Small businesses face challenges, and these five ways of growing your small business can differentiate your business from the others. Do not get distracted with spreading operations thin across a multitude of unnecessary platforms. Focus on simplification, customization and understanding your free cash flow. Once you accomplish those vital tasks, learning to invest the retained earnings may be the most challenging task of all, but in business, we call that a good problem.
1. Get Better At Search Engine Optimization (SEO)
In the words of Bill Gates, “there will be only two kinds of businesses, those with an internet presence, and those with no business at all.” This one statement effectively illustrates the modern business landscape. People go to the internet for almost all information. What kind of internet presence does your small business have? Today you can’t just have a sexy website, instead you need to have a means for attracting visitors in the first place. This is where SEO comes in. With roughly 644 million active websites on the net, it is becoming very challenging to be discovered online. SEO involves a series of rules and protocols that helps bring your business out of the background and into the virtual highway. When someone is searching the web after a hailstorm for “Cleveland roofing service,” you want your business to be one of the first pages on Google. If you rank high enough organically, that’s free advertising. The easiest way to get better at SEO is to simply hire someone. Although that might be the best option for companies with a big enough budget, others might not be so fortunate. If you’re strapped for cash, I have two important recommendations. First, there is a free website that teaches small business owners how to optimize their websites for Local SEO. I can’t recommend this resource highly enough. Second, there is a book titled The Ultimate Guide to Link Building. This is an incredible resource to help people understand how to do SEO the right way.
2. Understand Lean Operations
A key element to running a business is organization and prioritization. Do not allow your business organization to disintegrate into an array of convoluted finger-pointing when it comes to operations. A good book to reference regarding lean business operations is Good to Great by Jim Collins. Good to Great evaluates the qualities of companies that not only grew but also maintained success beyond their growth periods. The book discusses the importance of simplification in business operations. Collins and his associates found that great businesses comply with three major operational components: level five leaders, the right staff and confronting brutal facts. Once businesses understand the intersection of those three components, the managers continue to optimize and simplify operations. What are bare bones to your small business? More importantly, what activities give you 80% of the value for 20% of the time?
3. Focus On Free Cash Flow
A small business needs to define their free cash flow. Businesses typically calculate free cash flow based on what is left over after all necessary financing expenditures are paid and non-cash items are adjusted on the net income. When a small business owner starts to think about business decisions from a free cash flow vantage point, new opportunities and perspectives are gained. More specifically, growth opportunities become more apparent. Where many business owners lose sight of this important consideration is when they make huge capital investments into infrastructure that has large depreciation costs and little long-term value is created. Having a balance sheet full of stagnant assets that add little long-term value creates a financially inefficient company. This is one of the reasons Warren Buffett and Charlie Munger have been so successful through the years; they have always looked at the free cash flow of their own business and any new opportunities for growth.
4. It’s All About The Customers
Small businesses have a fundamental advantage over large corporations. Small businesses can interact with customers at a much more personal level. This is not to say that large corporations do not care about the customers, but it’s more challenging to put the CEO or other high-ranking executives face to face with new customers. Small businesses are local and can customize their services to their specific population. Take for example this dental practice in Albuquerque, New Mexico. Recently, I talked to one of the partners at this practice and he told me how important customer interactions were to their overall business model. For him, there was nothing more important than ensuring each customer had a satisfactory visit. Although this might seem like common sense for most business interactions, many companies get customer fatigue and complacency. Culture and focus on individual customer interactions is something that many small businesses take for granted and fail to realize the long-term importance. Stephen Covey’s The 7 Habits of Highly Effective People demonstrates the value of placing the customer first. One pivotal element to focusing on the customer involves Covey’s rule of “seeking first to understand before being understood.” We live in an era of complete customization, from social media profiles to iPhone cases. People want what they want. Make sure you understand your customer or client, then you can cater to their specific desires. Additionally, billionaire Tony Hsieh wrote a book titled, Delivering Happiness, and it talks about how an online shoe company uses its customer service to create a competitive advantage over other retailers. Whether you’re running a local dental clinic or a large online shoe store, focus on the customer and treat each interaction as a vital source of future growth. This habit is the lifeblood of any great business.
5. Invest The Retained Earnings Intelligently
Your business runs well. You understand the balance sheet, and you want to explore other opportunities. You can reinvest your retained earnings back into the operational business, or you can choose to invest in external assets that are non-operational subsidiaries. What is the right decision? Well that’s the hard decision. I guess my point for bringing this discussion into the fold is to simply make the reader aware of the idea. Too often business owners think they need to reinvest retained earnings into the organic business. In many cases this is the right decision, but in some instances they aren’t doing the hard math. In fact, many business owners that have had successful companies in the first 10 years take the retained earnings and invest in another operational business. The failure comes when the overconfidence from the first success overshadows the realism in the second venture. New ventures that have low odds of success and huge upfront costs could mean the death of both businesses. Instead of taking low-probability choices with huge sums of money, a better choice might be to invest in non-operational assets (either private or public).