Many owners often neglect return diminshers by not considering up front.
Here are a few things to watch for
1. Rate.
Know your hurdle rate. The rate above which something (a new customer, a new machine, quality issue remedy) must be above to be worth your while.
Taking 5% returns because it "raises sales" will dilute your return and eventually leave you time and cash strapped.
This will help you
- say no to new opportunities
- keep high margins
- maintain value for your time
- have an attractive business
- grow more sustainably
2. Repeatability
Will that return be a one time hit, or an ongoing return from 1-time investment. There are places for both but consider this.
10 years @ 5% might be better than a 20% return this year.
3. Replicability
You have a 20% ROI opportunity that your competition can copy next month
You have a 15% ROI opportunity in your business that is not copyable (internal skill, capability, capacity, resource).
Go for the 15%.
Invest more where it doesn't erode as fast.
4. Creativity & Knowledge
Develop internal, higher-level thought, problem-solving, decision making, creativity, innovation, and other hard to duplicate traits.
These can' be easily reduced to automation or software. By building and investing here, you maintain other ROIs longer
5. Compounding
Choose solutions that build over time.
A well-written blog, has content that becomes more valuable as it is
- on the internet longer
- combined with future great posts
Knowlege compounds
Fixed assets build capacity
Great customer relationships compound.
6. Maintenance
This one is often ignored and can be crippling.
Implementing new ideas, systems, technologies with a low maintenance.
Understand not only the upside, but the time, money, and energy needed to maintain.
[also a great place to improve/cut cost on acquisition]
7. Obsolescence
Make decisions that won't be meaningless in a few years.
Summary
All decisions should have ROI, but that is adjusted by many risks and considerations in the long term.
Above are some of the ones I've seen trap SMBs.
Just trying to give you a quasi checklist when making decisions!
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The problem for many of the businesses I have talk to lately is not generating demand for product and services, but having the resources and ability to capture more of the already existing demand.
There are a number of ways to do this...
1. Lower time needed on current clients.
- Lower time needed per client by 20%
- Use that extra 20% to take on more clients with no additional costs
How: Look at automation, no code, augmentation, better data, less manual process
2. Lower lead-to-close cycle
- Lower cost needed to do a full sales/service cycle
- Use that cost to pay for outsourced help on major bottlenecks (or hire internally)
How: look at process and systems, use theory of constraints, try to halve all process and wait times.
There are a few key contributors to building a company that will last 100+ years. One of them is understanding risk, downside, and what will "end the game for you".
There are a number of actions you can take or not take, each has risks
If you now take those actions including everything from messing a bit on your taxes, to not properly handling a customer issue fast enough, each has a different chance of potentially putting you out of business.
Let's say we know what will happen...
Your job in building a sustainable enterprise is to choose ones that help grow (because stagnation is just slow death) but not put the entire enterprise at risk.
This is the line that drives me and excited me. It’s the one that at one point haunted me... but now it’s my fuel.
Small business owners who just figure business is a constant grind for survival...
... employees who are weighted under greater and greater workloads, being penny pinched by suppliers and bullied by customers. No time time to enjoy the success you’ve achieved, and never enough cash to do what you really want to do.
I saw it with my father, I walked it myself
It doesn’t have to be this way.
Someone told owners that it’s tough, to outwork every problem, and to do it yourself.
The entrepreneurial attitude that forged your company, may also be the independence that is weighing you down.
If your are a small business owner who has people double-checking, QCing, or verifying things a lot in your business, I want to share how you can automate that (and how it works).
Maybe:
Invoices : packing slips
payments : invoices
schedules : billed
parts : orders
orders : plan
2/ First, let's understand what is being done.
A person has existing data or knowledge that allows them to compare incoming information to that existing reference.
So you get an invoice, you compare to existing packing slip to make sure you are billed right. This is to data.
3/ You get a list of items to quote, and use your industry knowledge to price them. This is comparing incoming information to knowldge.
Now lets take a break here, and discuss something else.