aren’t mutually exclusive. You can’t have a situation where one department’s ability to attain a predetermine goal means the other department must falter. For instance, measuring inventory solely on holding costs implies that you aren’t measuring them on the costs of inventory stock outs. If all they are measured by is their ability to minimize inventory counts, then how will your sales team achieve their gross profit objectives?

This aforementioned situation is a perfect example of a company setting up conflicting goals and objectives. One party is measured on its ability to reduce inventory counts – while the other is measured on its ability to capture opportunistic sales. Instead, start by defining common objectives, ones that force every department to work towards one large goal. Measuring both sales and inventory on gross profit means both must work to together. This means that sales will focus on improved forecast accuracy, while inventory will focus on having exactly what it needs – no more, no less.

Again, it's not a question of not benefiting from another perspective. Learning about possible solutions is a good thing. Unfortunately, business owners tend to retain the information they like and agree with - while disregarding the rest. Read as much as you can. However, most of the solutions to your problems can be provided by the very same people you've entrusted to run your business. These individuals often hold the answers. Work with them. - not against them.