How healthy is your Business? (Part 2)

Last week I introduced you to my new tool—the Small Business Health Check—and I had you go through the first 3 steps in this exercise.

Today, we’ll analyze your results. So pull out the work you did last week, and let’s take a look at what it means for your business. 

Step 4: Interpreting your results

Total Score

Your total score was obtained by adding your 5 component scores together.

Here’s what that total tells you.

·         0-25: You are most likely in the beginning phases of your business. If this is a business that you have been operating for more than a few years, it suggests that you are running it more as a hobby than a true business. You need to get clear on what you want/need the business to do for you and start making real, steady income.

·         26-40: You are in a fair to reasonable operating mode. However, there is significant room for tightening things up so that you can achieve better results, or the same results with less effort.

·         41-50: You are doing well and are to be congratulated. You are running a tight ship and most likely find your business to be performing well and meeting your expectations. (Of course, there is always room for improvement!)

Component scores

For your individual component scores:

·         Any item that falls in the gray area of the chart (a score of 5 or less) needs immediate attention.

·         Any item that falls in the white area of the chart (between 5 and 8) is working okay but needs perfecting.

·         Any item that falls in the dotted area of the chart (between 8 and 10) is working well.

Generally speaking, you want to focus your attention on the elements for which you scored the least.

Let’s look at each of those 5 elements in more detail.

Value Proposition - How well can you explain why people should buy from you?

Whether or not you make a sale depends largely on how you describe your services. So if you scored 5 or below, you need to take immediate action and develop your Value Proposition. Even if you score between 5 and 8, I still recommend you fine tune your sales message so that you score at least an 8.

It’s typical to score low when you are just starting a business. One of the main reasons is that Value Propositions are part of marketing, and marketing is an area that few new solopreneurs know much about. But making a living from your business depends on making sales, and having a very clear Value Proposition is key to making those sales happen.

Ideally, you want to be scoring in the 8-10 range on this component. No matter how high you score on any of the other 4 elements, you probably won’t make many (or any) sales if you don’t have your Value Proposition down pat.

Market Segments - How well do you know your ideal/target customer?

Developing a strong Value Proposition (above) depends on knowing your target audience inside out. As with the Value Proposition, I recommend that if you score less than 8 on Market Segments, you immediately spend some time determining exactly who your target audience is, what they feel, think, and how they describe the problem they are having (the problem for which you have the solution).

This is not as easy a task as it may seem at first—it takes time and thought. But it is crucial to your business. That’s because, in order to sell, you have to “connect” with the kind of person you want to be your customer. But if you don’t know the details about what this kind of person thinks, feels, and says about their problem, then you can’t create messages that truly resonate with them.

Revenue Model - How do you make money? How good are you at maximizing profits?

This element is all about the system you have for earning money. It’s not so much about the nuts and bolts, but rather the main, key points (where you source your goods/services, what type of clients you serve, how you deliver, etc).

Within any one industry or business niche, there are multiple possible Revenue Models, and which one you adopt can make the difference between profit and loss. But it doesn’t stop there—as with your Value Chain, you want to keep tightening up your Revenue Model.

Here’s an example.

Let’s say you are an architect and create blueprints for houses. Creating each one from scratch takes a considerable amount of time. However, if you created 20 templates, and used those as a base to work from, with various options for change that your customers could choose from, it would considerably reduce the time it takes you to create each plan. Your revenue model would have changed from creating new, custom plans, to creating modified templates.

That’s just one example. The key is finding a model that works well for you, then fine tuning it.

Many self-employed solopreneurs score between 5 and 8 on this element, and their businesses survive. But to really thrive, try to improve so that you score in the 8-10 range.

Value Chain - How efficiently does your business run?

This element refers to the nuts and bolts of your operation. What processes do you use? How quickly do you produce your products/services? Can you streamline/improve your efficiency?

What typically happens is that businesses improve their efficiency bit by bit as time goes by, as they learn more about what works and what doesn’t.

However, it is also common for businesses to just “get used” to doing things a certain way, without thinking about how efficient those processes are. However, giving regular, conscious thought to how you can improve every aspect of your business will help ensure you are operating as efficiently as possible, and that translates into more profit due to time saved, as well as an increased ability to create more products/services per hour.

Businesses can operate and make a profit if they score between 5 and 8 on this component, but getting your overall business in “top shape” often depends on fine tuning the details of your Value Chain.

Growth Strategy - How well have you planned to ensure future growth?

Some people have a tough time with this one because they don’t actually want their business to grow. They are happy for it to continue as it is for the foreseeable future. But there are 2 main problems with this attitude.

1)      What if something negative happens, such as a downturn in your industry? How will you ensure your business survives? A business that is making “just enough” to keep going may suddenly become one that operates in the red. However, a business that has a much larger income, has more leeway to make it through tough times.

2)      It is a generally accepted business principle that businesses need to grow or they stagnate. Here’s an example. Let’s say you sell a one-time service for $2,000, and last year you had about 30 customers, for an income of $60,000. But who will purchase your services next year? You will need to advertise, and grow your list of leads (your email list), or who will your future clients be? Or, you need to grow by adding new services, so that your past customers can be repeat customers.

This is the main area that I see clients not scoring well on. And, people often put off working on this one, since it is focussed on the future, and they are often too busy focussing on the now. If you’re like most solopreneurs, you’ve scored below 5. If so, book some time with yourself soon to work on this aspect of your business. Put some serious thought into how you will grow your business, and what you want it to look like in 1 year, 3 years, 5 years.

If you scored between 5 and 8, you’re doing better than most! But don’t stop there—think about ways you can do even better. Remember, if you don’t plan for growth, it probably won’t happen!

Closing Notes

In closing, there are a few more points I suggest you keep in mind.

1.       It’s good to analyze your business on a regular basis—that’s what growth/maturity feels like. So I recommend you repeat this exercise periodically (perhaps annually) and use the results to continue to ratchet up your business model.

2.       As your business matures, you may find yourself becoming a harsher critic of it. For example, today you may consider your Value Proposition to be very clear. However, in the future, as you grow as a solopreneur, you may begin to see it in a new light and see aspects that could use tightening.

3.       Learning how to run and grow a business isn’t easy. It takes time and effort, so don’t expect to improve overnight. Take the time you need to research and understand how you can improve your own business.

And finally, I want to remind you to look at which components you scored the lowest on, and start working on those now!

Cheers,

Tim

Helping you engineer the business of you

Information in this article is for general information and is not intended as professional advice.