As we celebrate National Small Business Week, it’s the perfect time to reflect on the journey of entrepreneurship and the vital components that contribute to success. Whether you’re gearing up to sell a business or just started building your company into something to sell for profit in the future, the “ST 6 P’s” framework discussed in my book Exit Rich with Michelle Seiler Tucker will help. Essentially, “ST 6 P’s” encapsulates the critical pillars of running and building value in your business. From the heartbeat of any enterprise, its people, to the critical aspects of product, process, and protection, the below advice should serve as a guiding light for entrepreneurs navigating the intricate landscape of business ownership.
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Here are the “ST 6 P’s” as well as 4 additional essential components of a successful business.
People: Number one of the “ST 6 P’s” are the backbone of your company and you cannot grow your company without them. From technical expertise to customer service to mentoring, be sure to have the right people in the right positions to optimize your opportunity for success. However, many owners become upside down with employee overhead, especially if operating in industries that have slim margins. It is always advisable to structure compensation that’s based on performance.
Product/Service: Consumers create the demand, therefore review your products/services and evaluate if your industry is thriving or dying. The most successful businesses solve problems and/or serve needs. If your product is not in demand then your business will decrease in revenues, which decreases profits. Ask yourself, what business am I in, what business should I be in? Get crystal clear on where the demand is and then create products and/or services to meet the demand.
Process: Lack of processes and documentation can significantly contribute to waste, inefficiencies, loss of productivity and decreased profits. Processes are necessary to scale your successful business and create added value (they can become valuable intellectual property that provides your competitive advantage.)
Proprietary: You don’t know what you don’t know. Many business owners have lost money, gone out of business or filed bankruptcy, all because they did not protect their IP (Intellectual Property). If you did not federally trademark your company name, slogans and logos, you could wind up in court, costing you millions. Your intellectual property also includes copyrights and patents as well as your reputation (goodwill), your database, your proprietary processes and more.
Patrons: Customer concentration is one of the biggest causes of business failure. The golden rule is that 80% of your revenues come from 20% of your clients. If 60 % of your revenue is tied up in one to five clients, and you lose one or two, you will lose money and can be at risk of losing your business. It’s imperative to always diversify to increase your client base. It’s also important to keep existing clients happy as it’s more expensive to acquire a new client than to retain your existing clients. If you have a strong social media following, be sure to “invite them home” to your database. This adds value to your business.
Profits: Know your numbers, study your KPIs (Key Performance Indicators) daily and implement checks and balances. Protect yourself from the embezzlements every year that occur due to lack of owner’s inspection, checks and balances. Many business owners don’t have a savings account, which means no reserves during times of tight cash flow. It’s crucial that you have savings in which to weather the unforeseen occurrences that could completely shut down your business, such as the Coronavirus. Millions of businesses will go out of business because they only have enough reserves to operate for a few weeks/months.
Location: If all your business is centered around your town/state, and a natural disaster occurs/ and you don’t do business in any other area, then your business will lose profits and could be at risk of going out of business. It’s imperative to diversify your client base and locations so you can have a business that can operate anywhere. Some businesses expand into other locations by licensing their products and/or services to other businesses in those locations in return for royalties or profit-sharing. Those licenses become your intellectual property.
Manufacturing: If your business manufactures in other countries, and a catastrophe occurs that shuts that country down, you could lose significant profits and be completely out of business. Manufacturers should never put their eggs all in one basket by having manufacturing in only one area. It is best to have backup manufacturing plants that can be ready to start at any time.
Technology/Cyber Security: Inefficient technology can cost the company loss of productivity, inefficacies, and loss of profits. A hack can cause a company to lose everything, go out of business and possibly face client lawsuits. It’s imperative that business owners invest the money to ensure they are protected and are in compliance with cyber security and privacy best practices.
Legal Protection: Unfortunately lawsuits are prevalent and many are without merit. Regardless of merit, you still have to spend money defending such, which will obviously decrease profits. Protect your business with proper insurance such as E&O, liability, workers comp, malpractice, disability, life and business interruption insurance. Business interruption insurance; depending upon the policy will cover your expenses if a disaster occurs.
As we embrace the spirit of National Small Business Week, let us remember that profits are not merely the end goal, but rather the outcome of a holistic approach to business management. By focusing on the “ST 6 P’s” – from nurturing our people to safeguarding our intellectual property, diversifying our clientele, and embracing technological advancements – we fortify the foundation of our businesses for sustained growth and resilience. Together, let us champion the spirit of innovation, tenacity, and adaptability that defines the small business community, ensuring that each venture thrives and flourishes in an ever-evolving landscape.If you’d like more information, check out my latest book Exit Rich, a Wall Street Journal and USA Today Bestseller. Too many entrepreneurs push off planning for the sale of their business until the last moment. But for a business to sell for what it’s really worth―or even more―owners need to prepare for the sale from the very start. Exit Rich is a wonderful resource for any business owner looking to objectively evaluate their business before a sale, to improve the chances of finding the right buyer, and to sell the business for maximum profit. For more information, visit sharonlechter.com today.
Author: Sharon Lechter, an internationally renowned financial literacy expert, is a 5-time New York Times bestselling author, entrepreneur, and mentor. She advised two US Presidents on financial literacy and is a member of the AZ Financial Literacy Task Force. Her books include Rich Dad Poor Dad, Three Feet from Gold, Think and Grow Rich for Women and How Money Works For Women. She loves spending time at her ranch, Cherry Creek Lodge in the Tonto National Forest. From hosting retreats, welcoming visiting guests or just enjoying nature, she loves sharing it with others. Visit sharonlechter.com for more information.
