Last week we looked at three of the laws of business, if you missed them you can check them HERE.
This week I want to examine three more laws that you want to pay close attention to if you want to grow a successful and profitable business.
If you ignore these principles, you risk working much longer and harder than you need to generate a great profit.
Let’s jump into it…
4. The Law of Sacrifice
It is extremely common to see small business owners saying yes to low value, high need clients to keep the business’s cash flow ticking over while they look for more appropriate clients.
This type of short term thinking normally hurts the business in the long run because the business owner’s attention and energy are being drained by clients that, in the long-term, don’t serve the business.
It is important to avoid falling into the trap of saying YES, when what you really mean is NO.
Yes, we can service that; Yes, we sell that; Yes, we can do that; Yes, Yes, Yes.
Saying Yes to everything and everyone usually means you are saying NO to the long-term future success you seek.
To avoid this scenario, you need to employ the law of sacrifice. It means not continually chasing a quick buck and risking short-term gains against long-term pains.
The decision to start to sack clients was without doubt one of the biggest turning points in my career.
Once I realised that I was acting on old scripting that I had learnt growing-up with a scarcity mindset, I was able to transform my business and earning potential.
Don’t fall into the trap of trying to be everything to everybody – be prepared to sacrifice. In the end, you will be a much bigger winner.
5. The Law of Line Extension
The law of line extension is about how far you can stretch a brand.
Many big businesses begin to get into trouble when they seek to introduce new areas into their business. Usually these companies have little or no expertise in these side ventures.
The reason this type of dramatic divergence of services usually occurs is because the company feels the need to grow and they believe, often mistakenly, that they can convert their success in one area into any industry they choose to turn their hand at.
Unfortunately, for many, this is simply not true.
Take for example companies such as IBM or Coke. IBM was the world leader in main frames and decided to tap into other areas of the market such as home PCs, software, etc. As a result, IBM lost billions with a “B” because they broke the law of line extension.
Coke in the late ‘70’s introduced a Coke clothing line – the concept took off like a rocket selling millions in the first year. The following year, however, the story was not so bright. Almost overnight the line dried up and left Coke with approximately $250 million worth of stock nobody wanted.
In most cases, big businesses motivation to extend their line of products and services is driven by arrogance; the false belief that whatever they touch will turn to gold.
Ultimately companies pay a very high price for employing this flawed way of thinking.
On the other hand, the reasons for small business to try and line extend is very different.
The small business owner’s motivation is often desperation – the desire to quickly increase cash flow.
In the short-term it may be possible to quickly increase cash flow and improve the profit position of the business. In the long term, however, line extension usually spells trouble.
When I see a business start to deviate away from their core business, alarm bells start to ring.
The florist, who starts to sell gifts, then clothes, is an example of a shop that in the long run, will pay the price of line extension. In the short term, people will probably buy the various products on offer. But in the long term, customers will become confused about what the business really does.
Remember, it is far better to do one thing well, then it is to do a lot of average things.
We live in the world of the specialist.
Don’t generalise – specialise in what you do best.
Don’t try to be great at all things. Pick a few things to be good at and be the best you can. Only then will you avoid the painful lessons paid for breaking the law of line extension.
6. The Law of Risk
World cup and Olympic alpine skier Jean-Claude Killy said, “To win, you have to risk loss.”
The reality is that failure is an inevitable part of life and of doing business.
In sales, hearing NO is an inevitable part of the sales process.
The fact is no one wins 100% of their sales calls. It is important to understand your numbers because without this awareness, a person may believe mistakenly that they are failing.
The essential thing to remember is that if you allow a failure to affect your attitude, you dramatically increase the likelihood of further failures. In business, you must be constantly reviewing your processes. If you are doing something that isn’t working, then stop. Cut your losses and move on. I like the story of the man who goes to work and opens up his lunch box and starts yelling,
“I can’t believe it’s the same processed meat sandwiches again.” His co-workers had never seen him so upset. One brave soul asked, “If you don’t like the sandwich, why don’t you ask your wife to make you something different?” The man responded angrily, “What do you mean wife? I made them myself!”
If you are not happy with the results you are getting, TAKE A DIFFERENT ACTION!
We all need to acknowledge that we have certain areas, activities or events in our businesses that will fail. The secret is to recognise as early as possible whether something is going to work or not.
If NOT, then don’t persist blindly. Take a serious look at the strategy and assess the virtue of continuing and if you can’t find a valid reason to continue, stop as fast as you can and cut your losses.
The main reason people persist with things that aren’t working is ego. They don’t want to be seen to fail. I recommend you put your EGO aside and get out of anything that is not working now.
Failure doesn’t have to be a negative; it can be a positive.
I know that in my life the greatest lessons have always come from my failures rather than my successes.
I’m sure that if you reflect on your own life, you will quickly see that the same holds true for you.
When I badly broke my leg playing semi-professional soccer, I was devastated. But in hindsight it was a blessing as it allowed me time to focus on music, where I spent the next 10 years of my life.
In business, we don’t need to suffer a huge failure or great pain before we make a change. The secret is to test and trial wherever possible. Tests should be done on a small scale – to see if things work or not, and before you have too much money and ego invested. For example, if you are planning to do a direct mailout to 2,000 prospects, test it first. Send 20 out and see if you get the results. If not, make a change and try again.
If there is one certainty in business, it’s that not everything you try will work. Acknowledge what you learn and make the appropriate adjustments, and if it can’t be fixed, then get out as soon as possible.
A Final Word
Standing on the edge of a tall building and saying,” I think I’ll jump because I don’t think the law of gravity applies to me” is, well, insane. Equally crazy is to think that the laws of business don’t apply to you. They do – and if you choose to ignore them, you too may suffer a painful fall.