Running a new small business is very exciting. New customers call, new sales are booked, new areas of activity open up. The business grows. The owner is overworked but is willing to put in the hours because he feels he is building something of value. Sometimes success comes quickly as the owner had a good idea which just takes off. More often, there are years of hard work before the business starts to show the kind of profit which will let the owner live comfortably. In any case, after a few years of existence, it is always time to make some changes and stop being a start-up.
Putting the business on a mature footing is one time when the needs of the customers take a back seat. It's like a garden in which you've let the plants have their own way. You've fertilized them and they've grown big and bushy. Now, it's time to make sure the harvest brings the kind of crops you want. Now you have to trim the tops, weed out the weaklings and give an extra boost to those you want to keep.
The activities of a business can be arranged into three groups:
- the core business - these activities generate both revenue and increasing profit without taking a lot of time or resources. These are what keep the business going and they are automated or run by employees.
- the development targets - over time, elements of the core business will decline and something will be needed to replace those elements. The development targets eat up revenue and resources but they will be the future core elements so that is where the owner must focus.
- the peripheral business - these are core elements which were not profitable or too much work, failed development targets or simply something the owner doesn't like. The common characteristic of these business activities is declining revenue. Since the business will not develop these sectors, few resources should be assigned and prices and profits should be high.
In the typical start-up, after grouping the business activities into these three groups, there will be some which don't fit. These are ex-core activities which are taking a lot of time but not making any money, development failures which continue to eat up resources without showing any promise or problem areas which make little money. One of the most important results of arranging business activities into the three areas is to identify these failed business sectors and to shut them down.
Go To Page: 1 2
| Here's the follow-up discussion on this article: | View all related messages |
For a complete listing of article comments, questions, and other discussions related to Bert Markgraf's Small Business topic, please visit the Discussions page.