As a business owner, your daily life is often a whirlwind of challenges and emergencies. Whether it’s dealing with irate customers, managing cash flow, or struggling to meet important deadlines, it can feel like you’re constantly in crisis mode.
But what if there was a way to break free from this cycle of firefighting and create a path to long-term sustainability?
In this blog, we’ll show you how to pinpoint your most pressing business problem and address it strategically. Once you master this skill, you’ll unlock the potential to move your business forward, leaving behind the extinguisher and embracing the rewards of a thriving company.
From crisis to strategy
To escape a crisis in your business, it’s essential to stop relying on your instincts and start thinking more strategically. Let me explain using a story:
A person called Mike Michalowicz was in a big crisis. His business was in significant debt, and he was struggling to increase profits despite growing sales. He was anxious, had maxed out loans, and personal debt of $365,000. Even his printer jammed, adding to his frustration.
Mike initially tried to force his way through the printer problem, but it didn’t work. He realized that he needed a new approach. So, he calmly examined the printer and found a scrap of paper causing the issue. Using force hadn’t helped.
This experience made him rethink his business strategy. He had been following his gut, believing that increasing sales would solve his debt problem. However, he was wrong. The real problem was not sales but profitability. To reduce debt, he needed to focus on making his business more profitable.
Many business owners face similar challenges because they don’t identify their core business problem. They rush to solve everything at once, rather than making strategic decisions based on their actual needs. This instinctual behavior, or “following your gut,” often keeps businesses stuck in a cycle of crisis.
To escape this cycle, systematically address your business’s needs. Prioritize your actions and move your business in the right direction, rather than constantly reacting to problems.
Understanding the foundation-up approach
Think of your business as a hierarchy of needs, similar to Maslow’s hierarchy of human needs. Just as people must satisfy their basic needs like food and shelter before pursuing higher goals, businesses have foundational needs that must be addressed for success.
At the base of the Business Hierarchy of Needs is Sales – the money your business brings in. Without it, your business can’t survive, much like how humans need food for their basic physiological needs.
Above Sales is Profit, which provides stability and enables growth. Profit is like the safety layer in Maslow’s hierarchy; it ensures your business can cover its costs.
Once you have Profit, you can establish Order. This represents efficient systems and staff autonomy in your business. Similar to Maslow’s belonging layer, Order fosters a sense of community and belonging among your team.
Beyond Order is Impact. This transforms business interactions into meaningful experiences for clients, akin to the self-esteem and self-worth in Maslow’s model.
At the top of the Business Hierarchy of Needs is Legacy. This ensures your business can continue even after you retire, reflecting self-actualization in Maslow’s terms – the ultimate expression of your business’s potential.
Understanding and addressing these business needs from the foundation up can help you make strategic decisions that move your business beyond crisis mode and eliminate the need for constant firefighting.
Finding and fixing your business’s weakest link
In your business, it’s tempting to try fixing all your problems at once when things get tough. This might include boosting sales, hiring more staff, and beating your competition. However, doing this can lead to even more problems and debt. Instead of going this route, it’s better to find and tackle your most significant business issue to make real progress.
Think of your business like a chain in a tug-of-war game. Imagine that, in the middle of the match, one link in the chain breaks. It doesn’t matter how strong you were or how well you were doing – the game is lost because of that broken link.
Your business is similar to that chain, and the best way to keep it strong is to identify and fix its weakest link.
Your weakest link is what is called the “Vital Need” – it’s the crucial requirement in your business that needs attention to support everything else. You can find your Vital Need in just 15 minutes using this method.
- First, look at your business’s needs, like a pyramid. Identify the ones that aren’t being met right now.
- Next, figure out which unmet need is at the bottom of the pyramid, the most fundamental one. This is your Vital Need. For example, if you’re not making enough sales to cover your debts and generate profit, your Vital Need is Sales.
- Then, create a clear goal and a plan to address this need. For instance, you could aim to convert four potential clients into sales each month to start making a profit.
- Finally, go back to step one and repeat the process. Keep finding and fixing the weakest links in your business systematically to make it operate successfully in the long run.
Changing your profit perspective
Achieving long-lasting financial success is all about changing the way you think about profit. Most people tend to spend every penny they earn, which may be good for the economy but not for their personal well-being.
Business owners often reinvest their earnings into their companies, thinking that more sales and products mean more profit. However, this isn’t always the case, especially if costs rise in the process. To create a sustainable business, prioritize profit over constant reinvestment.
The main idea is to establish a steady source of profit by altering your perspective on it.
Entrepreneurs commonly believe profit comes from sales, but it’s more than that. Profit is the money you can take out of your business and use as you see fit, whether it’s paying off a personal loan or making a personal purchase. As the business owner, profit is your reward for taking financial risks by investing in your enterprise.
Profit isn’t just about making money; it’s about achieving financial stability, which is vital for expanding your business without drowning in debt. With extra money at your disposal, you have a financial cushion to navigate unexpected changes. This gives you and your employees the confidence to move beyond mere survival.
To attain lasting profitability, stop considering profit as what’s left after covering all other expenses. Instead, set aside a reasonable percentage of profit. This should be enough to eliminate debt and create a three-month cash reserve to cover all your costs.
Allocate this percentage from your sales income first. To make this happen, you might need to make some adjustments to your business, like reducing your product offerings or increasing your profit margins.
While it’s tempting to pour everything into expanding your business, true profitability comes from working towards sustainability, a valuable gift that profit can provide.
Running your business on autopilot
To run a successful business, you need to keep things organized and running smoothly. Just like our bodies constantly fight off harmful cells to stay healthy, businesses face ongoing challenges that must be addressed. If we ignore or overlook these issues, they can grow and harm our business. To prevent this, we need to establish order, and the key to achieving this is by creating systems that support autonomy.
Imagine a McDonald’s restaurant – it operates smoothly because each employee has a specific job and follows a set process, even when the franchise owner isn’t on-site. This level of autonomy is what you should aim for in your business. With a well-structured system, your business can continue running even when you’re not directly involved.
To establish order and make your business self-sufficient, you need to create and implement efficient business systems. These systems are like step-by-step instructions for your employees to follow, ensuring that work doesn’t get stuck if someone is absent. For example, your accounts department may have a procedure for issuing invoices. If multiple employees know these procedures and they are documented and accessible, your business won’t suffer when one employee is away.
The more crucial someone’s role is in your business, including your own as the leader, the more vital it is to have well-defined systems in place for their work. When others can step in and take over responsibilities, it allows you to take time off without worrying about the business falling apart. Ultimately, creating order through effective business systems is the key to a thriving and self-sustaining company.
From transactions to transformations
Your business can make a real difference by changing from being all about transactions to something more meaningful. An example of this is Erin French’s restaurant, the Lost Kitchen, in Freedom, Minnesota. To get a reservation, you need to send a postcard in April and hope you’re chosen.
This unique system started when the restaurant became famous and struggled with too many booking requests. Erin saw it as a chance to make the dining experience personal. After April, they randomly pick postcards for reservations, and each night, they display the chosen ones, creating a connection with their guests.
The message here is that your business can have a big impact by going beyond just buying and selling. It’s about making your employees passionate about your mission, turning them into brand ambassadors. Your mission should be meaningful, not just about making money.
And, how you treat your customers matters too. A simple act of kindness, like a barista suggesting a competitor when they don’t have something, can create a great experience. This makes customers come back and tell others about your product or service. It’s all about making your business more than just a place for transactions, but a place for transformation and connections.
In conclusion, just like people have their own needs in a certain order, businesses have their own set of priorities too. Unfortunately, many entrepreneurs often try to tackle all their business problems at once, without giving any problem special attention. This can actually make things worse because the most important issues might get ignored. However, if entrepreneurs figure out which problem to focus on first, they can improve their businesses step by step. This smart approach can lead to long-term growth and success.
Inspired by a book “Fix This Next”; Mike Michalowicz”