robot and human finger connecting

ChatGPT: friend or foe, and what does it mean for a business owner?

“ChatGPT: The AI Language Model Taking the Business World by Storm”

Artificial Intelligence (AI) has been a topic of interest for decades, but with the advent of cutting-edge technology, AI is now more accessible and applicable to the business world than ever before. One such AI tool that has put the business world on red alert is ChatGPT, an AI language model developed by OpenAI, a private AI organization founded by Elon Musk, Sam Altman, Greg Brockman, Ilya Sutskever, and Wojciech Zaremba. With Microsoft among its investors and a $1bn investment, OpenAI is a driving force in the development of AI technology.

So, what is ChatGPT, and why is it so significant? Essentially, ChatGPT is a tool that helps businesses and individuals to communicate and engage with their customers and audiences in a more effective and efficient manner. However, it is important to note that ChatGPT is not a solution in itself but rather like an exoskeleton, providing support and enhancement to human capabilities.

The rise of ChatGPT has caused concern among some, who fear that its widespread use could lead to a homogenization of language and a loss of creativity. While there is some truth to these fears, ChatGPT has the potential to free up time and energy for individuals, allowing them to focus on more important and creative tasks. Moreover, the technology is still in its early stages and will likely continue to evolve and improve, offering even greater benefits in the future.

Pavlo expressed interest in his perspective on ChatGpt in a recent Money Show podcast.

So, why are we talking about ChatGPT now? As the first of many AI tools set to enter the public domain in a usable format, ChatGPT represents a huge opportunity for businesses to get ahead and use it to increase their performance.

Looking to the future, ChatGPT has the potential to create a range of new careers, including language model experts who will be responsible for fine-tuning, teaching, and optimizing the technology. Content creators who can step up and go beyond the vanilla will also have a key role to play, as will project managers, who will be required for all projects utilizing ChatGPT.

In terms of competition, it’s inevitable that it will come. However, the opportunity to use ChatGPT across all business functions is simply too good to ignore. From marketing research and communications to sales, operations, accounting, procurement, and recruitment, ChatGPT has the potential to revolutionize the way businesses operate.

Marketing departments, for example, can use ChatGPT for research, with the ability to ask and get an answer, without having to spend hours searching across websites looking to upsell. ChatGPT can also be used to improve the quality of communications and product descriptions, as well as translate website content into different languages.

In sales, ChatGPT can help to understand customers and markets, and improve engagement with relevant messaging, even in second languages.

In operations, ChatGPT can automate repetitive tasks and provide consistent product descriptions across all media. In accounting, ChatGPT can help with benchmarking and interpretation, while in procurement, it can aid in research and negotiation. And in recruitment, ChatGPT can be used to create job descriptions and KPIs.

ChatGPT is a game-changer for the business world and represents a huge opportunity for businesses to improve their performance and stay ahead of the competition. The future is here, and the time to act is now.

2022 December 1 – 5 powerful questions to set up 2023

First, I’m assuming that you want to grow. If not, you will lose what you have. Look at it this way:

If you have a business with revenues of 20,000,000 and profits of 2,000,000, a starting valuation of your company would be around 10,000,000. Yes, a 5 multiple of EBITDA (and that’s generous in todays economy). With inflation running around 10%, not growing your company will see its value depreciate to 9,000,000.

To maintain its value, you need to grow it at inflation plus economic GDP growth plus industry growth rate plus currency depreciation. It rounds up to about 15%. To grow it, add a few percent (depending on your ambition) and you’d need to close out 2023 with revenues between 23m-25m if you maintained the same profit margin.

To set yourself up for this outcome, here are 5 questions you’d need to answer to set yourself up for growth in 2023.

1.            What is your destination? – 2 years from now, what does your company look like? If you don’t have a destination, much like a ship at sea, you will run out of food, water and fuel. A destination is a measured, specific outcome. Last week we spoke about building a business backwards, starting at a destination 5-15 years from today and seeing what needs to be done tomorrow to get there.

2.            What business are you in? – lead with the need. It changes every time there are changes, and both parts need to change, commodity and commerce. Customer behavior is changing rapidly as the business environment changes. The way consumers are behaving today is very different to the way they did 2,4,6 years ago. Between then and now, trade friction and political uncertainty arrived, covid smacked us all in the face, a war broke out causing energy to spike, inflation and interest rates have subdued everyone and on it goes. The ructions and shifts in our world are unlikely to stop and return to a predictable calm normality. Understand your business not in terms of products, but problems and experiences that are constantly changing with the changes in the environment. , You need to constantly be responding.

3.            What can we stop doing? – Simplify. A piece of research was done, around 2007 on multitasking. It showed an intellectual attention drop of 38% when you multitasked. Sure, you can get a job done but the noise, diminished attention and incompleteness of it often requires rework or revision to optimise the outcome. Simplicity is essential to scale, concentrate attention, accelerate learning cycles (per the point above) and give you a return on time. Dabbling will compromise you every time.

4.            How can we increase dependability? This means both reliability and consistency. Understanding what business you are in offers you the blueprint of how to engineer and design your business to deliver dependable outcomes in marketing, sales, fulfilment, and administration. Don’t be led by urgent matters, be driven by important ones.

5.            What is the shared team vision? Go with your team, not alone, including them in the 10-year, 2-year, 6-month, and monthly goals. An engaged, motivated team that is accountable and self-led. This is especially important in a world where skills are in short supply.

Building a business backwards

Pavlo reflects on a business owner who had worked with Aurik and recently sold his company for 120 million. When Pavlo mentioned this purchase to another business owner, the response was: “He must be really lucky for such a deal.”

Luck does count – where you are located matters, timing can matter but largely, it has very little to do with luck.  For a business to have such a high valuation in the sale, the business needs to be built backwards, starting with the end in mind and designing it towards the end goal.

This business was built eight years ago with the intention to sell it in the long run. When asked how much he would sell the business for, the owner said 100 million, and he was adamant on that number. To reward his years of investment, risk, and sacrifice, this would be the set target.

The plan to act  tomorrow had to work backwards from that future date. And we ran a few numbers. What we calculated is that five years forward he  would need to have a revenue of$85 million,  profitability running at least 15% to be able to  argue and justify a multiple of around eight. If you take the initial  85 million, multiply it by 15%, and multiply it by eight, you’ll get something like the 100 million target.

On average, most businesses are lucky to earn three or four multiples. But the reason for that is that when most people sell their businesses, they arrive at that point at the 11th hour after ten, twenty, or thirty years of successfully generating income. They learn that what they have built is a business that’s good at generating income but not a business that is transferable as an asset to the future buyer or acquirer. As a result, they are heavily penalised for the multiple.

The multiple is an indicator that effectively answers five questions.

In this podcast of The Money Show, Pavlo Phitidis breaks down the process of building a business for 100 million exit.

Using the furniture business as an example:

  • There are 10,000 furniture businesses out there, and the buyer needs to see that you’ve distinguished yourself, and your brand positioning within the furniture business is good. Your brand is recognized and appreciated by your customers. That’s the one factor that would take you to approximately a threeor four multiple.
  • The second question is, “How does the whole thing work?” What business systems have been put in place? If you have translated all your commercial activities into business systems, then effectively you’ve got a playbook as to how the business works, and that takes the  multiple up to four or five.

  • The third thing they will ask is, If you exit and are not there who’s going to make it happen?. You need to show that you’ve got a team that’s engaged, that’s motivated, that has been there for some time, that sees a future, especially with the new acquirer, and if you can show this, you have an additional multiple.

  • Next question: Will there be growth in the future? If the business is to grow at a higher rate, than you’ve grown the business in the last two or three years; the aquirer shouldn’t be paying for that. You need to have shown growth prior to exiting.

  • And then the last, and often toughest, question is: Without you there, what happens to your suppliers? What happens to your team? What happens to your customers? What is your influence in holding it all together and ensuring that the asset that is being bought from you today will perform the same tomorrow once you’ve left?

If you address each of those five levers, you’re taking a three multiple to an eight multiple. You’re adding an additional point in each  instance.

And that’s what we mean by an engineered approach, which requires you to start with the endgame, saying, “I want 200 millionfor my business.” and then design the business to deliver that eight multiple.

Why acquisitions fail to yield value:

. A Harvard study from 2016  estimated that 82% of acquisitions made, fail to yield value for the buyer. Very often, these acquisitions are made by listed companies, where there’s quite a bit of pressure to demonstrate how your investments are yielding shareholder value. It was interesting because they identified all of the major reasons why these acquisitions fail.

  1. The first is a misalignment of customers. You acquire a business, you believe you might be deepening your ability to reach a new market that’s similar to the one you already serve. But often, this is a misalignment.
  2. Secondly there are massive issues integrating the team in the client business with your team—in other words, getting cultural matches done.
  3. The third reason is that the functions of how the business runs and operates are profoundly different from the way your business runs and operates.
  4. And the final reason is that once the owner is no longer there, the culture, values, and the issues that held everything together simply disassemble, fragment, and fall away.

Understand that when you are ready to leave a business, you need to serve and understand the needs of a new customer: The Buyer.

The problem is that most of us arrive at this point with three, four, five, or six months left because we want to get out at that point. We make the decision to get out, and yet we have never built the business in such a fashion that it fits neatly with what the buyer wants.

Start with the end in mind and build it backwards.

Competing in a commoditised environment.

A commodity is something that is freely accessible, commonly available and wherever you look someone has something similar to it.

One example is auto insurance –  there is basically no difference, because underwriters and actuaries all use more-or-less the same data to determine the price or value of the insurance policy.

Another is hot cross buns – the features and benefits are similar and available from 50 to 200 to 20 000 providers.

In the United Kingdom, where the stats are really good, there are 15,277 printers servicing this tiny island, and most of them are still in existence even though the market is flooded.

The question we should be asking is how do those companies survive, and what do they need to do to set themselves apart from each other? Because that’s where the art of selling and differentiating what you do in a commoditized world becomes the art of business growth.

In this podcast of the Money Show Pavlo Phitidis breaks down the commoditised environment.

Consider one of the most basic commodities available… a bar of soap. There are hundreds of thousands of variants.

Pavlo recollects on a business owner who started a soap manufacture business 15 years ago – much to Pavlo’s horror as soap is soap is soap!

This business owner entered the hotel amenity business, where a single major corporation dominated as most hotel chains wanted the cheapest of the cheapest while still maintaining quality. Amenities and soaps were things that nobody wanted to pay attention to. In a highly commoditized market such as this, he had no choice but to think outside the box, so to set himself apart, he set about understanding the brand of the hotel.

He did a deep analysis and discovered that there were approximately 3200 activities that contributed to the guest experience. It’s an incredibly complicated activity, and much of it is outside of that hotel’s control, from the arrival, travel to the hotel and activities as well as the departure.

He nailed the essence of what would appeal to tourists going through that hotel. And he began to craft a collection of amenities that were designed to specifically encourage guests to be taken home after their stay, through their packaging, their fragrances, and the feel of the amenities being used in the showers and bathrooms. The baobab scented shampoo that reminded them of their safari or the amarula bodywash to hint at sundowners in the bush.

He had conducted genuine and in-depth study to demonstrate how the senses reproduced experiences, which was what made what he did and was what made the selling propositions he had devised for the hotels so ingenious.

He created an experience to set his product apart, beyond the commoditised features and benefits.

And he was able to persuade one of the main worldwide companies that if the guest had a pleasant stay, he or she should be able to experience the physical sense and scent of the product that he supplied. When the tourist returns home, they will remember the experience, and they will remember the vacation they had at that particular hotel group and wish to remain with the same hotel group the next time they visit another destination.

” And that’s the art of differentiating in a commoditized world. You’ve got to go the extra mile to create an experience that sets you apart, as opposed to the features and criteria of your product”.

Overcoming objections to close the sale

Life is about selling, and business ownership is about non-stop selling. Excellence in selling leads to business excellence, and often it has little to do with how good your product or service is.

Looking at the many different businesses that exist, they all have special features and unique products and services that are well thought through. But at the end of the day, everything is becoming increasingly commoditized.

It is absolutely vital to get the deal done when you’re in front of the client because, on average, a client is looking at more than one service that is similar to yours. The art of getting the deal done is not about talking about the product and service that you have to offer. It’s about learning how to manage the objections that are sure to come. And objection management is what selling is all about.

Objections vary; it’s where somebody makes an excuse to not engage with you, not buy your product, or to push you away, and if you can manage the objections, you’ve got a higher chance of then making a sale.

In this podcast of the Money Show Pavlo explores the 5 main reasons nobody wants to engage with you about your product or service.

  • Money: I can’t afford it!

The big M is money, and often the excuse is “I can’t afford to” or “We didn’t account for this.” There is always the money objection that arises and disrupts the selling process.

  • Trust: I don’t believe you will deliver on your promise!

Trust is where real wealth lies. Its where real currency lies. It is absolutely necessary. It’s the essence of branding. Trust is important. If prospective customers and clients trust you, you’re more likely to have a smoother and more productive conversation with them, which can ultimately lead to their choosing your services or business.

  • Need: I don’t need it!

To serve the need, you’ve got to elicit the need. You’ve got to ask the right series of questions to help people understand that you have something of value and you know that you are serving the right customer. You often have to help people understand that they don’t know what they don’t know. And it is this process that is the essence of business development. It’s more than selling. It’s more than marketing. It’s a process of education. It’s expensive, it’s costly, and it’s absolutely essential. As a result, creating the need is critical.

  • Urgency: I don’t need it right now!

Let’s say we have a good argument for money, we’ve elicited the need, but there’s no impulse to move forward, no decision to take that big step.. Now you have to show that without buying the product or service you’re offering, a problem will arise. That it is going to be costly; that it is going to be painful; and thatit is going to create trauma and drama in that person’s life. If you don’t create that need with a strong enough impulse, the urgency never arises to make the decision now. And the problem with someone not making a decision in the moment when you’re in the process of selling is, a week later, they’ve likely forgotten about you. So that urgency is vital to making somebody move.

  • Time: I don’t have time to engage with it!

This is where your preparation comes in. And if you raise all the objections ahead of time, knowing what objections you typically face—whether it’s money, time, urgency, trust, or need—if you raise them all ahead of time before a client or customer can raise them and resolve them proactively, you’ll be on the front foot to close those deals because it will leave that client or customer fully engaged and trusting in the process itself. It’s called selling in the sunlight, and it’s one of the best ways to do it.

Pavlo’s tactic:

When someone says ‘not right now’, I usually say “Respectfully, in my experience when people say that it means you’re either not interested or unaffordable, may I ask which is it?”It’s an open-ended question puts them in a position where they’re going to say either, “I’m not interested.” Then, you know, it’s a need, an urgency issue. Or they will say “it’s not affordable”. Then, as you know, it’s a money and trust issue.

And if you’ve done your work, you know how to resolve both of those in the second round of discussion. Don’t let go. Once you have a customer or client that you know well and can serve well in front of you, you need to close the deal because it puts you on the front foot of selling, which puts you on the front foot of leaving successful and growing your business.

Three interlinked activities to create a winning sales system.

“Build a better mousetrap, and the world will beat a path to your door,” said Ralph Waldo Emerson.

It was true when quipped around 1770. There were few products, and if you made something reasonable, customers did exactly that!

Today, every product or service is a commodity. There are thousands of providers and hundreds of thousands globally.

Now, the adage should be: “If you have a mousetrap, you need to beat a path to your customer’s door.”

So, what are your options?

There are three strategies that you need to have in play: fishing, hunting, and farming. You need to do them all if you wish to maintain your market share and grow.

In this podcast of the Money Show Pavlo Phitidis unpacks, “FISHING, FARMING & HUNTING” in a  business context.

Fishing

There are two primary fishing strategies used in industry today.

  1. Net trawling: You pull a huge net behind a boat out in the open sea. It is indiscriminate and random enough that it catches anything and everything in its path.
  2. Lure trolling: The species of fish you want to catch determines where you go trolling and what lures you use.

In your business, you should use both strategies. Your content is oriented around your company’s successes, failures, thoughts, and views on the industry’s future.

Your net trawling would be your social media posts that talk about achievements, successes, and failures that you have gained. They are unpaid and might be seen by anyone and everyone, depending on the content and virality of the post. Their purpose should be to create awareness of your company and build brand and familiarity.

Your lure trolling is more targeted. For example, if you offer products aimed at solving problems in the restaurant industry, you could post your marketing content into a restaurant owners’ group on the social platform you can access. It is more targeted but still a hit-and-miss affair. The purpose is to create awareness and build familiarity.

Hunting

Sticking to the fishing analogy, hunting is the equivalent of spearfishing. This is a very physical activity and requires you to dive under the water and actively seek out the fish you want to catch.

In your business, you actively go right to the source of your target, your customer. It means you need to know who buys your product, why they buy it, and where and when they buy it.

Farming

Again, using the fishing analogy, farming is where you identify a group of fish, hold them in a dam or lake, and feed them to fatten them up until they are ready.

In your business, this is the process of nurturing the customers you have engaged with, building relationships, creating familiarity, deepening education, and maturing them to the point where they are ready to transact and do a deal.

The three strategies work together to find, win, and hold customers—the essence of any business.

Turning this analogy into a system of marketing and sales is our job as business owners.

Led by your customer’s buying journey, which entails three broad stages: Awareness, Consideration, and Decision, you will use marketing (net fishing and farming), business development (lure fishing and farming), and sales (hunting).

The job of marketing is to:

  • Reach stakeholders in your company’s success: future customers, suppliers, and employees
  • Define you’re positioning in terms of the segments of customers you want to reach
  • Elicited intrigue, curiosity, and interest from a broad audience but focused on the leads that fit  your business
  • The measure of success is a lead that is familiar with your brand.

The job of business development is to:

  • Generate a lead and build a relationship
  • Elicit needs and wants and educate the lead, which will encourage them to engage further by closing the gap between the lead’s problem and your product as a solution.
  • Raise and resolve objections
  • The measure of success is a customer, educated and informed, who wants to buy.

The job of sales is to:

  • Receive a lead and close the deal
  • Close the gap between the customer’s problem and your product as a solution.
  • Manage and resolve objections
  • The measure of success is a transaction and payment.

All three play into and across each other as a system of finding, winning, and holding customers. It is what sets the winners apart.

Scaling a business based on people is likely to limit your growth.

Pavlo recently spoke with a well-established but frustrated business owner; this particular business owner is an engineer whose company is not growing as quickly as it could.

He has traction and a reputation after 28 years, but he can’t grow beyond an 11% growth rate. Every time he steps on the accelerator to expand, he takes one stride forward and two steps back.

Engineers are generally careful, as seen by the way their factories and manufacturing lines are constructed. For them, seeing what you’re doing makes it simpler to perceive progress, and when you can see something, you can delegate it much more easily because you can point to it.

Managing the commercial systems it is the tricky piece because how do you see marketing? How do you see sales? How do you see operations? How do you see administration? It’s there that everything was stumbling.

Think about what the commercial system is and consider the commercial elements of the business: Marketing and sales and operations and administration and managing people and managing money. All of them interplay with each other. They are all linked together no differently to the way your production process plays out.

As you run through the production process, the shape and value of the product you create, evolves. The same applies as you proceed from one business system to the next.

It operates in a methodical manner, with the first individual beginning with marketing and the second individual securing sales. The next step is operations, followed by administration, and we began mapping out this process since an engineer would enjoy it.

The business owner got this right and STILL was stuck at 11% growth – so what was the problem? People! He experienced that people disrupt the systems. Considering this, how do you get this issue of delegation right?

In this podcast of the Money Show Pavlo picks up on how to delegate right.

When you’ve been working for yourself independently, it’s easy to keep track of things. You don’t have to have meetings, and you don’t have to worry about other people’s lives and issues. You do it all yourself, and you end up burning the midnight oil. You’re working 16 to 18-hour days, ensuring that you’re up to speed with everything, but eventually you can’t do that anymore. You need other people to come in.

Pavlo runs a small exercise with business owners who are struggling with this:
This exercise depicts the typical amount of time spent by a company owner thinking about his business.

He sleeps around 8 hours per night and he’s awake for 16 hours. Some calculations tally that he has spent around 160,000 hours thinking about his business over the last 28 years. With all that contemplation, he’s ultimately got into deep, deep realms of complexity, which finally lead to a point when things begin to become simple.

With that in mind, the business owner is going to try to assign certain work to a manager in his company.

This business owner has five managers who are all well-established. They’ve each been there for an average of 11 years. So, we carried out a comparable calculation. 11 years… 250 odd working days at 8 hours a day. They are managers, and when they go home for the weekend, they are not thinking about the business. They’ve been pondering for an average of 20,000 hours.

You have 160,000 hours in the business owner’s mind and a total of 20,000 hours in the managers minds. Delegation becomes a tremendous challenge right away because you’re truly thinking and seeing things so differently based on how your team perceives and thinks about things. It starts there and only becomes a problem if the context isn’t set correctly and there’s no alignment in understanding what and how is being delegated.

The most common error that founders, owners, and CEOs make is assuming that the individuals to whom they delegate know what they’re doing and care as much as they do.

To overcome this gap, you have to delegate a complete, holistic SYSTEM, not just an outcome, and you need to revisit the whole system from time to time to ensure it is intact and functioning slickly.

Delegation doesn’t begin or end with an instruction. It’s an ongoing relationship with your team.

D’s that drive most business exits, and the one D that should.

In a recent conversation with a global business broker, we debated why 94.6% of companies started failing to sell. This is despite them having survived the early years, grown into sizable mid-market businesses and provided nicely for their founders.

He shared a dreadful reality with me that he referred to as the 6 D’s. Most of his clients looking to sell their companies come to him because of the 6D’s.

Death – the death of the owner or a significant partner in the business

Disease –contracting a disease that prevents the owner or business partner from being able to work

Divorce – a divorce that leads to the company having to be sold

Debt – debt that the sale of the company can only settle

Disenchantment – essentially, when every day becomes and feels like a slog and a grind in which you lose your passion.

Disability – a disability from an accident or some other event that prevents the owner from running the company

Pavlo Phitidis breaks down the 6 D’s for business owners in this Money Show podcast

The antidote to these unfortunate drivers of business sale is the 7th D – Design.

Designing your wealth creation path as a business owner is seldom done, and nobody wants to face their fate. There are four simple steps that a business owner must follow on this path to have success based on their end goal.

  1. Start with the end in mind – recognise that the ultimate destination is the sale of your business. Businesses are not bought. They need to be built to be sold.
  2. Set a plan and a path – of the 10,000 companies we surveyed, most that wanted to grow had no growth plan. Only 14.9% of the owners spent an hour or so chatting about growth at a monthly management meeting. Growth is not “hope or luck”. It is architected and constructed!
  3. Measure up your path so you can track and trace it – deliberately managing growth is your real job as a business owner. By far, most business owners are consumed by daily, weekly, and monthly operational activities; they have no time to lead and drive growth.

Time runs out for us all. Starting with the end in mind and building your business into an Asset of Value™ from the get-go is the best insurance plan you can hope to have as a business owner.

When a brilliant product doesn’t drive brilliant growth

This week I met a business owner who arguably has one of the best food ordering, payment, and delivery platforms I’m yet to come across. It is a marvelous piece of engineering and centers its value on empowering the restauranter to interpret customer behavior into innovations on service, menus, value, and therefore business growth. Brilliant…. but nobody knows about it.

With a bunch of clients onboard, it makes good money for the founders. This compounds the problem.

If you have a product or service that is well-designed, reliable and offers great value to your customers, how much market share should you own 10 years, 20 years, or 30 years into the game?

Surely, if your offering is that good, you should be dominating segments in your industry. Industries are not small. There are macro-economic reports on the value of industries across all countries freely available on the internet. Find one relevant to you and calculate your market share. If, after 20 years in the game, you believe that you have the best product out there, surely you should have…10% or even 20% of the industry market value?

If you do, well done. If you don’t, what then is the missing ingredient?

Listen to this week’s podcast from The Money Show where Pavlo Phitidis compares a business to a winning F1 team to explain the missing link!

To win the F1 championship, you need three elements.

  1. A winning driver – a racing driver is quintessentially competitive and invested deeply into improving their skills, capabilities, and performance
  2. An efficiently designed car – at high speed, every element of drag and resistance created by the airflow over the body of the car needs to be designed to work for you or eliminated
  3. A reliable, high-performance engine and chassis – to run at a high pace for 70 or more laps, the engine must be responsive and controllable

It’s a great analogy for high-performing businesses.

Every successful business has three primary elements of excellence, interlinked and dependent on each other.

  • The first is the business owner’s mindset. If it’s not a growth mindset, you may well be happy with the status quo. That is not a winning mindset. If your business is doing well and you are making good money in the status quo, you could be doing much better. Doing much better means growing more . Increasing growth by taking more market share pits you against competitors. That fight to grow ignites your potential and competence. A growth mindset is more than just wanting business growth. It means that you will stretch the bounds of your knowledge and capability to fight harder, be smarter, and win. It grows you and your competence as much as success grows your business.
  • The next is the product or service that makes up your offering to the market. It needs to be well-built, offer reliability and quality, and value. It needs to solve problems for the customers who buy it for nobody spends money on anything that does not solve a problem.
  • Finally, is the wrapping. This is made up of the commercial “gears” that interlink to drive and accelerate the offering to market. Made up of marketing, sales, fulfillment, administration, and the other commercial functions that every business needs to exit, live, breathe, and win. The reality for most business owners who create, make and build things (and that’s almost all of us), is that this wrapping is the most frustrating piece to put in place. It really is far more interesting adding a new feature to the product than having to organize your team and design, build and implement the commercial system set.

If you have the best product in the world, and if you aren’t dominating segments of the market in your industry, then it’s the commercial system set or gears that aren’t in play and optimized. If you have them in play and growth generates chaos, then they aren’t optimized and interlinked effectively. No tinkering with the features of your service or product design improvements will fix that and without it, your brilliant product will remain the world’s best-kept secret.

And then time runs out.

A challenge that presents as an strength

Recently I met a valuable business. Valuable because of the skills, talent, and costly capital equipment recently purchased. By recent, I mean before the interest rate hikes of 2022. Capital equipment lends itself well to debt funding, and debt funding secures its returns through interest. Rising rates can burn a business unless you raise revenues too.

What was interesting about this business was its leaders’ mindset. They believed that only they, or people like them, could build the business and grow it beyond their hefty £22.7m annual revenues. Comments like, “What we do is very specialized, and it needs us, hands-on with our teams, to get the job done” and “In our industry, it’s relationships and reputation built by our highly specialized, deep expertise that grow a business”.

In this podcast of the Money Show, Pavlo Phitidis discusses the perception and reality of uniqueness in specialized businesses

Rising inflation, which drove interest rates higher, exacerbated the uncertainty that was fuelling the recession. Unless this business grew, they’d be left with the cost of their capital equipment, an agitated workforce wanting to “engineer” things, and possible demise.

Every business has two pieces that need to be coupled together to succeed. By succeed, I mean increasing revenues and profitability and doing so in a manner that sees the owners free 70% of their time from daily, weekly, and monthly operational activities. It will allow that business to scale, grow and ultimately be sold. They did not meet any of these criteria!

They did have one key element to success: did have a brilliant product or service, as a result of their highly specialized skills and capabilities. To accelerate their products’ and services’ value, they needed to build a second element: a commercial system. The first solves client problems; the second creates an engaging experience for clients. Both are necessary if you want to grow beyond your available time.

After accepting that their specialization was very similar to their competitors, creating no advantage or disadvantage and levelling the playing field, we spoke about what sets a business like this apart.

Like any business, it is about whom you serve (your customers and clients) and what experience you create for them. The experiences I refer to are those that you and I are subjected to every day from suppliers. How do they market their propositions to us and then sell, deliver, and administer the relationship with us? All these elements are articulated by commercial activities, including marketing, sales, operations, and administration. These activities, organized into a sequence that creates the experience, are brought to life by purposeful teams. This was the missing ingredient that saw their brilliance manifest in  £22m revenue, rather than the £60 to £80m revenue performance they should be doing after 32 years in the game.

It’s hard to see when all the habits you’ve developed since being in your business have been formed against your strengths. Engineers make things. Doctors fix people. Vets fix animals. Chefs cook things. Our underlying interest drives our training and vocation. Intellectually, that feeds us.

Developing and deepening your skills in your chosen profession is exciting and influences what business you build as a result. However, this makes us essentially product-centric, when only customer-centric business models promise scale, growth, and premium exits. It can also make us forget to build a commercial system to drive the business and grow it beyond our hands, heads, and hearts.

Finally, after 3 hours of discussion, the engineers agreed!

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