[Podcast] 4 Steps to Keep Your Business Profitable and Avoid Holes
You need a game plan for rough patches, so your company can thrive long-term and do more than just survive day-to-day. But how do you turn the ship around, plus identify what needs to be fixed, when things do go wrong?
Best case scenario things are okay and you can focus on more important topics. Worst case the world's on fire and you have to figure out your game plan ASAP.
If your business is already having problems, these questions are that much more important:
- What are your benchmarks that signal things are going right or wrong?
- How do you identify the key areas that need fixing?
- What steps do you take to fix them?
- Which metrics should you track to gauge progress?
We’ll help you answer these questions and share a roadmap your company can follow to stay healthy and profitable. Keep reading, or listen to the full audio in the player above.
1. How do you know when things are going wrong?
The reality is your company needs to always think ahead and be on the lookout for trouble. But that can be challenging when you’re a small business living in the moment. Sometimes it can feel like you're a firefighter constantly putting out tiny flames as you go, so how can you be intentional about pausing to look at the big picture instead?
First, you need to define your goals. You can’t visualize the path to the endgame if you don’t know what you want the endgame to be.
Are you just trying to create a job for yourself? Do you want an exponentially larger company? Are you trying to get paid without working? Do you just want a stable income doing something you love?
Once you’ve defined your goal, take fifteen minutes every day to assess whether or not you’re meeting it. This could happen in the morning when you wake up, or even on your drive home in your head, but take time to plot your goals and ask yourself if you’re meeting them. These could be as simple as:
- Are you making a profit on each transaction?
- Is your acquisition cost on the path to where you’d like it to be?
- Are you able to spend your working time the way you want to?
- Is your team as fruitful as you’d like them to be?
The point is that if you know your goals, then you can recognize when you’re dipping away from them and into trouble.
It’s also much easier to identify potential problems when you’re above the water, than when you’re treading it.
2. How do you identify the key areas that need fixing?
You can’t afford to waste time on something that doesn’t lead to profits when your business is treading water—and you definitely don’t want to pool all your resources into something that’ll put you out of business.
Instead, you want to target the exact spots you need to fix to make the quickest impact. But how can you even tell what will have a quick or helpful impact when you’re in the thick of things?
You need to start by asking for outside help. Other trusted professionals and mentors may have a better perspective of what you need to tackle, especially if they’ve been in the same situation. That's why it never hurts to have a safety net of connections that can give you an outside perspective.
Find five business minds you respect, tell them exactly what's going on, and ask for their input.
PC: CB Insights
Prioritize the problems you find with the 80-20 rule.
You also need to identify the biggest things that are hurting you (and not the forty smaller things that add up). The bigger the problem, the bigger impact a fix will be.
From there, you’ll look at each of the those problems individually and ask:
1. What’s the reward for fixing the problem?
2. What’s the likelihood of having success?
The solutions with the highest rewards and best chances of succeeding are the ones you’ll want to target first. There may be one area that has the highest reward, but if its chances of succeeding are small, or the cost of implementing it is incredibly expensive, you’ll want to pass it up for something safer.
To put things into perspective, you can follow the 80-20 rule:
It'll take 20% of your time to fix 80% of the problem, and 80% of your time to fix the remaining 20%.
Is all that time worth it? In many cases, your best bet for surviving and thriving comes from spending 20% of your time to fix 80% of a lot of things. Then circle to shore up the rest, if it makes dollar for dollar sense.
You can’t fix everything, but ranking the areas you need to prioritize will give you a place to start.
3. What steps can you take to fix key problems?
You have to identify where to cut costs when you’re in a hole and don’t have enough to pay yourself minimum wage (or pick up the profits you need). But which costs do you cut so you can put money into the areas that need fixing?
Unit economics, which looks at direct revenues and costs associated with the most basic element of your company’s business model, can help you locate exactly where your spending can be adjusted.
You just need to start by identifying if you make a profit off of a transaction. If not, figure out where to cut costs for that transaction. If yes, figure out how to sell more. Then you can take that money and put it into other parts of your business that need help.
Every transaction you make should be profitable, and unit economics can help you figure out if they’re not.
4. Which metrics should you track to gauge progress?
There will always be at least some issues going on, so seeing steady improvement is vital to keep your business pushing forward in the right direction. That’s why creating your own metrics to measure that progress can be a valuable lifeline.
But how do you know which key metrics, or KPI, to gauge?
For starters, you definitely don’t need a thousand different ones. Your teammates need to focus on their roles and fixing problems—which they can’t do if they’re suddenly tasked with documenting a thousand different things on top of that. You never want your metrics to overwhelm your team.
Instead, pick one metric that will act as your business's north star. Usually profit per transaction or cost per acquisition offer the best insights.
The point is that you chose one that is a) objectively important to the problem you’re trying to fix, b) can be measured in a concrete way, and c) can influence your team to continue improving.
KPIs increase accountability across an entire team to reach your goals. Just remember to look at your data in segments to avoid basing results on averages. You want your numbers to constantly improve, not continue to average out.
Aside from KPIs, you’ll also be able to see a change in your team’s culture as things get better and you’re all less stressed.
You’ll have less meetings and tasks that immediately demand your attention, and you’ll have more time to address additional projects.
The biggest tell will be when your team is asking “How are we going to continue what we’re doing?” vs. “What problems are we trying to solve?”
Never Stop Looking at Your Business's Big Picture
It’s easy to lose patience and give up when your business is in a rut.
That’s why you need to ask yourself if you’re doing tasks simply because they keep your head above water, or if you’re diving down and focusing on the tougher things that really matter.
Figuring out your long-term goals and required metrics to meet those goals is vital for that reason—not only so you know you’re fixing the right things, but so you can also stay positive and see results.
You also need goals to have something to look forward to. If you’re not excited to fix the problem, you need to step back and identify those goals to help you carry through.
Never stop asking yourself:
1. Are the things you’re doing on a day to day basis make a long-term difference?
2. Are you and your team using your work time to its fullest?