This thread will be some different principles that I have learned that have been acquired through either a negative lesson or a positive result. They say lessons are learned with losses, but lessons are learned in success as well.
I see a lot of people making mistakes that throw up giant red flags because I have learned these different principles and can see exactly where a lot of ideas will go wrong. MJ did this himself and made a book out of it. He saw how if you did not control your business, you were doomed. If anyone could do it, there's a problem. If no one needed it, you would fail. If it could not be separated from your time, you would become the bottleneck. If it cannot be scaled and replicated, you would be fighting an uphill battle.
I would like to explore the different things I have seen and applied in my own business that may offer some value to you, since it has already delivered me some value.
These will not be "rules" since I don't believe much in rules. Sometimes going against the most basic rules can bring the greatest rewards. So I won't be hypocritical in saying that these things are always true, or even relevant to your business. They aren't even guidelines oftentimes. Just concepts, ideas, lessons, etc. that will hopefully help you do one of the following.
1. See an opportunity or find a problem that will turn into a business for you
2. Change how you are going about solving a problem within your business
3. Help with different issues such as problem customers, unprofitable work, employees, etc.
4. Seeing things in a new light
5. Filtering out bad ideas or seeing where they are going wrong quickly.
I will include a post now so you get an idea about what I'm going to include here.
Everything is quantifiable. Especially your policies. You don't need to know the exact number, but be aware of approximately how much everything affects your bottom line
If you are a lawn care company, should you get paid upfront or afterwards? Should you take credit cards only and charge them each month or should you also accept cash, or send out invoices for customers to pay at their leisure? Should you only work when you have signed contracts from customers? How can you make that decision?
When you require a customer to sign a contract and submit their credit card information, a portion of them will not like that and not sign up. But, all of your customers that do sign up will be obligated to continue as long as you are holding up your end of the bargain, and all of their payments will be on time assuming the have money in their account for you to take.
If you perform work for customers without a contract and without having control over payment, the expenses are quite high. Are the rewards high enough?
Problems that will come up
1. Customers will change their mind about needing services, creating service gaps in your schedule, causing you to desperately fill those gaps and sometimes lower your rate in order to stay busy. This lowers revenue a little bit.
2. Customers will hold your payment hostage until you do the subjective and arbitrary job of "satisfying" them. This raises costs substantially since you can sometimes spend 30% or more extra time at someone's place. This also causes you to be forced to leave a larger gap of time between jobs as a cushion. This results in a loss of revenue since you can't schedule 6 jobs when you can only schedule 5 and leave time cushions.
3. Opportunity cost. If you have to turn down jobs coming your way, then you are missing out on the portion of customers that would be signing up with more favorable and profitable terms. If opportunity cost actually was put on a profit/loss statement, you would realize you are doing a lot worse than you think.
4. This lack of profitability will force you to hire cheaper employees. Cheaper employees comes with the headache of dealing with poor attendance, training, fixing mistakes, and staying on their a$$ to get better results.
5. Customers may pay invoices late or sometimes not at all.
6. Late payments results in poor and inconsistent cash flow, bottlenecking growth and requiring you to have better cash reserves. This is compounded by the fact no contract means no promise of future revenue, back to point #1.
Benefits of going this route.
1. You will sign up more customers. Maybe an extra customer turns out to be an instagram star who supports your business and makes you go viral...it does happen.
2. You can charge higher prices for the luxury of favorable terms for the customer. This CAN offset revenue hits and cost increases that are outlines in the above points.
How do you decide?
With experience, you will see that this is a constantly changing dynamic of what is overvalued and what is undervalued. I have certain policies within my business. That's because of what is overvalued and undervalued. Right now, favorable terms and having contracts are grossly undervalued. Customers for my business have proven to have relatively inelastic demand when it comes to terms. This means I can put a form in front of them that has "terms and conditions" at the bottom, collect their credit card info, and I will only lose a small number of people that don't want any contract with our business. It is such a massive imbalance that having unfavorable terms not only makes a crew's work day almost 30% longer, it lowers revenue by close to 30% as well when considering problems 1-6 listed above. It makes growth and scaling much harder. When you break down all of the effects of these decisions, it becomes a no brainer.
However, if starting tomorrow I can't sign up 1 person in 10 when I require contracts and credit card info, that will change how the math breaks down. I would be forced to adjust by avoiding problems another way, such as agreeing to unfavorable terms but now being more selective by charging much higher prices and hiring better workers, or changing services, or something else. I don't make a policy just because I want the world to be a certain way. I have policies within my business to successfully navigate the way that the world actually is. If it changes, I change with it. I do that daily, weekly, monthly, yearly.
Sometimes we should make decisions the the gut, others with the calculator.
So...where are the pitfalls of your business? Can you avoid them? What are the costs and what are the benefits? Is there something that you can change based on what the market is overvaluing or undervaluing within your industry?
I see a lot of people making mistakes that throw up giant red flags because I have learned these different principles and can see exactly where a lot of ideas will go wrong. MJ did this himself and made a book out of it. He saw how if you did not control your business, you were doomed. If anyone could do it, there's a problem. If no one needed it, you would fail. If it could not be separated from your time, you would become the bottleneck. If it cannot be scaled and replicated, you would be fighting an uphill battle.
I would like to explore the different things I have seen and applied in my own business that may offer some value to you, since it has already delivered me some value.
These will not be "rules" since I don't believe much in rules. Sometimes going against the most basic rules can bring the greatest rewards. So I won't be hypocritical in saying that these things are always true, or even relevant to your business. They aren't even guidelines oftentimes. Just concepts, ideas, lessons, etc. that will hopefully help you do one of the following.
1. See an opportunity or find a problem that will turn into a business for you
2. Change how you are going about solving a problem within your business
3. Help with different issues such as problem customers, unprofitable work, employees, etc.
4. Seeing things in a new light
5. Filtering out bad ideas or seeing where they are going wrong quickly.
I will include a post now so you get an idea about what I'm going to include here.
Everything is quantifiable. Especially your policies. You don't need to know the exact number, but be aware of approximately how much everything affects your bottom line
If you are a lawn care company, should you get paid upfront or afterwards? Should you take credit cards only and charge them each month or should you also accept cash, or send out invoices for customers to pay at their leisure? Should you only work when you have signed contracts from customers? How can you make that decision?
When you require a customer to sign a contract and submit their credit card information, a portion of them will not like that and not sign up. But, all of your customers that do sign up will be obligated to continue as long as you are holding up your end of the bargain, and all of their payments will be on time assuming the have money in their account for you to take.
If you perform work for customers without a contract and without having control over payment, the expenses are quite high. Are the rewards high enough?
Problems that will come up
1. Customers will change their mind about needing services, creating service gaps in your schedule, causing you to desperately fill those gaps and sometimes lower your rate in order to stay busy. This lowers revenue a little bit.
2. Customers will hold your payment hostage until you do the subjective and arbitrary job of "satisfying" them. This raises costs substantially since you can sometimes spend 30% or more extra time at someone's place. This also causes you to be forced to leave a larger gap of time between jobs as a cushion. This results in a loss of revenue since you can't schedule 6 jobs when you can only schedule 5 and leave time cushions.
3. Opportunity cost. If you have to turn down jobs coming your way, then you are missing out on the portion of customers that would be signing up with more favorable and profitable terms. If opportunity cost actually was put on a profit/loss statement, you would realize you are doing a lot worse than you think.
4. This lack of profitability will force you to hire cheaper employees. Cheaper employees comes with the headache of dealing with poor attendance, training, fixing mistakes, and staying on their a$$ to get better results.
5. Customers may pay invoices late or sometimes not at all.
6. Late payments results in poor and inconsistent cash flow, bottlenecking growth and requiring you to have better cash reserves. This is compounded by the fact no contract means no promise of future revenue, back to point #1.
Benefits of going this route.
1. You will sign up more customers. Maybe an extra customer turns out to be an instagram star who supports your business and makes you go viral...it does happen.
2. You can charge higher prices for the luxury of favorable terms for the customer. This CAN offset revenue hits and cost increases that are outlines in the above points.
How do you decide?
With experience, you will see that this is a constantly changing dynamic of what is overvalued and what is undervalued. I have certain policies within my business. That's because of what is overvalued and undervalued. Right now, favorable terms and having contracts are grossly undervalued. Customers for my business have proven to have relatively inelastic demand when it comes to terms. This means I can put a form in front of them that has "terms and conditions" at the bottom, collect their credit card info, and I will only lose a small number of people that don't want any contract with our business. It is such a massive imbalance that having unfavorable terms not only makes a crew's work day almost 30% longer, it lowers revenue by close to 30% as well when considering problems 1-6 listed above. It makes growth and scaling much harder. When you break down all of the effects of these decisions, it becomes a no brainer.
However, if starting tomorrow I can't sign up 1 person in 10 when I require contracts and credit card info, that will change how the math breaks down. I would be forced to adjust by avoiding problems another way, such as agreeing to unfavorable terms but now being more selective by charging much higher prices and hiring better workers, or changing services, or something else. I don't make a policy just because I want the world to be a certain way. I have policies within my business to successfully navigate the way that the world actually is. If it changes, I change with it. I do that daily, weekly, monthly, yearly.
Sometimes we should make decisions the the gut, others with the calculator.
So...where are the pitfalls of your business? Can you avoid them? What are the costs and what are the benefits? Is there something that you can change based on what the market is overvaluing or undervaluing within your industry?
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