The best way to build your business

Traditionally

Business is best defined as: “Creating wealth through profitable transactions”

The Simple Arithmetic

In simplistic terms the profit and loss sheet tells the story of a business and is comprised of just three components:

1 REVENUE
2 COSTS
3 PROFIT

Reduce costs and reap the benefit?

There are just two ways to increase profit.

The first is to reduce costs, thus profits will naturally rise. But beware of the old adage: “You can’t cost cut your way to prosperity”.

Business Building

The only way to increase your business in real terms is to focus on building the top line, the revenue, and there are only three ways to achieve that:

    * More Sales to the same market

This is easily achieved as a short term measure by the addition of sales staff, increased incentives and perhaps more advertising and promotions. But this is not a sustainable endeavour and is too easily matched by competitors.

2 New Markets for the same products
Opening up new markets, perhaps exporting to places where products of your type have never before been sold is another way to increase revenues, but this is expensive and can be extremely risky. Furthermore, once you have done all the work in creating a new market – guess what – you have now laid the perfect foundations for your competitors to follow.

So what’s the third?

The third and only way to continue to expand your business is to constantly provide new and improved products and services and new ways of doing business – this is innovation. The search for new ways must be sustained and endless or you can be sure business stagnation and eventual failure will be the result.

Indeed, as stated is some of my earlier work, statistics from USA based research cite the life expectancy of a publicly listed company in the USA today as being less than ten years, compared with some 65 years in the 1920’s.

Companies that fail to innovate, ultimately fail to exist.

Where to from here?

A good starting point is to accept that almost without exception, the reason businesses fail is simply because they do not sell enough of whatever it is you are offering.

Put simply, market risk is by far the single biggest risk in business. The question one must then ask is “how can I reduce market risk”?

Fortunately the answer is really quite simple, find out what it is that everybody is buying and do it better, ie) change it to add value.

Indeed “Change that Adds Value” is the perfect definition of innovation.

There are countless examples of businesses that were created with this very philosophy. None of the below listed businesses where first to market, all were followers and simply improved on what their predecessors did:

    * Google – by no means first, but clearly better
    * Ford Motor company, everybody wanted a car, they just found a way to make if affordable
    * DHL, FedEx. UPS, simple did what the postal service did, but much faster
    * Reuters, everybody wanted early news, they did it fastest
    * i-Phone, simply a better phone than all before with lots more features

How do we “innovate” things, is there a mechanism?

Many methods have been tried and tested over the years in order to inspire new thinking and new initiatives. Perhaps the most common is the abstract nature of so called “brainstorming”. Although this may sound good in theory often fails to deliver tangible outcomes because it lacks focus.

For example, if you are given a glass of water and are asked to “brainstorm it or perhaps to think creatively about it, where does it lead, probably nowhere.

However, if you are passed a glass of water and are asked to complete the sentence:

“I wish this glass of water would” ............; there is little doubt you would come up with some useful wishes. These may be for the glass of water to stay hot, stay cold, never get empty, not spill, not break, not need washing etc.

The point is that a direct question focused on the product will lead to real insights and outcomes.

Another such direct and focused question may be to have people list the frustrations they have with a particular product. “Frustration” is one of the greatest sources of business opportunity you will ever find. Products and services often come into existence because they meet an expressed need and people often express their need with a curse, of by showing frustration. Capture the curse, it’s that simple.

There are many direct questions that can be asked in order to find innovation opportunities for products or services. The above are just two of the most obvious.

Roger La Salle, Creator of the "Matrix Thinking"™ technique, director and former CEO of the Innovation Centre of Victoria (INNOVIC)