Understanding the basic business problems and challenges
All businesses face the same challenges and problems. The first of these is to answer three basic questions:
- What to produce (Problem identification & Prioritisation)
- How to produce (Economic formula & profit maximisation)
- Whom to produce it for (Suffering the most from the problem)
When a business begins it is based on a hypothesis that answers these three questions.
A hypothesis is a theory relating to how you believe something will react to given stimuli or action.
The biggest problem for most businesses is that the theory and the expected outcome are never quite the same. Why?
The answer is execution risk.
Execution risk is the risk that our plan of attack will not work.
The question then becomes a matter of defining execution risk and the elements that contribute to the degree to which these risks block your path to success.
(1)Execution risk & the basic economic problem.
The basic economic problem is that we have we unlimited wants and needs and limited resources from which to satisfy these requirements.
Hence the interaction of supply and demand otherwise known as market forces.
Why are market forces such a big problem?
- We cannot control them or their outcomes
- They are in a constant state of flux and therefore forever changing.
How does this impact on your business?
This comes back to supply and demand
The diagram above is an over simplification of a very complex system of interactions.
The supply and demand equation is not simple and has many different variables which contribute to a markets outcome. However, there are four mains variables that contribute to the buyer decision.
- Price (no loyalty)
- Features (value & loyalty created by function)
- Image (value & loyalty created by brand equity, trends and social acceptance)
- Service (value & loyalty created through treatment and experience)
Every person within a given market is different with different needs and will react differently to different stimuli based on their perception, making it very difficult to stereotype a market place and accurately predict reactions and demand.
Markets are constantly changing in terms of beliefs, attitudes, numbers, requirements and spread making the challenge of stabilising the long-term demand required to grow a business beyond a million dollars becomes a difficult proposition.
To add insult to injury a business owner must also consider its competitors and their offerings. One of the major industry forces that effects a business’s demand is the presence of alternative and substitute products and services. This force cannibalises a market, distracts buyer attention and spreads demand amongst competing ends.
Market forces that dictate the behaviours of supply and demand are a barrier to the effectiveness and a major limitation of marketing. Marketing does not ensure success because marketing does not provide a business with control over market forces. This is a major contributing factor to why 60% of businesses still turnover less than $200,000 per year and 20% of that 60% turnover less than $50,000 despite huge capital investment in marketing with limited return on investment.
The reality is (and this is backed up and confirmed by statistics) that only a very small percentage of business are capable of rapid growth and have the capacity to exceed $2,000,000 in turnover per year.
What do you need to do to overcome market forces and ensure you attract and retain enough market share to stimulate business growth beyond a million dollars?
You must achieve outcomes for your customers in terms of:
- Results (achievements)
- Satisfaction (experience, no problems / obstacles)
- Reliability (consistency)
- Innovation (features, functions)
The proof is in the pudding – This will ensure that you achieve and provide value in terms of features and service which will overtime convert into brand equity and loyalty. This will provide your business with the foundations and repeatable revenue streams required to support a sustainable and expanding business and ensure your business is protected from your competition.
(2) Execution risk & business development (evolution)
Business growth to and beyond a million dollars requires a business to evolve in the following areas:
- Business model (economies of scale, sustainability, profitability)
- Time & place management (opportunity management, psychology, strengths)
- Access to capital (cost of expansion, financial results, investment)
- Ability to plan and control outcomes (foundations, framework, measurement)
- Market share (attract, retain, repeat revenue, channels & access to groups)
- Strategy (Action and reaction / cause and effect, innovation)
- Infrastructure (systems, procedures, practices, regulation, repeatability (efficiency), replicability (effectiveness)).
- Economic conditions (money supply, globalisation)
- People (management, resources, structure, satisfaction & result management)
- Risk management (minimisation, protection)
Business on a small scale is not difficult to achieve. In order to achieve personal goals and become satisfied with a business most business owners will generally require a higher level of success from their business.
Unfortunately, most businesses don’t develop beyond the definition of micro or small because they lack the sophistication to address the execution risks highlighted above. Business is a function of internal and external economics.
In order to overcome business development limitations a business must address all the issues required to facilitate sustainable growth. This requires more than just marketing; it requires a detailed knowledge, expertise and application of advanced business concepts.
For most businesses overcoming the bottleneck in development at the small scale of business will be extremely difficult without professional assistance. Business owners committed to developing larger scale businesses really do need to take a complete a holistic approach if they want to give themselves any chance of achieving their ultimate business vision.