Business Success - Narrow Specialization
Let's say you just opened a design agency. How to make a company successful? Should you focus on providing one service or do whatever you can?
Some take every opportunity to make money. But this is the wrong strategy for long-term success. Emphasis on one service allows you to highlight the strengths of the company. People will come to you with specific problems that you will solve better than anyone else.
When customers do not want to contact other firms with lower quality of service, you can set higher prices. In addition, with positive results, customers will recommend you to friends. Word of mouth will attract new customers.
Example. Alexa company provided a wide range of services - booklet design development, copywriting and website optimization in search engines. Following a friend’s advice, Alex decided to focus only on the development of logos, succeeded and gained regular customers. As a result, the company has become the best in logo design.
Another advantage of narrow specialization is that it allows you to hire the best specialists.
Firms providing various services will have to hire specialists from various fields. Small firms can not afford a large staff, so they hire a wide range of specialists. But employees who are not focused on one job cannot achieve excellence. The quality of such work will always be inferior to firms hiring specialists.
Thanks to specialization, small companies can hire several specialists in the same field. Specialization helps the company to do its job perfectly, allowing you to negotiate with customers. The company will be able to function smoothly without undue control on your part, because everyone will be responsible for specific tasks, and this is most important.
A business designed for long-term success must function without your participation
When you open your business, you have a sense of ownership. First, the founder is involved in almost every aspect of the company. But for business development, customers should not associate a company with its creator.
What happens when a founder becomes an integral part of a business? Opening a company, you take all the risks, therefore, strive to personally manage it. You also want to make sure that employees do not make mistakes.
You meet with each client and control all financial negotiations. As a result, customers get used to negotiating with you personally. For them, the company is you. But such an approach will inevitably lead to problems. When the list of customers grows, you will not be able to effectively conduct business.
Spending time with clients, you will not have time to develop strategies for further growth. You will not have time to manage employees or pay attention to financing.
Example. Alex had a very busy schedule, because he personally communicated with each client. He did not have time to discuss with the employees the specific needs of each client. Since the experts did not “customize” the projects for each client, the company wasted a lot of time on endless improvements and adjustments. Alex had to attend every meeting and could not go on vacation or take a day off.
Although it is important for the founder to have an idea of the company’s activities, day-to-day operations should be carried out independently. That is, the founder of the company should become interchangeable.
Hire at least two sales professionals
A close-knit sales team is critical to the business. Having sales staff not only brings money, but also frees the founder from managing the business.
It is important to form a sales team that understands the essence of your services, because these specialists are the face of the company. Be sure to hire a few sellers.
1. Competition between employees will increase work efficiency.
Example. Competing for commissions, employees will conclude more deals.
2. Having multiple sellers will reduce the risk if someone falls ill or goes on vacation. Even small companies need at least two good specialists who know how to sell their product. But to find such people is difficult. In particular, if you offer a standardized service, you need specialists who can sell products, not services.
Example. Alex's company specializes in a service - logo design, but he wants to sell it as a product with a standard process. That is, his company performs certain steps in the production of each logo. Therefore, he needs workers capable of selling products.
Typically, experienced salespeople carry out advisory sales: they ask a lot of questions to identify customer needs. Therefore, the client expects an individual approach to solve their problems. But if you want to sell a standardized service, you cannot adapt the product for each client. Therefore, sellers of products are useful: they can influence the customer and make him believe that the standard package is the perfect solution.
Once you have created a company that can function without your participation, you can think about selling the business. Where to begin? To whom to sell your brainchild? How to make a deal on the most favorable terms?
Dependence on one large customer puts your business at risk and makes it unattractive to potential buyers.
Most entrepreneurs dream of selling their company one day. But potential buyers need to demonstrate that your business is growing and profit is growing steadily.
To boost the development of the company, you can find large customers. But be careful - don't rely on them too much. Dependence on one large client promises financial trouble if this client delays payment.
Example. MNY Bank brings Alex company 40% of revenue. But once the bank overdue the payment, and it was difficult for Alex to find the means to pay salaries to employees.
You cannot rely on one client also because it puts you at a disadvantage in terms of negotiations. In terms of sales, this is a serious drawback.
Example. What happens when MNY Bank wants to edit something on the weekend? Alex cannot lose a large client, so the designer will be forced to go to work. In the end, the designer will quit due to excessive processing. In addition, deciding to specialize in logos, Alex took a big risk. If MNY Bank does not require logos, it will lose almost half of its revenue.
When your business depends on a larger company, it limits strategic decision making. This is not attractive for company buyers who want to develop it and use its potential. Nobody wants to acquire a small company, completely dependent on the desires and needs of a larger enterprise.
Do not allow a large client company to engage in overly dependent business relationships, and your business will become more attractive to customers.
Selling standardized services saves time, increases cash flow and makes the company attractive to customers
The client is always right, but there is a limit to everything.Each client may require individual services, but it is better for the company if you standardize these services.
Individual services are too expensive. The whole process, from the first meeting to the delivery of the product, can take several months, and during this time you will not receive payment.
Example. Alex had to repeatedly edit several brochures for MNY Bank, because the client was dissatisfied with the results. It took ages before Alex satisfied the client. All this time he was not paid, and he did his best to find funds to pay for the expenses of the company.
There is another advantage of standardized services: they increase cash flow. Cash flow is the amount a company has in a given period. This is the difference between income and expenses, helping to determine the profitability of the enterprise.
For standardized services, they pay in advance, because the client knows what to expect from the final product. This leads to positive cash flow, because the company has money now, not in the future. Positive cash flow is also attractive from the point of view of the sale of the company - it serves as a buffer when the company is faced with large unforeseen expenses.
Standardized services simplify the assessment of how much the product will be delivered, since you are not dependent on the customer and can better allocate your time and resources. Calculated activities are attractive to buyers because they clearly demonstrate that the company works smoothly and independently.
By limiting the number of meetings with clients to "fit" the work, you save a huge amount of time.
Motivate employees to stay in the company even after its sale
You will have to motivate employees to stay in the company for a long time, even after its sale. Why is this so important? Buyers want to be sure that the firm will continue to make a profit after the acquisition. And the management team plays an important role in this.
Example. Alex wanted to leave the company after the sale. The steering group was to manage its activities alone. Alex had three heads of different departments. One was responsible for sales, the other for designers and the third for customer service. After Alex leaves, these three managers become the most important people in the company, since they monitor the implementation of all daily tasks. If they remain, then the business will continue to work, as usual, and Alex must create all the conditions for this.
You can give stock options to managers. They give the right to buy a certain number of shares in the company and make a profit from its success.
Options are strong motivational tools aimed at the interest of company employees. But options are difficult to acquire, so for small companies this is not a good idea. There is an alternative - a long-term reward system for productivity and loyalty.
Example. Ted advises Alex to set goals for his managers. Upon reaching them at the end of the year, they are paid a bonus. Alex deposits the amount corresponding to the bonus in a special fund. After three years, the employee has the right to withdraw one third of the money - and so on every subsequent year. So Alex ensures that the management team remains in the company.
A good broker will help to sell the company profitably
Are you ready to sell your company? Do not miss the determining factor: the broker, the link between you and the buyers. It is he who is responsible for the favorable terms of the transaction.
A good broker will negotiate with several potential buyers, and competition will lead to a better price. Another advantage: you choose the buyer.
Some companies buy firms for strategic reasons.This is ideal because such companies pay a higher price and give your business the resources to grow.
Example. Alex's broker invited him to speak with printing companies. They may want to use his business as a Trojan horse to attract customers who need new logos.
Other companies buy firms only for financial reasons. They want to see a return on investment, and they care only about financial success. These companies account for the profits they make. They know that they can buy another potentially profitable company, so they do not care about your uniqueness or strategic perspective.
The broker plays an important role in the successful sale of the company. Choose a medium-sized brokerage firm. For a large firm, your transaction may not be significant, and the broker will not devote much time to finding the right buyer. But if the company is too small, the broker risks not attracting potential buyers, and negotiations will not lead to a satisfactory result.
A good broker should also have experience in your industry (know your competitors, potentially interested firms
Think big: make a plan that represents the company in a good light
Selling a company is a serious decision, but if you are ready to take this step, start by drawing up a plan with a detailed description of the business model and expected cash flows. The plan should represent the company in a better light.
Think big. Create a three-year plan with a detailed description of the goals that your company can achieve with unlimited resources.
Why is this needed? The buyer company is always larger than yours: with a large number of employees, resources and money. With such support, your company will achieve goals that it never dreamed of.
An important point: the buyer company seeks to grow and develop, therefore, wants to acquire your company. Demonstrate what you can achieve together and do not be modest.
If your company focuses on standardized services, replace the words “customers” and “company” in the business plan with “customers” and “business”. This adjustment is important for the buyer company. The word “customers” is associated with a regular service company, and “customers” with a standardized business.
Why is it important? Enterprises from the service sector are often purchased subject to payment according to the results within three to five years. That is, a small amount of money is paid in advance, and the rest comes later if the company achieves its goals. If not, the owner gets less money. When buying a standardized business, the owner receives the entire amount immediately and takes less risk.
If you want to sell your company, then earn as much money as possible right now, and not in a few years. The chances of this will be enhanced by a detailed and well-written business plan.
The most important thing
Selling specialized services attracts potential buyers. By hiring qualified sales specialists, creating a diverse list of customers and developing policies to increase management loyalty, you are building a company with high chances of a profitable sale.
Standardize service. Selling a standardized product is a simple process: the customer pays, and you provide the service. This is much simpler than endless refinements of individual orders, which take several months, starting from the first meeting and ending with the delivery of the finished product.
Standardization guarantees immediate payment. This will save you from difficult financial situations - you won’t have to survive until the client is satisfied with the result of the work and pays for it. With the prepaid system, you can effectively manage the financial activities of the company.
