When you break business down to its fundamentals it is actually a simple concept. Basically, you need to have a product or service that solves a market problem, that you can sell in large enough quantities and at high enough prices to earn an acceptable return on investment for the owners of the business.
It sounds straightforward doesn’t it and if markets were static it would be. Unfortunately, markets are evolving and changing rapidly with new competitors entering and leaving and customers expectations becoming more sophisticated every day. In the midst of this flux managers need to make sense of where their businesses are positioned; where the greatest opportunities and risks are and what they should do next.
Understanding which levers to pull is a critical first step. To comprehend this it is important to recognise that there are only three ways that a business can make more money:
- You can increase sales
- You can improve margins
- You can reduce costs
This should not be a ground breaking revelation and neither is the fact that if you improve all three at the same time, you should make a lot more money. The problem comes in organising what to do and how to do it. A process that I have used in the past is to attempt to write down 50 things that would improve a company’s sales. Can you do it for your business? Stretch yourself by adding 25 ways to improve margins and 25 ways to reduce costs? Try completing this exercise. Allow yourself enough time to do it and involve as many people as you need to.
100 answers might seem like a lot. It is. That’s the point of the exercise. Take your time and don’t stop until you have the lists completed.Don’t short-change yourself – 100 is the target. Maybe 10-15 answers might be worth pursuing, but you won’t know that until you’ve done the full 100. Allow your mind to roam freely and don’t exclude any outlandish items. Once the list is completed, sort and prioritise them into an order based on the greatest possible impact in the shortest possible time. Then pick out the top three priority items from each list and figure out how to action them immediately. The balance of the list should be reviewed regularly and a plan to implement any suitable ideas completed.
Doing this exercise allows you to identify most, if not all, of the relevant improvement opportunities in your business. It is a lot of work and you’ll need to allocate a good chunk of time to get it done. It is, however, one of the most powerful ways to understand your business at a very deep level. Spending the time to do it properly every year will uncover previously hidden gems of opportunities that otherwise may have been missed. Pulling the right levers then becomes a lot easier…
Image via The Denver Post in an Amazing Series of New York City from the Sky that should not be missed. Our top 5 are profiles. Click here to view the complete series of 60.