Business Success – An Elusive Dream?
Business success may seem distant and exhibit an almost dreamlike, but how do you turn your ideal fancies into a reality?
Success is certainly not easy to come by. Why do some people become successful in business while others don’t? Success is built over time and is the result of a peculiar mix of luck, dedication, Unfair Advantages and long-term planning.
There are, however, a number of simple (but never easy) ways to give yourself the best chance for success.
We didn’t study business in school or at university, so the following five lessons are straight from the horse’s mouth.
This blog breaks down the five crucial lessons that we have learnt over the years that help us survive and thrive in this competitive industry and could set you up for business success.
Watch our video with an extra bonus tip!
Lesson 1: Research Your Industry and Know Your Strengths
What are the average profit margins in your industry? How many businesses are there competing in your field? What is the barrier to entry in your field? What regulations and protocols need to be followed in order for you to operate?
All of these questions and more are key to understanding the potential challenges and pitfalls that can affect the chances of your business.
If a whole industry is known for its slim margins, how can you be different? If there are many businesses competing within your field, how can you stand out and be counted? Is it easy for others to enter your domain and take your business? Is there a lot of regulation within your industry which could make it easier or more challenging?
Many business owners only start with a single idea and a rather ideal dream of how their business will rise to the top. At least come armed with an answer to each of these questions before taking the step of opening your business. This is the key to ensuring your start-up is set up for business success.
This is where unfair advantages can come into play. It could be the unfair advantage of the university you went to, your location or your family’s socioeconomic background.
Take Evan Speigel for example, the self-made billionaire CEO of Snapchat. His parents were successful lawyers, he went to an expensive private school and grew up in a large house in L.A.
Or Bill Gates who attended one of the only high schools in the world with a computer in the 1960s. These are unfair advantages by anyone’s standards.
So what were our unfair advantages?
Well, in our case, Prajay and I were both fortunate enough to go to a local private school. Prajay did graphic design at uni and had been tutoring since the age of 17. In an industry such as tuition where maths and English questions were easy to produce by almost every tutor, non-verbal reasoning questions (questions using 2D and 3D shapes) were not and were a rarity in the market, as were well-designed books. It obviously also helped with creating marketing materials, workbooks and branding. He also spent a lot of his spare time DJing and producing music which translated directly into being able to edit videos for our YouTube Channel and knowing a little about sound for our Podcast. (Easter Egg: the podcast theme tune was produced by him).
In my case, aside from having an excellent education, I also developed my understanding of finance in my upbringing, as my mum has always stressed the importance of saving. This interest in money management continued into my twenties, so I pursued a master’s degree in economics after a year working abroad in Korea as an English Teacher. This focus on money matters has really helped me improve my understanding of financial management within the business. I also had the chance to develop my creative writing at university in a university society, which has helped me propel the business forward in terms of content writing, SEO and marketing.
So what are your unfair advantages? Everyone has them, and understanding yours could be the key to unlocking greater business success.
To read more about how to start your own business and what type of business to start, read The Unfair Advantage, a book that Prajay has just finished reading.
Lesson 2: Cashflow is Necessary for Business Success
Cashflow is the lifeblood of any business.
Cashflow is simply the net inflows and outflows of the business. Usually, a more profitable business is more likely to be cashflow positive, however, this is not a hard and fast rule. Some very capital-intensive industries are cashflow positive, yet do not make a profit. Also, many businesses will actively attempt to bring profit down to avoid tax liability.
A business as long as it has enough cash/current assets to pay its expenses and short-term liabilities is still alive. However, even a business with great potential can become insolvent without prudent cashflow management. Cashflow is usually the better measure of a company’s investment worthiness than cashflow, so I would often be more interested in the free cash flow of a potential investment rather than a price-to-earnings (PE) ratio.
If you are interested in learning more about investing, you might like to read my book:
In operating our own tutoring business we are of course interested in the long-term profitability of our business, but in practical terms, our greatest concern is whether we can keep the lights on, pay our monthly and short-term debts, and pay our employees/contractors.
The key to cashflow management is actually being paid first. What does that mean? This means securing payment from clients as soon as possible, spreading bills and expenses, and making sure that cash inflows and cash outflows are as predictable as possible.
The power of subscriptions
One of the keys that unlocked our business potential was building a subscription model into our tutoring business and signing up clients to direct debit by using GoCardless. The subscription model also simplifies our business and makes it more straightforward for us and our customers.
It is also possible to take one-off payments and have multiple subscriptions on a single client account.
Have an Overdraft Facility in Place
Although not all businesses are cyclical, many are. During the year, cashflow can be lumpy, and there may be times when your business becomes unprofitable as inflows cannot keep up with outflows. We certainly have cycles within our business and an overdraft is a brilliant safeguard to have in place (remember profit does not equal free cashflow).
An overdraft is suitable for your business if you expect to briefly experience points where outflows exceed your inflows. The longer you stay in an overdraft, the more expensive it is (over a year it will be more expensive than a business loan).
If you have a highly capital-intensive business, or expect your bank balance to be below zero for a long period of time, then a business loan would certainly be a more prudent option, as the interest rate is likely to be more favourable over the long term.
Even if a business is not cyclical, an overdraft facility can help a business when there is an unexpected expense (although an emergency fund is better in this case).
In short, cash is king, and ensuring that inflows are positive when compared to outflows from week to week and month to month should always be a major consideration when building a business.
Lesson 3: Think ROI (Return On Investment)
As the director of a business, you play a critical role in not only shaping the company’s culture but also the company’s direction and making decisions that can significantly impact its trajectory. One of the key responsibilities in managing a business effectively is ensuring that the capital available is invested wisely to generate a return on investment (ROI).
Methods of Raising Capital:
Loans: Businesses can raise capital by taking out loans from banks or financial institutions. These loans come with interest and often have a specified repayment schedule.
Share Capital: Companies can issue shares to investors in exchange for capital. Shareholders become part-owners of the company and share in its profits (and losses).
Bootstrapping: This is the money generated by the everyday activities of the business. It includes revenues from sales, minus operating expenses. We would recommend starting in this way, especially if your business doesn’t require a physical space. It’s how we started and how we still operate to this day.
Investing Cash to Generate a Return
Immediate Return: Some investments yield an immediate return. For example, purchasing inventory and selling it at a markup can result in an immediate return on the investment.
Short-Term Return: Short-term investments may include activities like marketing campaigns or product development that are expected to yield returns within a few months or a year.
Long-Term Return: Long-term investments are typically more strategic and can take several years to provide a return. This might include research and development for a new product, expanding to new markets, or acquiring another company.
Considerations for Investment Decisions:
Risk Management: Every investment carries some level of risk. It’s essential to assess the risk associated with each investment and decide how much risk the company is willing to take on.
ROI Analysis: You should conduct a thorough analysis to estimate the potential return on investment. This includes considering not just the expected profits but also the time it will take to realise those returns.
Alignment with Business Strategy: Investments should align with the company’s strategic goals. They should support the company’s mission, vision, and long-term objectives.
Resource Allocation: Resources are often limited, so you must allocate capital efficiently. This means prioritising investments based on their potential for ROI, and their alignment with the business’s strategy.
If you want to read more about finance, read my personal blog.
Monitoring and Adaptation:
After making investments, it’s crucial to continually monitor their performance. This may involve adjusting strategies if investments are not yielding the expected returns or exploring opportunities to maximise returns.
Be prepared to adapt to changing market conditions, competitive landscapes, and emerging opportunities. Flexibility is key to making investment decisions that lead to long-term success.
In conclusion, managing a business effectively requires a keen understanding of capital allocation and investment decisions. This involves choosing the right sources of capital, wisely investing it to generate various types of returns (immediate, short-term, and long-term), and continually assessing and adapting strategies to ensure the company’s long-term growth and business success.
Lesson 4: Marketing is Crucial for Business Success
When embarking on the journey of starting a tutoring business, we quickly realised that our initial understanding of business was rudimentary at best. Terms like “marketing” and “advertising” were initially nebulous concepts, and it wasn’t until we delved deeper into the world of business that we truly grasped their significance.
It’s essential to recognise that marketing is not just a synonym for advertising, nor is it the same as sales. These terms are often used interchangeably, but they encompass distinct aspects of business operations. Marketing is the broader strategic framework that underpins the entire customer acquisition process. It’s a multifaceted discipline that begins at the very core of your business and extends to how you engage with your customers.
At its core, marketing is about developing a comprehensive strategy to promote your business. To construct a successful marketing strategy, you need to consider a variety of critical components. However, two fundamental starting points are crucial: your business’s objectives, values, and messaging, and your target customer base.
- Business Goals, Values, and Message: Your business’s objectives serve as the North Star guiding your marketing efforts. Understanding what you aim to achieve and how you want your business to be perceived is fundamental. Your values and messaging convey the essence of your business, what you stand for, and what you promise to your customers. These elements define your brand identity and are integral to shaping your marketing strategies.
- Understanding Your Customer: Marketing is fundamentally customer-centric. You must have a profound understanding of your target audience, their needs, preferences, pain points, and behaviours. This knowledge empowers you to tailor your marketing initiatives to resonate with your prospective and existing customers. It involves creating buyer personas, conducting market research, and gathering data to refine your approach continually.
In essence, marketing is the process of aligning your business’s goals and values with the needs and desires of your customer base. It’s about creating a connection, building trust, and delivering value to your audience. Only once you have a solid foundation in these areas can you proceed to develop the tactical elements of marketing, such as advertising, content creation, social media engagement, and more. In other words, marketing is the heart and soul of your business strategy, shaping how you engage with the world and ultimately ensuring the long-term success of your tutoring business, or indeed any business.
If you’re keen to own your own tutoring business, build an asset for retirement and be your own boss, franchise with us:
Lesson 5: Systemise for Business Success
The early stages of setting up a business can indeed be a challenging period where survival is the primary goal. Startups often struggle to establish themselves, and this phase can last for several years. Many startups do fail during this time, and this is primarily because, in the early stages, entrepreneurs are juggling multiple crucial tasks simultaneously. They’re not only trying to survive but also to learn on the job and gain a deep understanding of their business. Business success at this early stage, seems almost impossible to achieve.
Survival mode typically involves the following challenges:
- Establishing a Market Presence: New startups must work tirelessly to make their presence known in a crowded market. Building brand recognition and acquiring customers can be a time-consuming and resource-intensive process.
- Financial Sustainability: In the early years, financial constraints are common. Startups often struggle to generate consistent revenue and may rely on funding or loans to keep the business afloat.
- Adapting to Market Feedback: Learning from customers’ feedback and adapting your product or service to meet their evolving needs is a continuous process. This feedback loop can be resource-intensive and may require frequent changes.
- Navigating Uncertainty: The startup journey is fraught with uncertainty. Business plans often need to be revised, strategies adjusted, and challenges overcome on the fly.
However, once a startup manages to navigate this initial challenging period and stabilise, the focus needs to shift from mere survival to thriving and growth. This is where the shift to developing systems and processes becomes crucial:
- Operational Efficiency: Start thinking about how you can streamline your operations. Implement processes that make your business run smoothly and reduce inefficiencies. This can involve investing in technology, automation, and best practices.
- Cost Management: Work on improving your operating margins. This means looking for ways to reduce costs, negotiate better deals with suppliers, and optimise your pricing strategy to maximise profits.
- Delegation and Time Management: As an entrepreneur, it’s common to be deeply involved in every aspect of the business initially. To flourish, you need to learn the art of delegation. Hire and empower the right people to manage various aspects of your business, freeing up your time to focus on strategic activities.
- Strategic Planning: Transition from being reactive to proactive. Develop a long-term business strategy that aligns with your goals and market trends. This strategy should guide your decisions and help you allocate resources effectively.
- Scale and Growth: Consider opportunities for expansion, whether through new product lines, entering new markets, or targeting new customer segments. Growth becomes the focus as you move beyond mere survival.
In summary, the early stages of a startup are often characterised by a fight for survival. However, once you overcome this phase, your priorities must shift to establishing sustainable systems and processes that drive growth and success. By thinking strategically and investing in efficiency and quality, you can set up your enterprise for business success.
Building your company for business success does not boil down to following these tips alone, but I hope that you now understand a bit more about how to set up your business for growth.
It takes a lot of time and dedication to create something that lasts, and in modern times, it is harder than ever to set yourself apart from the rest.