Posted by Evan Smith on Thu, Mar 11, 2010 @ 10:16 AM
A recent blog post from a small business owner described his fervor and attention to growing his business:
"My goal is growth. Growth at all costs. As a new business, I want to build a huge customer base first and make money later. As long as I am covering overhead, providing my employees with good pay and benefits, and am personally able to take a reasonable salary, I will cut prices to the bone to beat my competitors and gain their customers.
... My prices are based on the market and I change my business to make sure it can operate under those margins... The most important thing in this economy is a strong customer base... I will never lose a reasonable customer to price. Never.
... One day changing my business goals to maximize profit and when I do that, I will already have a strong and loyal customer base to support me. So again, I think the balance [between growth and profit] depends on where you see your business in the future."
Some of these assertions are laudable--and would be familiar to many private-business owners. HOWEVER... some of these assertions (taken too far) will put the business at risk. Here are some key ideas to challenge and confront small business owners who feel strongly about "winning customers". How would you answer these for your business?
- How do you create profitable growth in your business (because growth "at any cost" will create a "race to the bottom" for you and your competitors)?
- What differentiates your business in the eyes of your customers? What value do they get from your business for which they're willing to pay?
(HINT: The value they get is not "lowest price". Customers who buy based on the lowest price are loyal to ... the lowest price. They're not loyal to your business). - How do you find more customers like your MOST DESIRABLE customers (the ones who come back over and over again, the ones from whom you make the most money; and/ or the ones who refer others to you...)?
- How do you change your business cost structure to operate effectively in line with "prices the market will bear" - AND to deliver the value that the MOST DESIRABLE customers find in your business?
- What is the lifetime value of each of your customers - and how do you extend/ add to that lifetime value your business can capture from your MOST DESIRABLE customers?