I am competitive by nature. I enjoy taking quizzes to see how well I know my geography, or if I can answer trivia questions about the 80’s and 90’s or whatever other challenge some clickbait link is throwing at me.
I can’t pass them up and I like to see where I stand when they compare my score to the rest of the people who took the test.
So when I was thinking about how to rank various businesses and what metrics make for a good business versus a less good one I had the idea that maybe there should be a quiz for that!
Then I could rank myself and as I am asked about or reviewing other businesses I’d have a more objective way to review which ones were good and which ones could use improvement.
These are the questions I came up with (in no particular order)- rank each one on a scale of one to five, with one being not good on the metric and five being excellent.
OK, got your score? The best score you could get would be 40 and the worst would be 8.
Not as high as you were hoping? Or not sure how to answer some of these or how important they are? Or do you think I left out some really important criteria (especially if you would have done really well on it)?
Let’s go through the questions and what they mean for your business and how you might consider working to improve each one.
I’m just going to run through each question and add some context and what it would take to max out each one. If you got a five on any of these, you can skip over them!
1.The perfect customer for my product/service is quite specific and well defined
If you know exactly who your customer is then you can find them and market just to them and speak to their exact needs and desires. The less you can do this the more you are going to waste ad spend and put out the wrong message that hits the wrong way. This goes along the lines of the advice to niche down and be the biggest fish in a small pond instead of being just another average fish in a huge ocean.
2. My profit margin is consistently positive every month and at least 25% of my revenue
If you have ups and downs in your profits or your profits are in the teens or single digits (or worse) then it is much harder to grow, invest in improvement, or even make running the business worth your while. Some businesses can do OK with smaller margins if they have high volume, and some can trade profits now for fast growth and market share as long as it’s temporary. Eventually though 99% of small businesses need to be profitable and the higher the profit the better for surviving slowdowns, building in growth, and overall business value.
3. Cash comes in at or before the time I am required to spend it on labor or materials or fixed costs for a given sales cycle
The more you have to spend first before getting paid, the harder it is to grow and the more you may have to borrow (at a cost) to just manage paying the bills. To the extent you can figure out ways to shorten your collection cycle or get it to work in your favor your business life will become much less stressful.
4. My customers know my business name/brand and can accurately describe what makes us different and uniquely better than the competitors that they may be considering for their needs
First, the owner better be able to describe this because if they can’t then how would you expect the customers to do so? If your customers don’t know your business and why they like it then there is nothing to keep them coming back or referring other people to you which is the lifeblood of most small businesses. You need to stand out, for good and unique reasons, in a way that your customers care about and remember!
5. My business has lots of room for growth and I know exactly how to achieve it
Some businesses don’t and even if you do everything else right if there is not much opportunity it’s hard to make it happen. If it might be there and you just don’t know or understand how then that is something to prioritize figuring out so you don’t waste time on the wrong things!
6. If I wanted to sell my business today it would be easy to find ready buyers and they would have no trouble taking over with minimal training from me and the business would have no issue continuing to perform the same or better after I was gone
If your business relies entirely on you and only you know how to do most of the critical functions, then in many ways what you really have is just a job. It may be a high-paying one, but it’s still a job that is going to require someone else who wants a job to take over and it will need you to provide a ton of training and knowledge transfer to make it happen. Hopefully you don’t burn out before that day comes and just decide to quit. The way to overcome this is to put systems in place, bring on and train staff, and delegate your day-to-day tasks to others. That way, you can focus on growth when you are there but also take time off when you feel like it without the business falling apart. As a bonus for accomplishing this, it also makes your business much more desirable when you do sell and enables it to sell for much more of a premium.
7. I get referrals and new word-of-mouth business all the time from current customers without asking them for it or incentivizing them to send it to us
If your customers love you and send you referrals then you are doing something right. If you only have negative reviews and struggle to get referrals then the problem is bigger than just being able to grow that way. Figure out how to get your current customers to love you and before you know it you’ll start getting more and more of them knocking on your door. It really is just that simple.
8. My business is in a growth industry/currently expanding market segment
All else being equal, being in an industry that is expanding is easier because there are constantly new customers coming around that have no pre-existing relationship with any provider. This means market share is there for the taking and you can grow just by showing up. If you are in a stable industry then you mostly have to grow by taking customers from someone else. If you are in a declining industry you have to do that but from a constantly shrinking pool of candidates. If you find yourself in this position the best thing you can do is recognize it and figure out your options. Otherwise, you just keep experiencing the pain with no way out.
Alright, how did you do? Are the ones you aren’t getting a full five on ones you can figure out how to improve? The benefits of having a great business are many- they make more money, cause less stress, and self for a lot more when you are ready to exit.
Plus, it’s just more fun to run a growing profitable business than it is to try and figure out how to rescue a money-sucking dud that is slowly dying on you! If you need help with improving your score, let me know- this is the kind of thing I love doing the most.
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