As a business owner, you need to quantify the actual dollar value that you represent, per hour, for your business. This information is essential because you will base every decision about workload and responsibility on the result of this assessment.
• Determine the gross annual revenue of your business
• Determine the percentage of this revenue that you generate
• Multiply this percentage times the annual gross revenue and you will have quantified your annual revenue contribution to your company
• Divide your contribution by the number of days you work per year
• Divide this number by the average number of hours you work per day
Example:
• Gross revenue of a small business: $500,000
• Owner generates 80% of the revenue
• $500,000 multiplied by .8 = $400,000
• $400,000 divided by 300 (example of a business owner’s number of work days per year) = $1,333
• $1,333 divided by 10 (example of hours worked per day by a business owner) = $133
• This business owner generates $133 per hour for their business
The importance of determining this dollar value is that this business owner now knows that every hour they are working, they generate $133. Now, if the business owner knows that they are only spending 50% of their time generating revenue, the more accurate representation of their value will be double this amount or $266 per hour.
Every single business decision that this business owner makes should now be measured against this dollar value. Examples:
Hiring:
• It costs this company $266 per hour for the owner to read applicants’ resumes
• If an employee reads the resumes it costs the company perhaps $25 per hour
• It costs the company $240 per hour for the owner to read resumes
Ordering Inventory:
• Owner: $266 per hour
• Employee: perhaps $25 per hour
• It costs the company $240 per hour for the owner to order inventory
As a business owner, list the daily tasks that you are responsible for. Label every task as either RG (Revenue Generating) or D (Delegatable). Create and stick to a plan that optimizes your time and your contribution to your company’s revenue. You will quickly see that you aren’t saving your company money by doing some of these tasks yourself, you are costing your company money. Make smart, informed decisions, your business will live or die as a result of these decisions.
What, Exactly, is Sales?
I define sales as the act of negotiating the transaction between a problem and a solution. There are others who may argue, but they would be wrong.
A customer will only purchase something that they feel provides value. Value is entirely in the eye of the beholder and can take any form imaginable. But let there be no misunderstanding, there must be value or there is no incentive for the customer to purchase.
As a sales person, the goal is to identify exactly what the customer’s problem is. The most common tactical error is to start the selling process by presenting the service or product that you are selling. Without properly engaging the customer and identifying their problem, you have no right to present your solution and assume that they will match it to their problem. More importantly, you have no way to know the value proposition to present because you don’t know what problem is that you are trying to solve.
Take the time to engage your customer; learn what the problem is that they are dealing with. If you do have a solution to their problem, then it is time to present your solution and illustrate the return on their investment. Once they agree that your product or service is the solution to their problem, now the selling begins; it’s time to negotiate the transaction.
The best sales person in the word sells the same product as his or her competitor for a higher price. More importantly, their customer knows that they got good value for their money.
A customer will only purchase something that they feel provides value. Value is entirely in the eye of the beholder and can take any form imaginable. But let there be no misunderstanding, there must be value or there is no incentive for the customer to purchase.
As a sales person, the goal is to identify exactly what the customer’s problem is. The most common tactical error is to start the selling process by presenting the service or product that you are selling. Without properly engaging the customer and identifying their problem, you have no right to present your solution and assume that they will match it to their problem. More importantly, you have no way to know the value proposition to present because you don’t know what problem is that you are trying to solve.
Take the time to engage your customer; learn what the problem is that they are dealing with. If you do have a solution to their problem, then it is time to present your solution and illustrate the return on their investment. Once they agree that your product or service is the solution to their problem, now the selling begins; it’s time to negotiate the transaction.
The best sales person in the word sells the same product as his or her competitor for a higher price. More importantly, their customer knows that they got good value for their money.
Does a Good Idea = A Good Business
One of the most uplifting and disappointing things about meeting someone with a new business idea is their belief that their idea could make them a fortune. Just to be in the same room with someone sharing their idea and its potential is an uplifting experience. The smiles, the conspiratorial atmosphere, the dreams that follow... But when the rubber hits the road, can they actually make any money on it? Disappointingly: not likely.
Good ideas require business savvy and expertise to translate them into financial success. In fact, I will argue that it has very little to do with the idea at all, but more importantly it is the people behind the idea who will determine the commercial viability of a product or service.
To prove my point, note the following:
• If I ask you to find a small stone, I bet you can do it in under a minute, anywhere in the world
• In 1975, Gary Dahl sold more than $15 million worth of small stones in 6 months (equal to more than $56 million today)
• Welcome to the Pet Rock
Now, think about how many great ideas have not been commercially successful, ideas that provided massive value compared to the Pet Rock, and try and tell me that the person behind the product isn’t the deciding factor.
There are a number of key questions that have to be asked when trying to determine the commercial viability of a product or service:
• Legally, are the rights to your idea available?
• How much will it cost to produce your product or supply your service?
• What is the $ value of your target marketplace?
• How will you connect with this target marketplace?
And the most important question of all:
• Can you make any money?
If you don’t have the skill set required to assess, develop, and close your new business idea, then the most important decision you make will be who you partner with to make your project a success. Each one of the simple questions above leads to a myriad of complex questions which need to be addressed prior to committing any significant resources, time or money, to developing your new business idea.
Spending a little money up front can save you an enormous amount of personal and financial heartache down the road. I much prefer to hear uplifting stories of success from people who did it right than listen to stories of disappointment that end with, “I learned a lot”.
Good ideas require business savvy and expertise to translate them into financial success. In fact, I will argue that it has very little to do with the idea at all, but more importantly it is the people behind the idea who will determine the commercial viability of a product or service.
To prove my point, note the following:
• If I ask you to find a small stone, I bet you can do it in under a minute, anywhere in the world
• In 1975, Gary Dahl sold more than $15 million worth of small stones in 6 months (equal to more than $56 million today)
• Welcome to the Pet Rock
Now, think about how many great ideas have not been commercially successful, ideas that provided massive value compared to the Pet Rock, and try and tell me that the person behind the product isn’t the deciding factor.
There are a number of key questions that have to be asked when trying to determine the commercial viability of a product or service:
• Legally, are the rights to your idea available?
• How much will it cost to produce your product or supply your service?
• What is the $ value of your target marketplace?
• How will you connect with this target marketplace?
And the most important question of all:
• Can you make any money?
If you don’t have the skill set required to assess, develop, and close your new business idea, then the most important decision you make will be who you partner with to make your project a success. Each one of the simple questions above leads to a myriad of complex questions which need to be addressed prior to committing any significant resources, time or money, to developing your new business idea.
Spending a little money up front can save you an enormous amount of personal and financial heartache down the road. I much prefer to hear uplifting stories of success from people who did it right than listen to stories of disappointment that end with, “I learned a lot”.
SMEs - Live or Die
A business without revenue growth is an expensive hobby.
In small and medium sized businesses, it is the exception and not the rule that individuals start their business day with the singular goal of generating revenue. Most of the time, people simply pick up the work that they didn’t finish the night before, never stopping to prioritize projects or re-assess the economic reward of their outstanding workload. Occasionally, we encounter individuals who create hard copies of their calendars, ensuring that their unfinished tasks are completed. We have yet to meet an individual, with either a self-imposed or corporately-driven mandate, who begins every single day by prioritizing their scheduled tasks based on the potential of each task to generate revenue for the company. It simply doesn’t happen.
How did we forget why companies were created in the first place; to make money. We go to work every single day in order to generate revenue for our company, which in turn generates revenue for ourselves and our families. Can anyone tell me, for the love of all things sacred, how a small or medium sized company benefits from having its owner or a valuable employee spend any amount of time doing anything other than generating sales revenue? Interviewing and hiring, policies and procedures, cleaning, organizing, random meetings and updates... For all of you who think that duties such as these are a part of running a business, I offer a different perspective.
If the primary revenue generator of a small or medium sized business is responsible for 75% of the overall sales revenue for their business (often this number is closer to %90), and the business generates $250k a year in sales, the following holds true:
• This individual generates $3750 per week or $833 per day
• Assuming a 10 hour workday, They generate $83 per hour
Every hour that this individual does anything other than generate sales revenue, they cost their company $83 an hour. If you are the primary revenue generator for your company, you are not saving yourself money by doing your own hiring etc, you are costing your company money and that is unacceptable. Stay focused and make smart business decisions. Your job and your company will live or die as a result of your business decisions.
In small and medium sized businesses, it is the exception and not the rule that individuals start their business day with the singular goal of generating revenue. Most of the time, people simply pick up the work that they didn’t finish the night before, never stopping to prioritize projects or re-assess the economic reward of their outstanding workload. Occasionally, we encounter individuals who create hard copies of their calendars, ensuring that their unfinished tasks are completed. We have yet to meet an individual, with either a self-imposed or corporately-driven mandate, who begins every single day by prioritizing their scheduled tasks based on the potential of each task to generate revenue for the company. It simply doesn’t happen.
How did we forget why companies were created in the first place; to make money. We go to work every single day in order to generate revenue for our company, which in turn generates revenue for ourselves and our families. Can anyone tell me, for the love of all things sacred, how a small or medium sized company benefits from having its owner or a valuable employee spend any amount of time doing anything other than generating sales revenue? Interviewing and hiring, policies and procedures, cleaning, organizing, random meetings and updates... For all of you who think that duties such as these are a part of running a business, I offer a different perspective.
If the primary revenue generator of a small or medium sized business is responsible for 75% of the overall sales revenue for their business (often this number is closer to %90), and the business generates $250k a year in sales, the following holds true:
• This individual generates $3750 per week or $833 per day
• Assuming a 10 hour workday, They generate $83 per hour
Every hour that this individual does anything other than generate sales revenue, they cost their company $83 an hour. If you are the primary revenue generator for your company, you are not saving yourself money by doing your own hiring etc, you are costing your company money and that is unacceptable. Stay focused and make smart business decisions. Your job and your company will live or die as a result of your business decisions.
When To Fire An Employee
As a business owner, one of the most important responsibilities on your plate is to ensure that every single employee adds value to your company.
I define value as: individuals who generate income for your company or individuals who support those who generate income for your company. For this exercise, imagine that this ‘value’ is binary. Yes or No are the only two options.
An employee is either a positive or negative ‘asset’ of your company. How do you determine which type of asset your employee represents?
• Each employee should have a job description. The job description should include the role and responsibilities of the individual as well as the metrics being used to grade their performance. The employee should not only be aware of this document, they should have signed it. This document is the most important indicator of an employee’s success or failure in their role.
• 360 Degree review. As a performance review tool, these reviews are very effective at gaining feedback on your employees. Each review requires a questionnaire to be filled out by all of the colleagues who work directly with an individual (managers, peers, and subordinates). The summary is presented back to the individual (with all of the comments marked ‘anonymous’). The weakness of a 360 degree review is the required anonymity of the respondents. If the pool of respondents is too small, it will perceived as easy to figure out who made what comment. As a result, individuals are not confident that their feedback will be without repercussions and will withhold criticisms as a result.
• Monitoring of an employee. Keep an eye on your employee, what they are working on and how they perform in their role. The goal is not to micro-manage the employee, rather, the goal is to position your interest as providing support to the individual in order to help them succeed.
These three simple assessment tools can give you significant insight into your employee’s positive or negative contribution to your company. Remember that the scale is binary and there is no room for compassion. If the person provides value, reward them, support them, and develop them. If the individual does not provide value, remove them from your company. Whatever the appropriate action, it will be the best thing you can do to support your business.
I define value as: individuals who generate income for your company or individuals who support those who generate income for your company. For this exercise, imagine that this ‘value’ is binary. Yes or No are the only two options.
An employee is either a positive or negative ‘asset’ of your company. How do you determine which type of asset your employee represents?
• Each employee should have a job description. The job description should include the role and responsibilities of the individual as well as the metrics being used to grade their performance. The employee should not only be aware of this document, they should have signed it. This document is the most important indicator of an employee’s success or failure in their role.
• 360 Degree review. As a performance review tool, these reviews are very effective at gaining feedback on your employees. Each review requires a questionnaire to be filled out by all of the colleagues who work directly with an individual (managers, peers, and subordinates). The summary is presented back to the individual (with all of the comments marked ‘anonymous’). The weakness of a 360 degree review is the required anonymity of the respondents. If the pool of respondents is too small, it will perceived as easy to figure out who made what comment. As a result, individuals are not confident that their feedback will be without repercussions and will withhold criticisms as a result.
• Monitoring of an employee. Keep an eye on your employee, what they are working on and how they perform in their role. The goal is not to micro-manage the employee, rather, the goal is to position your interest as providing support to the individual in order to help them succeed.
These three simple assessment tools can give you significant insight into your employee’s positive or negative contribution to your company. Remember that the scale is binary and there is no room for compassion. If the person provides value, reward them, support them, and develop them. If the individual does not provide value, remove them from your company. Whatever the appropriate action, it will be the best thing you can do to support your business.
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