When starting a business, most of us set out with a similar intention: work hard, create something amazing, sell it for what it’s worth, and build something that can stand the test of time. Before you launch, it’s easy to stay calm, be rational, and maintain focus, but once you’re in it, it’s common for that mindset to go out the window. It becomes easy to lose practicality and get caught in an emotional cycle of sell, sell, sell. And while sales are obviously important, they don’t mean much unless you are also creating a strong foundation for growth in your business.
This was a lesson that small business strategy and finance expert Erica Gellerman had to learn the hard way. It was only after she pulled herself from this maddening cycle — and found a more solid and stable ground for her business — that she learned to develop the tactics needed to make sure her focus was always on creating a strong foundation for growth, first. With a passion for helping creative entrepreneurs start, launch, and grow their business, today Erica is sharing her top three tips and strategies — ones that she continues to rely on today — to maintain focus, whether you’re just starting or have decades under your belt. –Sabrina
Tactic 1: Keep a clear focus on value
When scouring the Internet, it can look like everyone is creating the same thing you are. Competition is fierce and differentiation is difficult. When you’re busy comparing yourself to others, most people often default to comparing themselves on price. But by focusing on price, you’re missing the bigger business-building picture and you risk turning your well loved brand into a commodity. And nothing can kill a business faster than a race to the (pricing) bottom.
What can we do to avoid this bargain basement pricing scenario? Keep a clear focus on the value you are providing to the customer by creating a value proposition. A value proposition isn’t something you explicitly share with the customer, but is a guide for you, the business owner, as you continue to create, innovate, and grow your business. It keeps you focused on what matters to the customer and how you are meeting or exceeding that need with your business.
There are a lot of different ways to go about creating a value proposition, but author Geoffrey Moore provides this easy template to start brainstorming with:
For (target customer) who (statement of need) our (product/service name) is (product category) that (statement of benefit).
One brand that has a strong value proposition is Lululemon. Love ‘em or hate ‘em, those $100 pants have managed to command a premium amidst a sea of shrinking retail margins. Part of their success is driven by their value proposition.
Using the template above, a value proposition for Lululemon could be: For women who want to feel and look good before, during, and after working out, our athletic apparel is flattering and of the highest quality, giving women the confidence they deserve.
Tactic 2: Monitor Your Margins
Many business owners — and people who love to share business results — keep the conversation squarely focused on sales. But looking at sales alone is not the metric that is going to keep your business strong and primed for longterm growth.
Instead of just looking at sales, use your gross margin to monitor the health of your business:
Sales – cost of sales = gross margin
The gross margin is effectively the amount you make on each product or service that can help pay for other things in your business, like office space or salaries. How you want to break down your business is up to you, but you can look at your sales amount on a per product or per project basis. The cost of sales is the cost related to selling those products or services (materials, labor, shipping, etc).
Margins can give you insight into your business that you won’t see if you’re focused just on sales. For example, if your margins are too small, you may never have enough money to pay yourself or to grow your business beyond where it is today, regardless of how much you sell. Or, by looking at your gross margins, you may uncover that you have some products (or clients) that have the potential to be extremely profitable, but they’re not your current focus.
When looking at your margins, you might want to start with the following:
- Figure out which product or piece of your business is the most (or least) profitable.
- With your current margins, calculate how much you need to sell in order to pay yourself a certain amount.
- Look for costs that may be creeping up by comparing your gross margin for different months or years.
Tactic 3: Keep your money in check
I’ve saved the most important, but least exciting tactic for last. Knowing your books and understanding the flow of your money is crucial to building a solid business base. Being knowledgeable on the money side of your business can help you identify ways to make more, spend less, and know where and how much to invest in your business. Even if you have chosen to outsource your bookkeeping, staying in the details is extremely important. No one cares about your business or your money as much as you do.
Accounting programs for small businesses have come a long way in the last 10 years. There are now a number of programs to choose from (some free!) and there have been big improvements made in how user-friendly they are. There’s no excuse to keep using an excel sheet (or worse, a shoebox) to keep track of your business finances. If you have yet to try an online accounting program, I have an easy guide to help you get set up.
Once you have a bookkeeping system in place, there are a few things you should do weekly to be sure you’re running a healthy business. I set aside 15-30 minutes at the end of each week for a check-in or money “date” with myself. During this time I focus on:
- Sending invoices and paying bills
- Reviewing who still owes me money and following up appropriately
- Checking my cash flow position (how much money is currently in the bank, what I expect to come in and what I need to pay out over the next month)
- Logging any expenses from the week
Though this was something I dreaded doing at first, keeping myself up-to-date on my business accounts has actually helped to relieve a lot of anxiety around money. It has also helped me to make much more informed and timely decisions (such as firing a client and investing in training for myself).
As an entrepreneur, you pour your heart into your creative business and you want to see it succeed and thrive over the long term. Use these tactics to help focus on building a solid foundation for your business to bloom.