At this point, you’ve launched and you’re either profitable, or you have a plan to become profitable.
If you’re working on a plan to become profitable, you have to first make sure that you have enough money to last until you become cash flow positive.
For example, when a partner and I took over a restaurant from one of my clients because he’d run out of money, we had done a plan that would get him from where he was to profitability in about a year. However, the plan required about $150,000 of additional capital which, it turned out, he didn’t have. I and a partner did.
So, we assumed the lease staffed it the way that we thought it should be, and kept going. And, we lost about $150,000 before we became cash flow positive. But, we largely stayed on plan.
We had to redo our promotion plan, because we discovered that, with a tough location and a cuisine no one had heard of (Modern American) we had to really promote by word of mouth. However, our patrons loved us, and a couple of influential magazines loved us, so slowly traffic picked up.
We also discovered that our patrons thought of us as a supper club which was a concept that no restaurant in Maricopa county was doing, but we have a lot of Midwestern and Eastern transplants, it was a matter of getting the word to them. We did all sorts of promotions to get patrons in the door, because we knew once we did, that there was about a 75% chance that they’d return. And we really listened to what the patrons were saying, because we discovered that word of mouth really worked. Eventually we got word of mouth up to about 95%.
So, we sort of pivoted.
Seldom does your original plan go as planned.
So, you have to consider changing what you’re doing to some extent. Your customers will tell you what they think is good and not so good about what you’re doing.
Your employees will also tell you what could be done better, because they’re on the front lines, making product, serving customers, etc.
I have done in several businesses, and have urged my clients to do, listening sessions, which might be on Friday afternoon after the trucks have been loaded, or they might be on Sunday afternoon in your restaurant before you open for Sunday evening.
WHY SHOULD ANYONE BE LED BY YOU?
One of the things you discover in growing a business is how good a leader you are or aren’t.
You have to communicate your vision of where your business is going, and be prepared to take (hopefully) constructive criticism about what could be done better.
I and my business partners have always liked the concept of ‘management by walking around’ which was popularized by a management consultant named Tom Peters in the 1990s.
You can wander around your shop or warehouse floor, or your front counter, or, as I did on many nights, sit out in front of our restaurant and talk to passersby. It was a rather hokey, but very effective, tactic. It was so effective that a couple of our neighboring restaurants complained (there were four of us in a row, all different styles of food).
The tactic you might use is just taking orders from your customers for an afternoon a week. Or go to industry trade shows.
I wasn’t particularly good at running a business (you can find key people for that), but I have been very good at leading others to run segments of the business, figuring out market niches and how to exploit them.
HOW DID YOU HEAR ABOUT US?
This is a rather corny old practice, but it works, particularly for business-to-business companies.
This phrase is good because all of your people who are interacting with customers should be writing down on customer records how each customer heard about you, so you can determine which of your promotional methods work.
Somewhere in your startup phase you should have put in a budget for promotion, which includes sales, magazines, coupons, whatever you had in your original plan.
Let’s assume that you planned for 10% of your sales to be spent on promotion of various types. You can measure the return on each promotion method by figuring out how much was spent and how many customers in produced. You should have positive results for all promotion vehicles, but some will be better than others, and gradually you’ll winnow out the less productive methods.
I’m always amazed at how many promotional sales people don’t have that information available.
Regardless of whether you’re business is retail or wholesale, these practices apply. I’ve used them in six different businesses and one civic organization, and they work.
ARE ALL CUSTOMERS GOOD CUSTOMERS?
In your startup phase, possibly.
However, as you grow, you will discover that some customers are literally more trouble than they’re worth.
Given the state of computer systems, and data mining, you can figure out how you’re doing on each customer.
If you have customer profiles on everyone, the challenge becomes how to weed out, say, the least profitable 10%. In our restaurant, after we became pretty strong in our execution, and our word of mouth was strong, our waitstaff would politely put a handwritten note in the check; I would back them in their decisions (this only happened a few times in three years).
If you are in a business to business situation, I’ve trained some of my clients’ counter people to put people on hold and then raise prices a little on them. If they complain, counter people can even suggest the competition as in ‘that’s the best we can do’. If you’re quoting for business, various prices will work.
You are not normally going ‘loose money on every item produced and make it up on volume’ (a famous aphorism that came out of a large automaker), although you might for a while getting to breakeven and positive cash flow.