Three Simple Concepts For A Successful Business
I was a little taken aback. That kind of thought must be so daunting. How could he learn everything? I’m sure no business person in the world knows everything.
It made me think. How could I start this person’s business education? What’s the core knowledge he needs so that we can start the business journey together, and allow him to learn along the way?
I decided to focus on these 3 concepts which are simple enough for someone who “knows nothing about business” to understand, but powerful enough to start any business.
1 – Sell things for more than they cost you to produce
Obvious right? Anyone can grasp this. If a shop buys a shirt for £10 and sells it for £40 it’s probably going to do ok.
If the ingredients for a brownie that sells for £3 cost the baker £0.20, then it ought to be profitable.
It really is that simple, and there are only a couple of watch outs:
Make sure you include fixed costs
In the shop, the costs aren’t just buying the shirt. They include the rent on the shop, the heating and lighting for the shop, the sales assistant’s wages etc. each shirt needs a part of those fixed costs added into its true cost.
Make sure to include time
If the baker makes a profit of £2.80 on the cake, it sounds good, but if each one took an hour to make, then it would be hard to make a living selling them. In a one person business, it’s easy to fall into the trap of your time being “free”. An easy way to solve that is imagine paying yourself an hourly wage, and factor this into the costs, just like the shop assistant’s wages.
Keep it simple
There are more advanced concepts like loss leading products, where you might choose to sell something for less than it costs – but even then, the idea is to create a set of products which in total are sold for more than they cost.
To begin with, keep it simple: Sell things for more than they cost you to produce.
2 – Provide more value to your customers than the cost of the product
Make it an easy choice to buy from you.
If I buy £100 of Facebook advertising for The Hundred Dollar Club, and that generates £200 of profit, it’s an easy decision to buy the advertising, because the value I get from it is greater than what I paid.
The value that customers place on products which don’t have an obvious monetary pay back is harder to estimate, but the concept still stands. Buyers will (often subconsciously) decide the value on they will get from your product, and balance that against the price.
In the bakery example, if I decide that I’ll get £5 worth of eating enjoyment and from the £3 brownie, I’ll buy it. If another person a little more concerned with their health decides it provides them little value, they’ll leave it on the shelf.
Now – I’m not saying that everyone goes around working out how many pounds worth of value they’ll get from eating a brownie – they clearly don’t. But everyone does calculate the value of things to them in some way. Consider if you’d be with me in purchasing the brownie for £3, but then the baker changed the price to £30. Are you still going to buy it? I’m probably not. Whilst I can’t explain exactly why, there’s some calculation that tells me it’s too expensive.
Trying to understand how people calculate this value (or utility in economics speak) has been a topic for research forever. But here’s the thing – you don’t need to understand how it works, just know that you need to provide your product or service at a price that’s less than the value some people will get from it.
Notice I said some people. You’re not looking to please everyone. If you’re selling that brownie, think about the value I might get from it, rather than trying to make it appeal to someone on a low carb diet.
Finding the right people, is the 3rd concept we need to talk about…
3 – Get the right people to know about your product
You’ve got the product sorted, it costs you less to make than you sell it for, and you know for the right people, you provide more value than your price.
There’s one thing missing to have a sustainable business – a steady flow of those customers who will get value from your product.
Getting your product in front of people who want to buy it is marketing.
Good marketing is telling the story of your product to people who want to hear it, because they will get more value from it than the price you’re asking.
When I first thought of marketing in these terms, it changed from something which felt a bit pushy and sleazy, into something that was working in my customers interests. If I have a product that will provide them more value than I’m charging, I’m actually doing them a favour by telling them about it.
Yes, you will need to persuade them of the value you provide, but if you’re talking to the right people, you’re persuading them to buy something which will make them better off. There’s nothing sleazy or unethical about that.
3 concepts to make your business work
Put these concepts together, and to get a successful business started you need to focus on:
- Selling your product for more than it costs to produce
- Selling at a price which is lower than the value your customers get
- Getting your product in front of those customers.
Doing these three things is all you really need to have a very successful business. Are you making things more complicated than they need to be?
This is where I’ll start if my potential client decides that his business will earn more from my advice than the price I’ve quoted…