WHAT DRIVES PROFITABILITY AT YOUR COMPANY

WHAT DRIVES PROFITABILITY AT YOUR COMPANY

August 17, 2018

Written by Farhan Fuad Orzin

Entrepreneurial journey is said to be exhilarating but make no mistake, the journey is not so smooth if you can’t take the right decision at the right moment. Often filled with miscues and self-reproaches, some mistakes are more or less unavoidable. However, the core motive of the entrepreneurs remains in reducing the time it takes to drive profitability, by taking suggestions from people with competent experience and long-lasting success. Mostly, that person is reasonably another entrepreneur or simply your peer, who took the same road years back.

Profitability is simply the fuel of your company giving answers of your simple questions like: ‘Should I quit?’, ‘Should I continue?’, ‘How long should I wait?’, and the answers won’t match with one another’s because of the nature, investment and model of the business. There has to be a middle-of-the-road to track your position of your entrepreneurial journey. Kabbage Inc, a global financial service technology and data platform, in collaboration with research firm Bredin, surveyed 500 small business owners across every industry in America to get insights of their entrepreneurial journey. The idea was to better inform rising entrepreneurs about tackling various business factors — from investments to strategies, financing, operating costs, and even the missteps and regrets.

THE FOUR-YEAR FACTOR

How long will you wait to turn profit? 84 percent of the respondents stated that they felt profitable within the first four years of their journey and felt that each month of these initial four years was extremely critical. Because, most of the decision phases and business model restructuring are done within this time period. On the contrary, overnight success is just an exception when it comes to small to medium-sized business (SMB). Among the initial 84 percent, 68 percent reached profitability within the first year and the rest within one to fourth year. The rest 8 percent reached profitability at fifth year and 7 percent stated that they’re yet to be profitable.

One crucial factor is the diversity of the business sector among the respondents. Entrepreneurs in fields such as publishing, medical equipment yet couldn’t reach profitability while other industries like advertising, marketing services, architect reached complete profitability. Meanwhile, restaurant and retailer industries showed stagnant growth.

Biggest takeaway from the survey should be, regardless of the industry, take this four-year time period as your make or break mark. If you’ve attained profitability within this time, get it going. If not, are you close by? If not, restructure your business model, cut operating expenses, get better ways to interact with customers, incorporate new technologies. If you feel yet to be profitable after five years, then it’s time for you to consider liquidation.

SMBS REGRET NOT INVESTING IN MARKETING INITIALLY

SMB owners find acquiring new customers as their first challenge followed by overweighting cash flow and competition. Afterwards, they focus on formulating marketing strategies to acquire future customers whereas, marketing expenditure remains as low as 5 percent of the total expenditure. This portion dwindles over time and subsequently gets superseded by payroll, rent, equipment purchase and technological investment. All respondents wished they could invest 2-3 times more if they were taken back in time. Customer retention is another vital factor. Customer retention issue could rise from 5 percent in the first year up to 20 percent after twenty years. It suggests that as businesses age, maintaining healthy relationship with customer and working on feedback become biggest challenge. One possible solution might be establishing robust and structured feedback system in order to maintain high quality of service, as culture, expectations and technology change over time.

Focusing heavily on new customers, entrepreneurs neglect marketing efforts which cause them losing market share in the long run. When they realize investing on marketing, the cash stock don’t support them as the operating cost rises over time. There are even better tools available in the market that equip business owners with the ability to target better audience, track customer feedback and keep businesses up and running with stable growth. Be calculative when you’re splitting money based on the categories. Initial three years are said to be the perfect time for investing on marketing.

THE COST OF DOING BUSINESS

One of the core motive of the survey was to uncover the myth of owners’ expectation versus real life experience in maintaining cost and raising level of credit to do business. 20 percent of the respondents believed that capital was the prime factor to grow business. They felt like they knew what to do but lacked in capital to execute what’s right for the business. Keeping extra cash in the pocket helped them to grab marketing opportunities, bridge cash flow gaps, make strategic purchase and expand business operations. Even though, the requirement of capital declines over time but a sizeable percentage of business still requires access to capital. 67 percent of the SMB owners believed that they won’t be needing to borrow extra capital for operating business in the coming years.

To attain high growth capital is no doubt a vital tool to grab unique opportunities on an entrepreneurial journey. Reaching profitability is a commendable breakthrough for any kind of business, owners find extra capital as a helping hand to bolster business but regret not investing on marketing initiatives when they had chance.

Even though the survey was carried out in North America, we find similarities in nature, growth, culture and technological advancement with our small to medium-sized business industry. First step, in carrying out a long term successful business, is investing on marketing programs early, even when budget for this steps are minimal or nonexistent. A focus on public relations, customer feedback and social media advertising should help to attract new customers. Regardless of the nature of business, there’s no way of ignoring online outreach, which is a cost effective tool to reach broad range of customers with unique storyline of the products or services. At the initial stage, it’s important to build a one-to-one experience with customers to portrait how responsive the business is.

Another crucial factor is whether to target growth or profitability. Mathematically, it’s not possible to target both at once. Growth doesn’t happen on its own, rather it’s an outcome of your continuous investment on marketing and expenses on sales. You need to calculate your basic math and choose the best one for your business model when it’s time to choose between options. Trying to maximize both at the same time will only be a fool’s errand. Be the smartest person in the room while taking decisions, your entrepreneurial journey should be a smooth one.

No Comments so far

Jump into a conversation

No Comments Yet!

You can be the one to start a conversation.

Your data will be safe!Your e-mail address will not be published. Also other data will not be shared with third person.