Leveraging The Wealth and Assets of Your Business For Your Success
Article by Herb Rubenstein
Introduction
The source of all revenue and all profits of a company is the wealth of the company. By wealth, we do not mean cash in the bank, beautiful offices, an excellent location, or the size of the business. By wealth, we mean the company’s ability to produce value for its customers and potential customers.
This ability to produce value for others is composed of many aspects that will be explored in this article and presentation. A key aspect of any business is the unique contribution of ingredients that the business owner puts together to produce the services or products, customer service, and other ingredients necessary to produce value for your customers.
This article turns on its head the traditional notion of wealth. Most of us think of wealth as the result or product of the transactions and exchanges that bring in more cash/income than it takes to produce the good or product. We think of wealth as the residual of our taking in more cash than we spend in each time period.
Some savvy business people think the profit and loss statement (monthly, quarterly, or annual) or the balance sheet is a good measure of the wealth of a company. Balance sheets and profit and loss statements, even cash flow analyses only describe results. They do not identify the wealth, or the source of wealth in a business.
Leveraging
What does it mean to “leverage” something? And, why is leveraging important? Leveraging means the power or ability to act or to influence people, events, and decisions. See www.dictionary.com. It also means the combining of talents, abilities, resources, ingredients, products, services, processes, and all other “inputs” into your business to produce value for your customers and potential customers. For example, when we speak to a mirror, we achieve very little leverage. When we speak to a large audience and ask them to do something, we have the potential to achieve a significant amount of leverage.
The same is true when we combine processes in our business. When they work together, we create leverage. When they do not work together, we fail to help our companies reach their potential. Leverage is critical to business success because every business is a unique combination of resources all working together to produce a good or service that produces value to our customers and potential customers.
However, daily as we run our businesses, we merely tweak one aspect of our business or possibly another. We increase advertising, or in these times, we decrease it. We change suppliers to save a few pennies here or there. We hire or let go a salesperson, or assistant, raise or lower our prices, institute new customer relations management process, get some training, or even change locations. We buy a computer, set up a network, buy and learn new software, use a new calendaring system, tweak our website, add, or end our relationship with a strategic partner or referral source, or just pledge to do better.
As we do all these things, and they are important, our business results rarely change very much. We may eke out a little more revenue, a little greater profit or reduce our losses. But we have done nothing that really improves the value we bring to our customers, and that is why all of these actions, as important as they are, will never help you expand your business or help it become much more profitable.
Leveraging is the planned and well thought out combination of resources to produce the desired good or service. No business owner can ever know how to best leverage all of the resources available to the business owner until the business owner is clear, very clear, on the type, scope, and amount of value the business intends to create for its customers and potential customers.
The Wealth of Your Business
If the wealth of your business is the source of your business’s income and profits, then the goal of every business must be to understand this wealth, the sources of this wealth, what combinations of resources, people, processes, and technical knowledge produce this wealth, and leverage this wealth to the maximum feasible amount.
What value does your business create for your customers? Are there customers, or more accurately, customer segments (types of customers) for whom your business creates more value than for other customers and customer segments? Every customer segment gets a different level of value from the goods or services your business provides. Only by knowing which customers get more value than others from what your business provides can you ever target your marketing, advertising, and promotions, or even intelligently set your prices. The iPhone was worth nearly $700 to early adopters, and after a few hundred thousand of them purchased the phone, the price went to $500 since the phone was not simply as valuable to those who were happy to wait a month until the price dropped. The price dropped even further showing that Apple and ATT knew how many customers valued the phone at $700, $500, and $300.
Do you know which customer segments value your goods and products the most? Do you know how to reach them and market to them effectively so you can charge them a price that is slightly below the value you create for them? Do you know how to change your product and lower the price for those who value your product or service less and will only pay a lower price for it?
Do you know how to change or rearrange the ingredients of your products or the scope of your services to produce products and services that will produce much greater value to your customers and potential customers? Do you know how to leverage all of the components of your business to you can produce the maximum value to your best customers and potential customers and still keep your costs of goods sold or services provided very low relative to the price?
The wealth of your business lies in how you combine the ingredients of your business. The margin, the difference between what you sell your products and services for and what it costs you to produce these goods or services, is the result of how good you are compared to the competition in combining all of the ingredients of your business.
Five Questions to Assist You in Discovering the Wealth of Your Business
1. What makes your company different from its competitors in a way that customers will prefer your company over the competition, even if your prices are higher?
2. What is the value your company creates for each of its customer segments (and there should be at least four customer segments where the value is markedly different)?
3. How do you set your prices to capture a reasonable percentage of the value you create for your customers and potential customers and realize significant profits?
4. How can you regularly combine and leverage the resources available to your business in a new way to increase dramatically the value you create for your customers and potential customers?
5. How do you let your customers advise you on what they would like from your business that would create greater value for them, and therefore, be worth a higher price relative to the cost of the goods or services sold to them?
Once you know that the wealth of your business is the value you create for your customers and potential customers, then you can figure out how to leverage this wealth. The wealth of your business is purely a function of how you are better than your competition. If you are no better than your competition, then your business has very little wealth. If you do not know how good your competition is, then you have very little chance of creating great wealth in your business or great value for your customers.
Once you identify the wealth of your business, the value you create for your customers, then there are five steps to undertake to promote the success of your business:
1. Develop and implement strategies to increase or improve the value you are now creating for your customers
2. Clearly identify the customer segments and potential customer segments for whom your business creates very high value compared to other segments.
3. Communicate the value you create to the right audience by targeting your marketing efforts to the highest value customer segments.
4. Deliver the value of your business impeccably and reliably to customers.
5. Keep listening to your customers so they can tell you how to improve the value they receive from your business.
Rating Your Business on 31 Dimensions
Your business combines many, many ingredients to produce wealth or value for your customers. Below, we conclude this article and presentation with a list of just some of the sources of wealth in your business. You should rate your business on each of these potential sources of wealth and make changes if any item gets a ranking of three or less on a one to five scale. The sources of wealth include:
1. The quality of your product or service as measured by the customer
2. Your company’s history, its story
3. Your company’s location and physical presence
4. Your company’s marketing and the quality of its presentations
5. Your company’s warranty
6. Your company’s level of customer service
7. Your company’s reputation
8. Your company’s ability to understand your industry or market and its future
9. Your company’s understanding of why your customers buy from your company, why they stop buying, and decide not to buy from your company at all.
10. Your company’s ability to predict the future desires of your customers.
11. Your company’s ability to deliver the same quality or quantity at a lower price in the future.
12. Your company’s ability to increase the quality of the services or goods that your company offers.
13. Your company’s ability to get the attention of potential customers.
14. Your company’s ability to generate customer appreciation and referrals.
15. Your company’s ability to solve a customer’s problem.
16. The ability of your company to secure all of the ingredients necessary to deliver the goods and services of your business at the lowest possible price, consistent with the quality you want to deliver.
17. Your company’s connectedness and excellent relationships with your customers and suppliers.
18. The loyalty of your company’s customers.
19. The ability of your company’s employees to work hard and gain the appreciation of your customers.
20. Your company’s ability to be agile and nimble, recognizing problems and challenges quickly, and addressing them even more quickly.
21. Your company’s ability to solve a big enough problem, challenge, or to create an opportunity big enough for your customer so they will gladly buy your product or service.
22. Your company’s ability to create the desired emotional response in your customers and potential customers.
23. The ability of your company to gain the respect of your customers and your competitors.
24. Your company’s understanding of and appreciation for your competitors.
25. Your company’s reliability.
26. Your company’s ability to identify and execute improvements in key aspects of your business on a regular basis.
27. Your company’s ability to seek and obtain good advice from your board of advisors, board of directors, from the literature and most recent studies in your industry, and from experts.
28. Your company’s impeccable accounting and its books and records.
29. Your company’s image.
30. Your company’s story and the stories of your employees.
31. Your company’s ability and willingness to acknowledge and reward employees.
Finally, we close with a quote from Stanley Marcus, of Nieman Marcus. He said, “If you are not selling retail, you are not creating value.” He meant that if you cannot sell items at full price in a retail store, the retail store is not creating a sufficiently valuable experience for the customer.
His message is true today, even in this terrible economy. The old saying, “What goes around, comes around,” means exactly what it says. As your business creates wealth, as we define it, value for the customer, then wealth, as most people define it, money in the bank account of the business and its owners, will come around to you.
Conclusion
You will find many more sources of wealth in your company than the 31 we have listed. In fact, probably the one key source of wealth we did not list in the 31 items above is – YOU and your employees. You any your employees are a major source of wealth in your company, whether you are an owner, investor, or employee. Creating wealth starts with you and your employees, recognizing and improving your abilities, communicating your abilities, manifesting your abilities in your goods and services, marketing, record keeping (hire a great bookkeeper if you need help here), and in being the best you that you can be. This is also true for each and every one of your employees.
Others around you and your employees will respond to your positive leadership and your encouragement of them as co-creators of the wealth in your business. That will give you and your employees the ability to leverage the wealth in your business to promote success.