No is the hardest word for most of us to say… I was speaking with a business owner the other day about how things were going and he said that they were going really well. He’d hit his income targets for the year a few months early and was extremely happy with his progress. All of which sounds great.
However as we dug down a little more into the business he’d done over the last 12 months it turned out that the vast majority was of a consulting nature, which is fine if you’re looking to build a consulting business but not in this case.
This person was looking to build a business focused on IT services that in a few year’s time he could sell and his problem was that although he’d hit his revenue targets, this revenue was tactical in nature and not strategic. He was in the process of building a business around him and his core competence.
So why is this a problem? Building a business around you and your core competence raises a few issues:-
- You’re hard to replicate, yes you can probably get somebody with a similar skill set but can you get somebody with the same love of your business? I doubt it.
- Your customers or clients will always want to deal with the ‘main man’ (or woman).
- You can’t scale the business. To increase revenue you have to work more hours (this quickly becomes ‘no fun’).
This business owners stated ambition was to create a business that was capable of being sold in a few year’s time, this was his strategic aim. The problem was that his tactics were the opposite of what he should be doing.
By chasing any type of revenue, and focusing the business around himself he was making the business basically unsellable, even though his revenue target was being met.
In chasing his revenue target he’d taken on pretty much any type of business that he could do. Failing to say NO to the wrong type of business. If he’d spent some time to think strategically he would have quickly come to the conclusion that he was doing the wrong thing.
It wasn’t strategic revenue, it was one-off consulting revenue which meant that after every contract was completed he’d have to go out and find another one to replace the revenue from the contact that had just finished. It wasn’t recurring.
Why you want recurring revenue. They make a company more stable and predictable, both operationally and financially, lowering the risk that business will take a drastic turn from one month to the next.
If this business owner had spent his time developing a recurring revenue stream then, that not only provides revenue to run the business but adds an element of equity to the value of the business overall.
He could, of course, go further and develop the necessary systems in his business that removed his involvement entirely. This would have added a massive amount of equity to his business.
Actually, this case is not that unusual. I find that quite often people focus on ‘the numbers’ and by ‘the numbers’ they mean revenue and when you look at it as a pure number, where it comes from and the nature of the revenue is pretty much irrelevant. This, of course, is quite natural, you’ve got to pay the bills after all.
However, if you’re looking to build a sellable business you need to think a little differently. You have to think strategically and match the tactics to the strategy. Thus chasing any type of revenue doesn’t cut it. You have to learn to say No and pursue the right type of revenue which will add not just to your bottom line but to the balance sheet as well.
This problem occurs for many business owners for one simple reason. Lack of accountability. There’s a saying that goes:- “The Good news is that you’re your own boss, bad news is that you’re your own boss”. So the good news is that as your own boss you get to choose, you get to choose what you do, how you do it and if you do it at all. The bad news is that you and your results are a function of those choices. So although you’re free to choose, you’re not free from the consequences of those choices.
The answer to this dichotomy is addressing both the accountability issue and the strategic direction issue. Getting an accountability partner goes some way to addressing the first issue but this doesn’t always address the 2nd issue. However, the right business mentor will not only address the accountability issue but also be able to steer you along the right path in the first place.
If you want to know more about this, why not schedule a discovery session with me (Click here).
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