Running your business to make money

2008-11-03 00:00

Over the years, the question I have been asked most often is: “What do I have to do to produce a highly successful business?” The one answer that I believe stands out is: consistent quality of product and/or service.

South Africa has too much capacity, chasing too few price-sensitive customers. There is an argument for saying we have too much of everything … pool suppliers, hairdressers, motor cars, department stores — the choices we are offered is almost endless. This means that what you offer, (by way of both product and service), has to be what your customer needs or wants.

Equally, when you deliver, it must at least meet their expectations of what they are buying. Truly successful businesses will always endeavour to surpass the customer’s expectations.

I would like to suggest that the marketing discipline today should be seen as being total communication between supplier and customer. The more focused and specific the communication, the better the profit result for the company and conversely, the worse the communication, the greater the risk. Whether your business is large or small does not matter, the principle is unshakeable. Continuous improvement in respect of profitability begins with knowing your market and customer needs almost better than they do themselves.

Adequate product quality, as long as it is delivered with exceptional service, is capable of winning the customer’s heart (and loyalty). Today, whatever the market or industry, the service is generally poor. If you meet an individual or company that treats you in a special way, it tends to make you feel positive towards what that company is offering you.

However, delivering the strategy is often dependent upon employees. Employee motivation is a critical factor in running a successful company. In South Africa, far too many employees have little or no real interest in wanting to produce an above-average performance. A prerequisite for realising above-average performance from employees is that management must first make it in its interest to want to do so.

Management must also fully understand the interrelationships of the business’s major operating variables. Too often, businesses fail because the people making the decisions do not understand the consequences of their decisions. If the price of a product is reduced, it factually means the gross margin percentage falls and the break-even increases. The tactic may result in more sales volume, but this is not a certainty. Equally, if for any reason the fixed cost (overhead) structure of the business is increased the break-even will again go up — fact. Successful business has everything to do with producing the highest gross margin (both rand value and percentage), from the lowest possible fixed and interest cost base. If you spend time studying this formula, the importance of product quality and service to effecting the desired profit result is evident.

A few years ago in the UK, the high street retailing icon Marks and Spencer fell from its pinnacle because it took its eye off the doughnut and started watching the hole! Sales and profitability plummeted. The most important understanding to take was reflected in a Sky News high street canvassing of M&S customers: “I don’t like their ranges these days. They’re dull and I won’t buy them.” The same sentiment — reflecting unhappy customers — repeatedly came from the interviews. The customers didn’t like the product or service any longer. Result: poor sales, poor profitability and loss of loyal customers. Communication between M&S and its customers had broken down. It took years to win them back.

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