In Main Street Entrepreneur, lifelong entrepreneur, business consultant and university professor Michael Glauser reveals how to achieve your dreams by implementing the nine keys of entrepreneurial success. In this edited excerpt, Glauser explains the three steps you can take to keep your expenses low.
As an entrepreneur and business consultant, I’ve learned there are always ways to produce big-time results with small means. I start each project by focusing on two important concepts: effectiveness and efficiency. Effectiveness is achieving critical objectives for growing your business; efficiency is doing it with as few resources as possible.
Here’s a simple analogy to illustrate these two concepts. Suppose you have a bee buzzing around your kitchen that’s driving you crazy. Your objective is to get rid of it (effectiveness). One solution is to grab a sledgehammer from the garage and start swinging away. While this approach will eventually kill the bee, it takes a lot of energy and will do serious damage to your kitchen. The more common solution is to start chasing the bee around your house with a fly swatter, which will also kill the bee but still requires some effort on your part. A third solution is simply to open a door and let the bee fly away. While all three solutions are effective in getting rid of the bee, the third is by far the most efficient. It requires less time and fewer resources.
Applying this analogy to business, the sledgehammer solution is extravagant and excessive. It’s what big corporations and governments often do. The fly swatter solution is the status quo. It’s what most companies do. Opening doors is what entrepreneurs do. It’s not because they’re geniuses -- it’s because they generally lack funding and have to use other means to get things done. You can be very creative when you have to be, and there are lots of ways to open doors while building a business. Here are some examples from the frozen dessert company my wife and I built and sold.
One of our biggest challenges was creating our own proprietary line of nonfat, low-calorie products that tasted great. We needed a research lab to do this, and they’re very expensive. Building our own was the sledgehammer solution. Renting one was the fly-swatter option. Since we had limited funds, we needed to open a door. What we did was partner with a local university that had a state-of-the-art dairy lab. We let graduate students assist as interns on the project and paid the university a small monthly fee to use the lab. In the end, our cost to create 30 excellent flavors was far below the industry standard.
Another challenge was producing our products. The sledgehammer solution was to build a multimillion-dollar plant. The fly-swatter solution was to rent space in an existing facility. What we did was partner with a large grocery chain that had just built a state-of-the-art ice cream plant. They produced our products for a set fee per gallon above their cost and then allowed us to sell our products in their grocery stores. It was a win-win strategic partnership.
The last example involved changing our name in a sales region. We started the company in Utah, but as we expanded out of the state, we weren’t able to secure a federal trademark for our brand. We finally obtained a new federal trademark that we used to expand outside Utah, then we decided to go back and change our name in the original region to match. We were concerned our sales might drop if customers thought we were a new business with new owners, so at first we got bids for a typical media campaign to explain our name change that included radio, TV, and print ads. It was a very expensive sledgehammer solution.
Then we had an idea. Rather than getting a 1 to 2 percent response rate from expensive advertising, why not give away free product in our stores to our existing customers and everyone else who showed up? So we put banners on all our stores that said “FREE YOGURT FRIDAY NIGHT” and told all our customers about the event and our new name. We ended up feeding thousands of people, and the media showed up to cover the frenzy for free. As a result, our name change was communicated in a positive way and our sales went up. We ended up doing the promotion every time we opened a new store. It was a very effective, low-cost strategy for grand openings.
Successful business builders don’t just start off lean—they continue to orchestrate marvelous efficiencies while growing their business. This sharp eye for “creating more from less” offers a tremendous competitive advantage. Being the low-cost operator in an industry allows you to: 1) maintain market prices and reap larger margins than your competitors or 2) lower your prices and quickly pick up market share. So identifying and maximizing resources needs to be an ongoing part of your strategy. Having worked with hundreds of entrepreneurs, I’ve put together a simple yet effective planning process that keeps you focused on your purpose and makes resource maximization a priority.
Step 1: Revisit Your “Why”
Revisiting your “why” reminds you of your purpose for building your company in the first place. If you don’t do this often, it’s easy to stray from your firm foundation. In Start with Why, author Simon Sinek skillfully argues that many large corporations have lost their way -- Walmart, Starbucks, Dell -- and then struggled to get back to their purpose. Other companies, like Southwest Airlines, have kept their original engaging purpose from day one. While your purpose is relatively stable over long periods of time, it can change. You always need to know why you’re doing what you’re doing.
Step 2: Define Your “What”
Your “what” defines the type of company you’re going to build within your “why.” It’s a vision of what you want your company to be in two to three years. Just like an architect creates a beautiful rendering of a building to be constructed, you need to create an image of the company you’ll build. This “what” should include the products you’ll create, the markets you’ll serve, the teammates you’ll hire, the customers you’ll acquire, the revenue you’ll achieve, the margins you’ll obtain, and so on. While your “why” remains fairly constant over time, your “what” can change every few years. For example, Apple has changed its “what” a number of times, from computers to music devices to phones and watches, but it has always stayed within the “why” of innovative technology that makes our lives better.
Step 3: Plan Your “How”
Now it’s time to define the “how,” or the specific objectives you must achieve in the short run to approximate the vision you’ve created in your “what.” I call this a one-year execution plan. These are the big rocks you have to move this year to achieve the two- to three-year vision you’ve defined for your company. I find that four to six major goals or initiatives are about right for a given year.
These need to be specific milestones, like increasing sales by 30 percent, adding three new products, opening two additional locations, and so on. After defining these key outcomes (effectiveness), you need to spend at least as much time planning how you’ll achieve these results with minimal resources (efficiency). This is the task most companies gloss over, but if you spend as much time deciding how you’ll efficiently achieve your goals as you do on setting them, you’ll become very good at maximizing resources. Remember, there are always ways to produce big results with small means, which is critical to an entrepreneur’s long-term success and sustainability.