by Bill McBean
Maintaining success essentially requires you to do two things. The first is to take what the war zone gives you, and the second is to not dwell on what the war zone takes away. That is, you have to be quick to adapt to new market opportunities and just as quick to respond to any problems that may arise. And doing so may require you to make internal adjustments, which in effect can mean changing the composition of your business. For example, being able to adapt quickly to new market opportunities means you should be constantly looking for ways to bring in additional revenue. This means that if you are a heavy-duty truck dealer, you could expand your service department from one working shift to two, which would not only attract some after-hours emergency work but would also help your current service customers by giving them the option to have their trucks fixed in the off-hours instead of having to bring them in during the day and lose a day’s work. The new service shift would also require an additional shift in the parts department, which would mean additional parts sales, as well as other changes. This kind of change—that is, a change in the composition of the business—is typical of market expansion at Level 4. The point, of course, is that very little remains the same in business, and if you want to maintain your success, you have to stay on the top of the market so you can take advantage of what the market gives you and defend yourself against competitors who try to take what you have earned.
It’s also essential that you understand that things can move incredibly fast in the war zone and that, accordingly, you will have to develop new battle plans. Doing so will require you not only to continue researching and studying both the industry and the market as thoroughly as you did at Levels 1 and 2, but also to make sure you don’t rely on misplaced assumptions based on what happened in the past. By the time you get to Level 4, you may not be as lean and hungry as you once were, but there are others out there who are just as lean and hungry as you used to be. And since you have a successful business, they will take runs at you, just as you took runs at successful businesses when you were starting out. If you want to maintain your success, then, you must point your big weapons at them so you can either kick their butts out of the market or inflict enough pain on them to make sure they leave you and your business alone.
The Benefits of Understanding the Marketplace War Zone at Level 4
Understanding the marketplace war zone enables you to recognize the pitfalls of success and counteract them.
Understanding the marketplace war zone enables you to review your business in light of mistakes that have been made and develop plans to avoid such mistakes in the future.
Understanding the marketplace war zone allows you to define new success points based on your experience and knowledge of the market and to take your company there.
Understanding the marketplace war zone makes it possible for you to overcome the apathy of the success comfort zone by developing new strategies and adding new, high-energy managers to your team.
Understanding the marketplace war zone enables you to redefine opportunities that were unachievable or unthinkable at the survival end of the spectrum and take advantage of them with your new strength.
Understanding the marketplace war zone helps you protect your company from beating itself out of its past gains.
Understanding the marketplace war zone gives you the opportunity to begin considering what will happen when your new success objectives have been accomplished and what your next market move will be, and begin planning for it.
The Products or Services You Sell at Level 4
By the time you achieve this level, your product or service—as well as your business—will have been fairly well established. You also will have a good understanding of what customers want in terms of their tolerance for pricing, likes and dislikes, and expectations. Now, taking advantage of this understanding, you have to either enhance those products or services that are already widely accepted or develop new ways to create revenue and gross profit using those products or services as a weapon.
One way to enhance an already existing product or service is to look for natural add-on items that are likely to interest your customers. Amazon and iTunes do this particularly well by recommending books or songs other people who purchased what you’re looking at have bought and, of course, making it easy to purchase the additional items. In fact, iTunes takes this a step further by also listing the most popular songs by the artist whose song you are considering buying. Similarly, Pandora Internet Radio asks you to rate a song by giving it thumbs up or down, and when you have, opens a window that lets you connect directly to iTunes so you can buy it. This provides sales and gross profits for both companies, a win–win all around.
Another means of bringing in more revenues and gross profit is to find and/or create ways to increase your customer-to-contact ratio, that is, to convert more contacts into sales. In baseball terms, this would mean increasing your batting average by working on your swing or preparing yourself better for each pitch. In business it means increased training for your sales presentations, being more focused on the benefits of your product or service and on buying from you rather than a competitor, offering daily specials, or giving employees bonuses for improvement. In fact, just letting your employees know that you are monitoring their performances is likely to result in increased sales per customer contact.
These tactics represent only a few of the many ways you can bring in more revenue. It’s important to remember, though, that increased performance in the war zone depends not only on your external efforts but also on the internal efforts you make to support them. For example, your marketing and advertising budget affects the number and quality of customers you attract, so the more money you spend, the greater your sales traffic is. But in order to capitalize on this added traffic, you may need more inventory, additional personnel and training, new or revised operational controls and processes, and/or enlarged or additional facilities. And all of these, of course, have to be planned for, which takes time, coordination, and patience. While you are likely to know this because of your past war zone success, what may come as a shock is how expensive it is to accomplish and how growing your business increases the risk due to the additional investment you’re making.
How Your Company Operates at Level 4
At Level 3, “the office”—that is, what I refer to as business operations—tends to take a backseat to products or services, sales, and gross profit. At Level 4, though, it’s essential that you pay more attention to the office because the better your internal operations are, the more competitive your business can be. Put another way, if your costs are lower than your competitors’, your net profit will be higher on a sale-for-sale basis. And having more profit than your competitors can be a powerful weapon when and if you choose to use it in the war zone.
There are many ways that business operations can take the lead in helping your company increase efficiency, bring down overall costs, and increase net profits. It can, for example, analyze existing contracts and competitively shop them when they become due, find ways to create economies of scale within the business, and negotiate for bulk purchase pricing, as well as others. Any and all efforts like these can help provide you with increased profits and, in turn, a competitive edge that your competitors may not be able to duplicate. Finding a competitive edge like this isn’t necessarily difficult, but you do have to look for it, and most owners at Level 4 do it as diligently as they can, because they know how powerful an effect it can have on profits.
However, while finding ways to increase efficiency and bring down overall costs can provide you with an additional weapon, it’s important that you do it without jeopardizing your customer’s experience or interfering with your other war zone activities. Let’s say, for example, that your operations manager comes and tells you that by releasing two of your customer retention employees and hiring an outside service to handle the activity, the company could save over $50,000 a year in payroll and benefits. On the surface, this sounds like a compelling argument.
The flip side, however, is that you would be giving up oversight and losing control of one of your most important business functions. Successful owners know that making decisions based only on expense can actually cost more in business than the saving you thought you were going to realize. The point is that at Level 4, it is particularly important that business operations function as an integral part of the company and its efforts to reach its goals.
How Your Business Competes—The X Factor—at Level Four
When Hollywood bad boy Charlie Sheen described himself as having “tiger blood,” he was essentially defining competitiveness. But Sheen’s tiger blood isn’t what’s required at Level 4. What’s required is the competitiveness of people like basketball’s Michael Jordan, football’s Bart Starr, NASCAR’s Jimmy Johnson, track and field’s Wilma Rudolf, and hockey’s Sidney Crosby. All of these people were or are great athletes and great competitors. What makes them great is their work ethic, their desire to be the best, and their ability to win by bringing their teams along with them. Even more important, instead of resting on their laurels after they became successful, they overcame the trappings of success and rededicated themselves to become even more competitive. It’s this same spirit of competiveness that drives Level 4 owners to do what needs to be done to maintain their continued success or make their companies one of the great privately owned businesses.
There are, however, two major headwinds that make this competitive push difficult. The first, and biggest, of these is you. Just getting a business to the point at which it is consistently successful tires most owners out, and the thought of trying to take it to another level is sometimes just overwhelming. However, it’s the willingness to take this additional step that’s an important ingredient in maintaining success at Level Four. Some owners don’t want to take this step because they’re content with just being consistent in their profits, and care little about being the best or the most dominant in their markets. Some owners, however, want to dominate and become the benchmarks others aspire to. If you are in this latter group, however, the best way to get what you want isn’t necessarily to work harder but, as the old saying goes, work smarter.
Working smarter starts with identifying the very top owners in your industry and learning what they do that makes them so successful. The next step is to move outside your industry to find out what best practices other industry owners use to be the best. Doing so essentially enables you to find common best practices you can put into effect in your own business. In addition, in the process of communicating with great owners, new ideas can be born, explored, and, if applicable, injected into your company. The net effect of all this effort, interestingly enough, is that it gets you motivated and reenergized and fires up your competitive juices. In the end, though, after finding other owners’ best practices, getting advice, learning new ways to do old tasks, and reenergizing yourself, it still comes back to one thing—the X factor, that is, having the determination and the guts to do something that few others do.
The second obstacle you’re likely to encounter is, not surprisingly, some of your competitors and their strength and determination to dominate the market. That’s because they don’t want to lose their grip on the market any more than you do, so when you launch an attack, they are going to react; that is, they’re going to fight back in order to maintain their own positions. Even so, you have an advantage at this point that you did not have when your company was still trying to become successful. Your relatively weak financial condition when you first started out, and your lack of seasoning in the war zone, made you vulnerable in a way that’s no longer true. That is, now that you’ve had years of consistent profits, you’re in a much better position to attack your competitors using smart marketing techniques you have developed during your time in the war zone.
Earlier, in the discussion of Level 3, I made the point that the war zone requires owners to be both defensive—meaning the internal side of the business is operating on all cylinders and supporting your marketing efforts—and offensive—by attacking the market. This is important at Level 4 as well because as the internal side of your business improves and best practices are added, those improvements becomes unique to you and in turn become one of your offensive marketing weapons. In other words, however you choose to attack the market, you have a weapon few, if any, competitors have. At Level 4, this weapon is more often than not found in the efficiencies and innovations your business has developed. And in practical terms, that means your business will have significantly higher sales revenues than your competitors.
This strength in the market gives you a tremendous amount of flexibility in how you choose to attack your competitors. You could, for example, tackle the entire market using a shotgun approach and attract customers from many if not all of your competitors. Alternatively, you could be more tactical and target just a couple of your competitors with the overall objective of hammering away at their strengths and eventually weakening them. Attacking your competitors as I’ve described it may seem cold, but this is the way the war zone is—if you want to grow your business, you have to take it from someone else. As I’ve said before, the market is finite, so the law of the jungle prevails—be strong or die.
Of course, as at every other level, you do not go into battle without a plan. Also as at every other level, that plan must incorporate the products or services you sell, the way your company operates, and, especially, how your company competes. In developing this plan, it is essential that you follow these guidelines:
Make sure you’re well prepared, that is, that you’ve done the research, know the market’s strengths and weaknesses, and know how to use them in your attack.
Develop unreasonable sales, gross profit, and net profit goals, and then back them up with a very high level of offensive support.
Create strong financial incentives for your employees to help motivate them to work with you to obtain the results you want.
Support your employees’ and customers’ expectations with asset expenditures geared toward internal efficiencies and customer satisfaction. In other words, put your money where your expectations are.
Pound at the market’s strengths and opportunities, as well as your competitors’ strengths and weaknesses so you can focus your time, money and efforts where they will bring you the greatest returns.
Give your employees all the support, training, and leadership they need, and react to any failure to achieve objectives as a challenge to improve.
Have patience and strength and be ready for a wild ride.
Level 5: Moving on When It’s Time to Go
There is a saying that all good things must come to an end, and it’s as true of ownership as it is of everything else. And the war zone plays a significant role in that. Being able to compete successfully in today’s marketplace requires a lot of effort, and eventually the time, energy, money, and other resources you have to expend on it can get to be too much. Of course, very few owners wake up in the middle of the night and say, “That’s it. I’m done.” More often, what happens is one day they realize that charging up yet another hill is going to take more energy than they have left, and that’s when they make the decision to move on.
As I’ve said repeatedly, the best time to exit a business is when you don’t have to, and if you don’t choose when to exit yourself, someone or something else will. One of those “something else’s” is the war zone and the toll it takes on owners. In fact, even though every owner who steps aside does so for his or her own reasons, the vast majority of those reasons are connected to the war zone, either directly due to the day-to-day competition owners have to face or indirectly due to the internal issues that arise from the war zone.
Of course, every successful owner has a choice when the time comes to leave—he or she can sell the business, pass it along to a son or daughter, or just close the doors. If you choose to pass the business along or simply close up shop, the war zone will make no further demands on you, except to maintain what you’v
e accomplished until you pass it on to your successor. Ironically, though, if you choose to sell your business you will soon find yourself, at least temporarily, in an entirely new war zone. This war zone is different because it’s one you basically have to go through alone, without the help of your business team, so it’s entirely up to you to make sure the process moves along. It’s also up to you to make the final decision, which can be the most important decision in your ownership career. Interestingly, the situation is very similar to the one you faced when you first went into business yourself.
You do not, however, enter this new war zone as soon as you’ve made a decision to sell. First, you do what you have already been doing for years—you think through what you have to do, then you make preparations and plans. This means you decide how best to showcase your company and make it ready for sale, develop criteria for picking your best candidates, create a list of those with the ability to pay, choose whether you want an asset or a share sale, and put together the information your potential buyers will need to evaluate the business, among other things. The point is that, just as you have throughout your ownership career, you don’t go into the war zone, even this different one, until you are as thoroughly prepared as you can be so you can maximize your payout potential.
That’s because the ultimate goal in this new war zone is to sell your business for the most money possible, and under the conditions that you consider optimal. In order to accomplish this, the three elements of the war zone—products or services, operations, and competition—have to be operating on all cylinders as well as coordinated with each other, which means your business should be running as smoothly as possible. The best way to guarantee this happening is to make sure your products or services are being aggressively marketed, your operations are backing up your offensive efforts in order to attract, sell, and retain as many customers as possible, and your employees are continuing to exhibit competitiveness at every level of the business. In addition, you will want to develop an understanding of how these three elements factor into the exit decision, both separately and in coordination with each other at this level.
