<li>One of the first rules in entrepreneurship is do whatever you do profitably. And when the business climate dictates cutting, slashing and trimming in the face of declining sales, staying in the black is perhaps more challenging than ever.</li> <li>“You don’t just want sales, you want profits,” says <a href="http://www.markcthompson.com/" target="_blank"><strong>Mark Thompson</strong></a>, co-author of <a href="http://nowbuildagreatbusiness.com/" target="_blank"><strong><em>Now, Build a Great Business! 7 Ways to Maximize Your Profits in Any Market</em></strong></a><em>.</em> “You want the ability to re-invest that profitability into growing your company and having something to pay shareholders.” Thompson was part of the team that took financial services firm <strong><a href="http://www.schwab.com/" target="_blank">Charles Schwab & Co.</a></strong> public in the 1980s, bought it back from <strong>Bank of America</strong> and grew it into a global firm in the 90s. He is now a venture capitalist, investing in companies in Silicon Valley.</li> <li>When the recession hit and the US economy nearly collapsed, Thompson and co-author <strong>Brian Tracy</strong> took a look back at the fundamentals and saw how the top-performing companies that have lasted for 20 years or more have been those who launched in miserable markets. From that analysis, they discovered the following ways entrepreneurs can keep their companies operating profitably.</li>
<strong>Exercise strong leadership:</strong> A lot of small businesses have ‘founderitis,’ says Thompson. “Usually your business is your baby and you have a hard time finding people who can grow and replace you so the business can grow,” he says. “But the founder has to understand that until they can stay home from the office on a particular day, you don’t have a business—it’s a consulting practice.” He says anyone who really wants to build a business will have to take a leap and trust their venture to partners in order to scale it up. He also cautions against hubris and advises spending time listening to the consumer. The customer is constantly changing and so you need the humility to always pay attention.
<strong>Have the right plan:</strong> First ask yourself if you have a plan that’s going to help generate greater sales and profitability. “One reason why profits are difficult is because people don’t stop and put the right measurements in place and think about how to do it better or how to do it over if they had to,” says Thompson. “When the most recent crash came, the ones that responded quickly were those who had a plan in place.” He points out that the book offers exercises and checklists to help the entrepreneur determine if his or her plan is a solid one.
<strong>Assemble the right team</strong>: Thompson recommends not waiting for quarterly or annual reviews to give performance feedback, but rather to engage employees at all times. “You need to make them as objective and measureable as you can so that feedback can be flowing in every week if possible,” he says. On the hiring side, he recommends looking at what behaviors the candidate has displayed in the roles for which you want to hire them. Ask what have they done in the past and look for patterns. He cites the rule of threes. “You interview them in three different locations, have three or more people interview them and get at least three points of reference on their past behavior.”
<strong>Develop the right product</strong>: What people fail to do really well in downturns is field testing, says Thompson. “The great companies have the humility not to assume that because they like it that the customer will,” he points out. He recommends mystery shopping competitors to assess the customer experience. “Some startups may think they’re so unique that there’s no competition but there’s always competition for consumer dollars. So get out there and see what’s happening.”
<strong>Don’t forget a marketing plan</strong>: As a smaller business, you should to be able to get closer to the customer and Thompson points out many of the more profitable businesses have been relationship based businesses. “You have to be really focused in your marketing to make sure you get the right customer—a profitable customer that’s a continuing customer.” He adds that marketing is a two-way street. A company can gain valuable information from the consumer. He cites Internet film rental company Netflix, which launched a contest and 50,000 customers competed to come up with better ideas on how to get people to order more video. “They got the customer doing the marketing and R&D departments’ jobs for them,” says Thompson.
<strong>Have proper incentives for the sales team</strong>: Most businesses just pay a straight commission, says Thompson, adding that the emphasis should not be on moving product, but rather being responsible for continued business. “At Charles Schwab, our mantra was we’re not going to pay our brokers commission based on how much product they move, but how many assets they bring in and retain,” he recalls. “If you can have the repeat customer, that’s where the profit margins are.”
<strong>Provide the best customer experience</strong>: “It’s been established that satisfied customers will leave you. The only customers that stay are the ones whose expectations have been exceeded,” says Thompson. “So you have to under-promise and over-deliver for people to think of you as having an extraordinary customer experience.” He says the experience is really the only thing that you can differentiate as many products can be made in a low-cost that can compete with yours. Also think beyond just selling your product to consumers—consider how your business can solve a problem faced by a customer.
<em><strong>Be sure to also read these other tips for entrepreneurs…</strong></em> <li><strong><a href="http://beinsider.ning.com/group/ecelevatorpitchcontest">Want to pitch YOUR business at our Entrepreneurs Conference? Click here to enter!</a></strong></li> <li><a href="http://www.blackenterprise.com/2011/01/21/top-10-tips-for-young-entrepreneurs/"><strong>Top 10 Tips for Young Entrepreneurs</strong></a></li> <li><a href="http://www.blackenterprise.com/2011/01/13/5-mistakes-millionaire-entrepreneurs-make/"><strong>5 Mistakes Millionaire Entrepreneurs Make</strong></a></li> <li><a href="http://www.blackenterprise.com/2010/12/14/5-mistakes-to-avoid-when-growing-your-business-internationally/"><strong>5 Mistakes to Avoid When Growing Your Business Internationally</strong></a></li>