When it comes to your business, Bigger is not always better!

It is a widely published statistic that about 50% of businesses fail within the first five years. The less known fact is that these failed entrepreneurs may actually be the lucky ones!

The majority of the remaining 50% of businesses that survive the “first five years” trap, never attain their true potential, with most racking up debt and their owners perpetually stressed by the growing levels of uncertainty faced by their business. 

While these owners are widely admired by budding entrepreneurs yet to embark on the search for corporate fame and elusive business success, many entrepreneurs’ reality is less appealing; they frequently feel like they are battling to tame a scary, cash-eating monster that is growing out of control. No amount of talent, ingenuity, passion or skill will change the fact that for businesses, cash is still king.

If you are an entrepreneur or plan to become one, you are likely to confront this problem. Here are a few tips to help:

1.    Avoid the traditional entrepreneur’s philosophy that bigger is better:

Most entrepreneurs put “growth” at the centre of their endeavours, thinking that more sales, more customers, and more funding makes a better business. Growth is only half the equation. It is an important half, but still only half. Most business owners try to grow their way out of their problems, hinging salvation on the next big sale or customer or investor, but the result is simply a bigger monster. They treat profit like an afterthought, secondary to growth. Their undisciplined pursuit of growth often has the unintended effect of further eroding their profitability and potentially running their business into the ground. You can’t grow out of your profit problem. You need to fix profit first, then grow. A small, consistently profitable business can be a lot more valuable than a large business that struggles to sustain itself. 

2.    Not every customer is profitable, and not every sale is a good business:

Successful entrepreneurs are discerning enough to identify and fire unprofitable clients while refocusing their attention on their most profitable ones. Letting go of unprofitable clients who eat up your margins helps create management attention for clients you can serve exceptionally well and with fewer resources.

3.    Clone your best clients:

Think of your best client, one that appreciates and pays you what your service is worth, on time and without question. Now, imagine that this client has ten identical-twin companies that are willing to do business with you. Wouldn’t that boost your profits? Having clients with similar needs create significant profit-enhancing benefits:

a.    Your business will become more efficient because you serve fewer clients with similar needs rather than a large array with different needs. Sustained profitability depends on efficiency.

b.    Marketing and sales become a lot easier, more coherent and cost-effective.

4.    Focus disproportionately on growing recurring revenue:

Businesses with recurring revenue streams are more predictable and stable. The owners can forecast revenue months in advance, create budgets with a higher degree of certainty and make big bets on investment with lower risks.

5.    Focus on your most profitable products and services:

Products or services with the highest gross profit margin are the most important as they generate more positive cashflow. Once you have identified your most profitable items, concentrate on achieving higher sales targets for them. This may require you to divest from less profitable aspects of your business.

6.    Train and incentify every employee to sell:

The biggest challenge for most businesses is the lack of revenue. Equipping every employee with the skills to sell and rewarding them can significantly improve productivity and help your business do more with less. 

Revenue is vanity, profit is sanity, and cash is king’.

The most successful businesses can no longer be defined solely by size or customer base, but rather by their ability to attract, retain and grow the best customers, efficiently utilise valuable assets and develop their distinctive capabilities to stay ahead of competition. The winners will be those entrepreneurs who can link the above factors together and explicitly target success.