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Principles Of Small Business Success | Up And To The Right | Episode 041
In the production of every issue of the show, I talk about proven business principles and something feels right about that for me when I say it. I was asked lately by a colleague what a proven business principle was. I’m embarrassed to say I was uncomfortably tongue-tied by the question.
This whole idea came to me when I was talking to someone and they asked me what is an example of a business principle, and I didn’t have a good answer for them. As I said in the beginning, it makes sense to me. The question was perfectly reasonable but the whole idea of not being able to answer it was uncomfortable for me. I looked at that scenario. What does that mean in terms of business for a small business owner? Part of this was a self-exploration, how do I articulate the value that Beyond 50 Percent brings to customers in a way that’s meaningful? I felt like that was something that I needed to be able to say.
What is a business principle? How do we figure out what those are and how they apply to our business? What did I do? The first thing I did was I started searching what is a business principle? If you type in business principle in a search engine, I got 368 million hits. Even the top page of results from that search were enlightening in a lot of ways. Most of them didn’t strike me as what a principle was. I felt like it was something I know it if I see it, but I don’t know how to define it. I went to the definition of a principle. A principle, according to Merriam Webster, is a comprehensive and fundamental law doctrine or assumption. That helped me. I said, “This thing, whatever it is, it has to be fundamental and universal.” It has to be something that creates a foundation, but it also has to be something that applies across a spectrum. It needed to be something that was applying to all business and fundamental to those businesses. You need to be able to do these things in order to move on. This is why you might be thinking to yourself, “Why does this matter? Who cares if there’s a principle or a tactic?” Something that you do that’s specific.
What difference does it make if it’s a tactic or a principle if it adds value to your business? They can both be beneficial but it’s important to understand what the foundational elements are. What things do we have to have a handle on to make sure that we understand our business or what is going on or how to build our business? The words matter and they matter because we attach importance to words. The word, principle, has connotations. Even if you can’t necessarily spout the definition as I couldn’t, but I understood in my heart what it meant. That’s why I knew how it felt when I did the intro. I couldn’t articulate it specifically to somebody when I was asked, but we know those meanings. They’re built into language that we use in our day-to-day lives. Whether we might not appreciate having vocabulary assignments in early school or even later school, they do have value because it teaches us what words mean. We use those words to associate value with something in marketing. We twist that and we use words to assign value not to associate value that’s already there, but to assign value that isn’t necessarily there to something.
In an ethical marketing or whatever, we don’t do that but it’s common. I think we get away with it sometimes when we use words in a hyperbolic way. When we say something is a principle, like one of the things that was an example, build a great team. That’s a super good idea if you need employees. It’s not a principle because it’s not universally applicable, but it was listed as a principal to give it value. To concretize the status of that statement as something important, instead of simply saying, “These are important things you can do.” The author of this particular blog post or article said, “These are principles because it feels better. It feels loftier and more important, but the words matter.”
The Six Fundamentals
The principles of business need to be identified because we need to be able to put the appropriate amount of attention to the things that are foundational. I went on this internet search and then I fought about it for myself. I did come up with six things that I feel are fundamentally important to business and universal to all businesses that want to have longevity and do good work are going to need to address these six things. There may be more and we can add to the list, but these are the first six that people can work on. Getting a handle on them will give you a good idea of what you need to work on in your business.
There’s vision, planning, communication, value, cash and profit. You can see that none of those things is necessarily a tactic. It’s not something that you do. It’s not an action that you take. As a practical person, as an action-oriented person, I don’t want them to be these 30,000-foot concepts that don’t provide value. We need to find some structure around them that allows us to take action to promote or enhance that fundamental within our business. The first thing that I talked about is vision. There’s the vision that we see in the media, where it’s the C-level people in the company go to a retreat and they come up with these great words that they hang up in the lobby and that nobody reads or understands. It’s almost meme-ified that in terms of the pointlessness of that vision statement or mission statement. I’m not saying that mission statements are bad. I’m saying that they’re commonly misused.
They are something that isn’t integrated into the core of the company. It might be something we want to integrate into the core of the company or something we would like the core of the company to mean, but that doesn’t reflect what’s happening in a business. I wanted to pull that together and say it’s more of an understanding your place as an organization in the social and economic environment now and into the future beyond what you can reliably see. If you keep too short a focus, your focus can be on the product that you sell because the product is relevant in the next five years. Your vision should be relevant fifteen years into the future.
The products that you sell may have nothing to do with that mission in fifteen years. The products you sell may be completely obsolete in fifteen years or ten years or whatever that timeframe is. It’s about how you fit. How your business fits into the culture that you’re in. Both socially and economically in the future beyond where you can plan. Now as well, but it has to be something that you can say. For example, “Beyond 50 Percent, I want to help small business owners. I want to help them now and I want to help them fifteen years from now.” That’s a vision because it applies to something that is as far as we can tell, “There will be small businesses in fifteen years and there are some now. My hope is that I can help them.” That’s a vision.
It’s not specific. It’s not a plan. It’s where I want to fit as a business in this place, in our society and in the economy. Planning, this one’s an interesting one because I feel like planning can be action-oriented. It’s good for people like me who want to be doing stuff. You can gravitate quickly to this concept of planning, but we have to be careful. Planning is a trap because we can plan and not do anything. I did an episode about planning a number of months ago. I don’t know the number, but the episode is called Plancrastination. The idea is that small business owners are faced with a certain level of constraints.We need to identify the principles of business because we need to be able to pay attention to the things that are foundational. Click To Tweet
Our labor hours or our coworkers, working capital, number of hours in a day, the pool of expertise, we have access to the equipment that we have, all of these things provide a boundary, a scope of constraints around our business. If we plan beyond the ability of those resources to take action, to complete, to be successful, then it’s a waste of time. We want to plan to the end of our visible horizon and that horizon is the constraint of our resources and then we want to stop. I’m not talking about not ever thinking past the two-year plan or the one-year plan or the six months that I can see. I’m saying you don’t plan detail around something you can’t put resources toward. You say, “In ten years, I want to own a building.” “Three years I want to own a building.”
It might be okay for a Fortune 500 company to assign a bunch of resources to putting that together on a ten-year time frame. Most small business owners can’t do that. We don’t have time and we don’t have money. That’s as simple as that. If we say, “Ten years from now, I want a building.” We need to put that in a bucket of ten years and you go back to last show. Put it in the right stage of your business under the right revision of your business and say, “I’m going to put that aside because I can’t act on it now.” There’s no point in detailed planning around it. We want to plan to the visible horizon and then we want to stop so that we can take action on the things that we can do.
The next thing that I want to talk about is communication. This is why we have to be able to communicate effectively both internally to our team, maybe external colleagues, accounting, legal. If you don’t have those working directly in-house, there are still internal communications. We need to be able to communicate internally effectively. We also need to be able to communicate externally effectively. That is where your disciplines like marketing, advertising, public relations. All of those things are built into that external communication.
If we go back to the internal communication, what do we have? Human resources, leadership, management, all of those skills hinge on the effectiveness of your communication. How well can you deliver the message, your idea, the things, the action items that need to be completed in order for you to execute your vision in this current timeframe or execute the plan in this current timeframe? We need to be able to understand and there are many ways we communicate. We don’t always associate them with each other or with the mission. We’re seeing a lot of that now.
If you’re watching or participating in a lot of Zoom meetings, WebEx meetings, Skype or whatever virtual meeting space you’re using, a lot of people aren’t connecting that experience with their mission. They’re not familiar with the tool. I’ve done an episode on this as well. It’s okay in the short-term because there’s some buffer, but video is here to stay and understanding how it fits into the mission or into our communication is important. The same thing goes with the explosion of social media. How does that fit into our brand? Communication becomes this huge tool. Does anybody care about what I ate for breakfast in terms of Beyond 50 Percent? No.
My Instagram feed does not include random pieces of my life. Part of that is because I don’t believe it’s something that is going to be valuable to my audience. The other thing is I’m not going to lie. That’s not something I’m going to do anyway because social media is not a recreation for me. It’s a communication tool for business. It all matters. If you’re a lifestyle personality or something like that where your audience has a different relationship with you, then you have a whole different set of constraints or rules about what social media is appropriate and what’s not?
It’s business dependent. We have to understand all of these tools. We then can go back to regular email. What is your email? How does your email speak to your company’s message? I have specific things that I like to have in an email. If it’s the first email of the day, always put a salutation. If it’s the first email of the day, always have your signature in it. I leave my signature in all my email, but the first and last one need to have them. The first interaction in the day should always have that stuff involved. I always like to include some gratitude and some introduction or something human in the email before I get to business.
By nature, I want to get the problem solved. That’s me. I want to get in there, deal with whatever’s got to get dealt with. We’re always dealing with people and we need to understand that as we communicate. How you communicate in email, Instagram, and video all needs to contribute to your message. That becomes fundamental. How you do that and the better you do it, that’s not going to be good grammar. It’s not going to be good communication. The better you communicate, the stronger that foundation in that portion of the foundation in your business will be and that’s going to be something that is important as well.
Next, we have value. We want to create value for others. That’s the bottom line. You hear the term value proposition, the buzzword. At this point that phrase is overused and has become cliché to the point where it doesn’t have good meaning in the broader language. Another phrase that you’ll hear is what problem does your product or service solve? There’s an implication there that a product or service has to be practical. There are a lot of practical products and services. There are also lifestyle and recreational products and services that are valuable to their customers.
The problem statement belittles the recreational lifestyle products and services. We need to be careful about that. The idea is the same or the idea is maybe a combination of those two things. How is solving that problem valuable in improving the lives of your customers? We’re going to take a broader definition of problem here instead of saying, “It’s a problem like my leg is broken and I need to go to the hospital.” We’re going to take a problem either as an unmet need in somebody’s life or a legitimate problem like a broken leg. Even a want, there’s probably no need for specific recreational activity, but there is need for recreation.The six principles of small business: vision, planning, communication, value, cash, and profit. Click To Tweet
How does your product or service solve that problem? How is that solution valuable in improving the lives of your customers? We think that approach and it’s specific like that for a reason. It isn’t about having a better widget, the better mouse trap, build a better mouse trap. The world will beat a path to your door. Nothing that was ever said in history is less true than that statement. That could be an episode on its own. How does solving that problem add value to your customer to improve their lives? We want to be able to create value. That’s part of what our business needs to do. The next thing we need to do is we need to be able to manage cash.
In the general economy, it’s about cash. What it’s about if you break it down a little bit further, it’s about understanding trends, transactional economics. You could be in a system of barter and you would still have to deal with the in and out of transactional value whether you were using currency or something else. We’re going to continue to use the analogy of cash at this point because most people will be using cash. How do you get cash in? When do you get cash in? How is that process managed? What happens to storage and currency? Are you storing it in a bank? Are you storing it in a safe? Are you storing it under your mattress? What is the storage mechanism for your cash?
How does it go out of your business? Do you have automated payments? For small businesses, we have to take a long and careful look at automated payments. They’re convenient, but you give up control of your cash. If it’s a small payment, maybe it’s a mobile phone bill or something like that. It’s a few hundred dollars and it doesn’t matter in the grand scheme of things, then it simplifies your life. If it is a significant part of your expenses or you run a thin cash business, you might need to be careful about that and it’s worth looking at. How does cash go out of your business? How do you manage cash? Businesses will go out of business because of cashflow. When the rest of their business is fine, people love their product. Their product has high margins. They understand how to deal with customer service. They’re great at communicating. They’re great leaders. They’re adding value. All of those things can be set. If you don’t understand cash, you can go out of business.
Profit: Principle And Moral Question
The last one is this topic of profit. Profit as a business principle might strike some people as a little bit odd but it is important and I’m not talking about as much possible profit as possible. I’m not talking about money necessarily. Nonprofits, ironically, can’t profit financially. That doesn’t mean that there isn’t a place for this concept of profit in every organization including a nonprofit enterprise. Profit is not about the money. It might be about the money, but it is not by definition about the money. Profit from my perspective is being able to draw value and to grow benefit and give.
You need profit so that you can grow your business. We could add one other thing here, operate. We still have to have cash in to operate our business as a status quo. We then want to benefit. There’s no point in owning a business if there is no benefit. It’s a lot of work. If we can’t benefit from that in some way, there’s no value to us. We want to operate, grow our businesses. We want to benefit from owning a business and then we want to be able to give. There are a few things there that matter. Giving being simply the delivery of a quality product or service, that’s a give.
It’s not a gift because you’re getting back for it. Someone’s paying you, but it’s still a give. It’s still an offering to the marketplace. There’s then the giving of charity. If you have enough money coming in and you do well enough and you have the opportunity to give back, that is part of profit. It is being able to say, “I have accumulated this through delivering a good quality product or service. I want to share that with things that are important to me.” The concept of profit needs to be looked at not in terms of finance, but in terms of operating and growing the business.
Benefiting the business owner and giving. People are going to be saying, “What about egregious profit or profiteering?” There is a place for that question. I think it’s hard for us to answer that question. How do you say how much is enough? Who knows how much is enough? I don’t know. People can assign how much is enough, but generally speaking, people who assign that value are assigning it based on their own perspective and their own circumstances. We have these CEOs and we look at them and they’re being compensated $10 million a year or something.
How much is enough? It’s an easy question to ask when you make $55,000 a year. How it’s possible to excuse a board of director’s offering $10 million a year to somebody to do a job. I don’t have the answer to that question, but what I can tell you is that the CEOs of large companies that are able to leverage the resources of that company 1% or 2% better than the next person in line will gain the company far more than their compensation. It’s not as a moral question, but from a business perspective, paying someone $10 million to create $100 million worth of value in that same year by coordinating the efforts of an organization that they do $100 million better. That is an easy business question to answer.
Yes, I’ll do it every time if they can make that work. The moral question is a different one. I’m not going to try and enter into that discussion. I wanted to say that when it comes to the business question of whether or not these people are worth $10 million or whatever in terms of their salary. If they can do the job, from a business perspective it’s an easy question to answer. As we think about how much is enough though, the way I look at it is the less choice your customer has then the more you need to be sensitive to the level of profit that you make. The way to think about this is for a luxury item, let’s say you like watches and you want Tag Heuer or a Rolex.
I honestly don’t care how much you charge for that. I don’t care how much people pay for them. I can get a Timex at Walmart or Target. It’s going to be $50 or $20. If I need a watch, I have a lot of options. I don’t care how much profit they make at Tag Heuer, more power to them. If they create a watch that is compelling to people who value that, that they’re willing to spend $5,000 on a watch. That’s great. It’s the same thing with Rolex, same thing with any product. I’m still waiting for the Audi Electric Sedan. That’s something that I would be interested in, but there are Priuses and Volks. I have options. If they want to make a ton of profit on that, I might not buy one but that’s my choice.Profit is not about the money. It is being able to draw value and to grow, benefit and give. Click To Tweet
I have the choice. Luxury items, things that people can easily choose between an economical version and the luxury version then profit all you want. This is the way I look at it, but things that we have less choice about like food and medicine, that’s a different thing because we have to have food. We have to have medicine or in our culture, we assume that we have to have medicine. We’re going to run with that for now. That’s a debate for maybe a different show. A different show probably altogether. Things that are not luxury items, things that are subsistence items, that’s something we have to be much more careful about making a profit.
We’re still in the COVID-19. We’re trying to ease out of our lockdown. Early on, there were some people who bought a whole bunch of N95 masks and hand sanitizers. They hoarded a bunch of hand sanitizers and made news negatively for doing this because they were going to turn around and sell it as an extreme profit. Profiteering in that kind of way, as a culture, we were outraged. We should have been. There’s a moral question involved there. You don’t do that. That’s not right. The less choice your customer has, the more you need to be sensitive to the profit that you’re making. That does not mean that you don’t deserve to make a profit. You don’t deserve to benefit from your business. You absolutely have to. You have to be sensitive to your position in the economy. That’s where we have to draw that line. That line is going to be gray. It’s not going to be black and white. It’s going to be white and fuzzy. There’s a lot of moral ground there that you have to cover when you start talking about, how much is too much? What industries are okay to make obscene profits in or what do you have to keep thin profits in?
You’ll see that grocery stores make thin profits. They have to move a lot of product to stay solvent. What are the six principles of small business? Vision, planning, communication, value, cash, and profit. If you take those six things and we’re going to get into the practical part of this now is how do you take those six things? How do you use this time of your life and improve your business?” The first thing to do is write them down and think about how you apply each of those in your business. I’m not talking about writing a vision statement and putting it on a sign in your lobby. I’m talking about identifying and understanding your vision for your business. Identify and understand what is your planning horizon? How far can your resources take you before there’s no point in planning anymore? Is it a month? Is it a year? Is it five years? What does that look like to you?
How do you understand cash? Do you understand it well enough? Do you understand what the value of your product is to your customer? What is the value of solving that problem in improving your customer’s life? How do you communicate? What are your communication tools? Are they consistent? Are they being used effectively? I do a show on Fridays called Casual Friday on Facebook Live. It’s the same content as this show. I have colleagues that won’t touch Facebook. They don’t think Facebook is valuable for business to business and they may be right. I’m trying this show and we’ll see what happens. I’ve done 6 or 7 episodes. Is the communication tool you’re using valuable for your business? How do have you know? Have you done any tests? Have you tried it? Put all of those things into perspective. Write it down and see what makes sense. It’s important to create some intention about how you’re going to handle those things and then use the right tactics. The action things to get those things done.
For the next six episodes, I’m going to take each of these principles and we’re going to do a show and we’re going to drill down into that specific principle and try to get much more practical about each one. The next one’s going to vision, that’ll be next episode. We’ll be talking about vision and we’re not going to be taking the 30,000-foot view. I’m going to be talking about how do you get down and dirty and understand what is your vision for your business? Where do you fit into the culture now? Where do you expect to fit into the culture in fifteen years?
We’ll then go through each of the other principles as the weeks progress with the same approach of digging into how do we create value for our business out of those. How do we give our business a solid foundation based on these fundamentals, based on these principles of business? If there are any questions or comments or if you’re watching on YouTube, please leave them in the comments section. I do monitor the comments on the YouTube videos. I respond to them. If you are interested in getting some help fixing a specific issue that you’ve found within your business or implementing or creating a new value-added portion of your business, give us a call at Beyond 50 Percent.
Go to Beyond50Percent.com for more information about how we consult with businesses to help do those things. If you’ve enjoyed this, please share it, like it, subscribe to the Beyond 50 Percent YouTube channel and hit that bell. Every time that we go live or when we’ve uploaded new content, we do have some new programs coming out in the next couple of months. It will probably be a couple of months before we start releasing those. We are looking forward to having that stuff out there and you’ll be notified when those release with the bell. Aside from that, I’d like to thank you for reading. It’s time for me to get back to work.