Sunday, December 21, 2008

Your business is not you

I received a comment on my previous post about making a business profit. By no means am I implying that you should run a business into the ground sole for a dollar but again I don’t see many people running a business for PROFIT.

Let’s go back a step and again ask what are you in business for? You need to answer this honestly for it to be worth anything. If you tell me you are in it to make money or if you are in it simply to enjoy a reasonable life then they are both admirable goals BUT they not compatible with each other. You can only do one or the other. If you tell me that you are in the business to make money and yet are not focused on improving the efficiency of your business operations then I hate to tell you that you are fooling yourself. If your business is totally dependant on you to run it day to day you are again fooling yourself. If you are simply charging for your time with no leverage and think you are running a business, you are still fooling yourself.

If you tell me that you are running a business to make money then that’s what you need to be doing everyday. You need to set goals and strategies to help you achieve that. Tell me honestly, if your goal is to make money from your business is that written down anywhere? Have you developed a documented plan on how you will achieve this? If you tell me that you have but it is all in your head, I’m sorry that isn’t good enough. Why? Show me a profitable business elsewhere that has its plans “in its head”. I think you’ll struggle to find one.

Many small business mistakenly believe that they can simply earn revenue and allow a business to grow organically over time. Mistakenly they believe that, like compound interest, the value of their business will simply grow year on year. Mistakenly they believe that at some point in the future they can sell their business for a handsome reward. Wrong, wrong, wrong.

There is a major difference between business revenue and business value. Your customers provide revenue but only you can provide value to your business. If you are simply going out every day and charging for you time and not adding value to your business where do you think it is magically going to come from? I strongly believe that there is limit on how much any business can produce selling pure service. The secret to value is product. Now that product can include service components but it has be something tangible that a customer wants to buy. Simply selling maintenance will give you short term revenue but it will not add long term value.

Your business is not you. It should be totally separate from you. It should not need you to operate. If your aim is to make money then you need to be an owner of a business not a manager or a worker in that business. All an owner does it set the business in motion and collect the rewards. If you are not moving towards being an owner everyday then don’t fool yourself that you are running a business. You instead have a very enjoyable, comfortable hobby which is perfectly fine as long as you accept the fact that you are rarely going to get rich from your hobby!