Taking Risks In Business

Every business involves taking risks. When are they good risks and when are they bad risks? This could easily be summarized by saying that any risk taken without a plan is a bad risk. 

SPEND TIME IN DISCOVERY

With the rare exception, it can be said that the best risk takers are the best risk mitigators. These people often use the old SWOT acronym (strengths, weaknesses, opportunities, threats) and really spend time assessing those threats. They will understand the potential pitfalls and make a plan for minimizing them. 

In the year 2019 there is no shortage of data. Take the time to do the research and make sure that the market supports your product. This quantitative data is out there and will take your risk level down significantly.

For example, when we were planning to expand our Yours Truly Media brand we did the research and found out that the average person was spending about $30,000 on a wedding. This data allowed us to know where our price points fit and were our brand could be supported. 

On top of that, we decided to add in the qualitative factor. This included us visiting our new districts and assuring that the data was backed up by real life scenarios. For example, if brides in Texas (our potentially new location) were indeed spending $30k on weddings, but $25k of that was on a venue, our model would never work in that location. 

By doing all of this research upfront, you allow yourself to be in the best position possible to take the needed risks.

PUT IN A BUDGET AND A DEATH DATE

1. Budget

   In order for anything to work effectively there must be a budget and a plan in place. Simply jumping into something without the necessary tools in place is a recipe for disaster.

2. Death Date

   When setting out on a new venture it is important to put some metrics for success into place. Part of those metrics are a contingency plan to pull the plug if things do not work out. This doesn’t mean giving up all together, but reassessing and moving on to plan b. 

   The most difficult part about this is actually following through on your death date. As a business leader you are invested in this idea on multiple levels, including an emotional level. This often makes it difficult to actually follow through with reworking the plan or perhaps even cutting it altogether. This requires discipline and support for this to work well. 

   Don’t let passion blind you! Don’t be afraid to take a step back and move forward in a different direction

GET COUNSEL

Throughout this entire process it is imperative to have someone (or multiple people) by your side advising you. These trusted advisors will be able to give you an outside, honest perspective on your business that is vital to success. While it may seem necessary if you find yourself in a difficult place, bringing them on board early on may save you a lot of headaches.

Increasing Perceived Value

Everyone has a product or service to offer and we all believe that our product is the best… or at least the best fit for someone. So how do we help our potential customers understand our value? 

PERCEIVED VALUE DEFINED

Perceived value can be defined as “a customer's opinion of a product's value to him or he”. So basically, how much your customer thinks your product or service is going to better their lives.

UNDERSTAND YOUR AUDIENCE

The first key to helping your audience understand the value of your product is making sure that you are speaking to the correct audience. If you are trying to sell a Ferrari to a Honda Civic owner, you are not going to have a high level of success. We’ve found that most products, services, and customers can be placed into one of three categories. 

1. Value

   The value tier can be defined as “a good product at a good price”. If we use cars as an example, you might think of a Honda or Toyota. These cars are known for their reliability, longevity, and reasonable price points. It would not be unusual for you to see a commercial on television not only advertising one of these products, but also the great discount that was being offered. 

   Value products speak to their customers by offering discounted reliability. 

2. Premium

   We’ll define the premium tier as “pay more – get more”. When understanding a premium brand, some may confuse them with a luxury brand, so let’s make sure we understand the distinction. To continue with our car analogy, a premium brand could be something like a Cadillac or a BMW. While the price point is certainly more than that of a Honda, you are also receiving a significant upgrade in your product. This is clear when you see or test the product and is clearly articulated by the seller.  

   
   Premium products speak to their customers by educating them and helping them see the distinction in their product. 

3. Luxury

   Luxury products are all about scarcity and experience. This could be exemplified by something like a Ferrari or a Bentley. While the features may not seem to be any more extravagant than something in the premium tier, there is an attention to detail that won’t be found anywhere else. This attention to detail produces an experience that cannot be reproduced. The products are scarce in number and rely on their brand recognition. You will likely never see an advertisement for these products, they simply survive on their reputation.

   Luxury products speak to tehri customers about an experience that they will not find anywhere else. 

CREDIBILITY IS KING 

While this may sound simple, it is at the foundation of every great company. You may have a great product, but if you are not a reliable company it simply doesn’t matter. You must be willing to stand behind your service or product and deliver on what you say you are going to do, when you say you are going to do it. 

ASK OTHERS TO SHARE

To this day, there is nothing more valuable than the word of mouth referral. Ask your customers to refer their friends and colleagues and ask them to give online reviews. While this sounds simple, it will probably take a little bit of work and persistence. But look at it this way, that review is the better than any marketing dollars you can spend.

Scaling Your Business

In order to scale your business, you must first have a solid process in place. If you have questions about a process, be sure to check out our previous post on creating a process.

SCALING A PRODUCT BASED BUSINESS

Once you have your products in place and are ready to consider scaling, you must make sure that you are speaking to the correct audience. Buying habits are different in each location. If you are based in Southern California and are hoping to start selling in Texas, you must understand that you are speaking to a very different audience and they must be approached from a different angle.  

SCALING A SERVICE BASED BUSINESS

1. People  

   People are the biggest variable to any business. When you are running a service based business, culture is foundational. In order to keep the culture that you’ve worked hard to establish you must make sure that hire the correct people. It’s important to not only hire competent people, but also hire people that fit into your culture.  

2. Start Locally

   Consider expanding locally first. While it may be tempting to expand to the “perfect” market. There is wisdom to expanding locally, first. This will allow you to deal with any unforeseen problems and understand the growing pains of expansion. You can continue to take a hands on approach without too much difficulty. This will also allow you to train people to implement your culture and processes at other locations.  

3. Expand Further

   Once you’ve expanded locally, it’s time to spread your wings a little bit. Find one or two markets that make sense for you dive in. This process will be scary and no doubt have some unforeseen difficulties – and that’s okay. Be ready for them and address them as they come. This will allow your implementation teams to continue in their growth and understand the challenges of each unique market. This will also allow you to continue tweaking your process and make it an art. This process may take a year or more, so don’t be afraid to invest the upfront time – it will pay off in the next step. 

4. Scale

   Once you have invested the time needed to nail down your processes within your initial expansions, you can begin scaling exponentially. Take those processes and implementation teams and begin multiplying. By investing the needed time in the previous step it will have answered most of your questions and alleviated a lot of headaches.  

TAKEAWAYS

While every business is different and each will have it’s unique nuances and challenges, there are two key components that are universal and will be difference makers.

1. Protect your culture – define who you are as a business and defend it at all costs. This will begin with writing down and missions statement and will continue by making sure you have the right team members.  

2. Train people to train people – this concept will allow your business to grow exponentially. Rather than simple addition of you (or one or two others) training everyone all of a sudden you have the opportunity to multiply because you have effectively trained people to train others.  

Creating A System

I think it’s safe to say that every business begins with the intention of long-term success – nobody starts just to fail. But according to the Bureau of Labor Statistics’ Business Employment Dynamics, only about 50% of businesses will survive their fifth year. That number drops sharply to only 30% that survive their tenth year. 

So in order to achieve success, you must do what 70% of businesses are not doing. That bring to mind a few questions: What is that? How do I figure it out? Where do I start?  

The average business begins with an idea or product that is centered around one person or a small group of people. While it’s understandable that your early days would be centered around an entrepreneur who has created a product or thrives at a service, long-term success can be achieved much more rapidly by thinking outside of yourself. Establishing a system for the future rather than today is the first step in the right direction.  

BEGIN WITH THE END IN MIND

In order to make a solid process, you must first know where you want to go. A local, family run business has a much different process than a national or international service business. Decide who you want to be and who you want to service, then work backwards from there.  

EVERY BUSINESS NEEDS THESE THREE Ps

Multimillionaire and serial entrepreneur Marcus Lemonis has said that there are three Ps that determine the success or failure of a business. 

People: To grow your business, you need the right people behind you, but it’s also important that you consider fit and place people in the right roles that match their skills and talents. Once you’ve assembled your team, make sure to create an enabling environment where they are supported and set up for success. 

Product: A close examination of your product is the next element of business success. Consider pricing, sizing, packaging, whom you will target, and how you will get your message out there. Remember to view your product as customers will view it and make modifications as needed. 

Process: To grow your business, you must also have solid processes in place. This will make the business more efficient, guard against financial problems, and allow you to replicate the model when it’s time to scale. 

CREATING YOUR PROCESS

Begin by making your process as simply as possible. Start with the large bullet points that outline what your company does and then break that down. Be willing to invest time into this process because it is the foundation to everything you are building. An easily understood process can not only be passed on to new team members but can also be replicated for future growth.  

Once you have solidified your process, know that it will likely change as you grow. We live in a rapidly shifting culture, so you must we willing to shift your process slightly to keep up. But by taking time with the initial process establishment, it is feasible that 80% of your initial process will carry you for quite some time.   

Pro Tip: Make sure to involve your team members in your process review – they will see things you do not.  

TEACHING YOUR PROCESS

There are certainly many ways to teach your process, but we have found that this simple SOS system works well for us. 

Show It · Observe It · Shape It

1. Show it

   Yes, it’s as simple as it sounds. Show you your team how your process works. Live out every single step with them so that they can see how it works and what you expect.

2. Observe It

   Now that you’ve shown your team how things work and what is expected, make sure they get it. See how they are performing and make sure that they understand the why of the system. This process may take a while and often requires patience. It can be easy to think , “This would be quicker if I just did it myself”. But you must remember that this is about long-term sustainability, not immediate gratification.

3. Shape It

We think of this as “trust but verify”. Your team member understands your process and your culture, so let them run their lane and coach them as needed.