We work with a lot of small businesses and I have noticed some commonalities in the challenges that they all face. I particularly can speak to service based businesses as we are one and have faced and still face all of these challenges. I noticed that although product based businesses face similar challenges their resolutions are different. Here are three common challenges I see serviced based businesses face and how to overcome them.
When I ask a small business owner what challenges they face I think that the #1 answer is cash flow. Most small business owners have a tough time coming up with the cash to expand their business. Sometimes just covering the day to day expenses is difficult. Here are some suggestions on coming up with more cash flow to help run and grow your business.
Manage cash flow - It seems simple but most people just don't manage their cash flow. Tight bookkeeping procedures will allow you to get a handle on your small business cash flow. Posting income and expenses when they happen will help. However, you can really grasp your cash flow by posting expenses that will occur in the future so you can assess where cash flow is currently at and where it is going.
Establishing payment schedules - If you establish clear payment terms with your clients you should increase your cash flow. Consider collecting part of or your entire invoice amount prior to completing any work. This may sound crazy but if you are doing a good job your client will have no problem paying you up front.
Don't put all your eggs in one basket - If any one customer makes up more than 10% of your business then you may be in trouble. I actually think that if a client that makes up 5% or more of your total revenues it's dangerous. Think about it; if one client makes up a significant portion of your business and you lose them then that can be detrimental to cash flow. You still have to pay your salaried employees. If you lose a small client it will probably have little to no effect on your cash flow.
The more I talk to small business owners the more I realize that most of them don't have a clue how to market their service to their prospects. Many are caught up in old school tactics rather than adapting to where marketing has gone. I do three things to bring in new clients: inbound marketing, networking and referrals. Inbound marketing and networking are what I consider active and referrals I consider passive. What I mean is that I can take action to get clients through inbound marketing and networking, but referrals I have no control over (in a sense). Let me explain. I can write a blog, create an eBook download or set up an email campaign in regards to inbound marketing. Likewise, I can consistently attend selective networking groups that have proven valuable and where I have established relationships. Referrals come with time, reputation, networking and excellent service. Unfortunately, they are inconsistent and passive. Don't get me wrong I love referrals and they account for a significant portion of our business. Additionally I know tons of people that grew a successful business relying only on referrals.
I want to expand on inbound marketing for service based businesses for a bit. I do a lot of blogging and feel that blogging can drive sales for a professional service business. The reasons that most small businesses fail with inbound marketing is that they don't commit to it; neither the proper time nor resources. Additionally they have short term expectations, which is unrealistic. Most businesses put up a website just because everyone else has one. The problem with that is that most of those types of websites are a piece of crap and they are pointless. You are honestly better off deleting those websites that are online brochures as they are embarrassing for your business and don't do anything. Websites that have lots of valuable content on them attract specific types of customers to the business.
Think about how valuable that can be to your business. With inbound marketing you have the ability to target and attract the types of customers to your business that you want to work with. Additionally you are much further down the sales cycle when you get an inbound lead compared to a referral. With a referral I usually get a name, phone number and vague description of the problem. I would say more than half the time referrals are good and the rest are bad. With inbound marketing I get a lot of valuable information about the lead. I get contact information and can do my own research on the lead. I also can see what pages they viewed on our website to get a feel for what type of problems they are facing. Lastly, I get specific information from the lead on what issues they are facing. Take all the information that I gathered from the inbound lead and compare it to the information you typically get from a referral. I will let you decide which is better.
Scaling a service based business is very hard. But why is it so hard? If a product is good and it becomes hot in the market then the business scales itself. Service based businesses are difficult because you have to perfectly time your acquisition rate, churn rate and hiring rate to be able to scale. What I mean is you need to make sure you are acquiring customers faster than you are losing them and have a predictable hiring pattern. I also think that it is worth going back to the point about having large customers. If you are scaling a service based business and one client makes up 25% of your business what risks could that come with? What happens if you lose that customer? Will it hurt? You bet it will. It could crush your business. What if you lost a customer that makes up 3% of your business? You probably won't even notice.
I posted a question about the topic of scaling a service based business in a LinkedIn Group that I belong to and an enlightening conversation unfolded in the comments section. There are some amazing thoughts from a very smart and diverse group of small business owners. The recurring theme that sticks out to me is that culture and process are the keys to scaling. If you have a strong company culture that is built around your vision of where you want to go then the business will naturally scale to that point. The problem is you can't force a culture, you can only influence it. Additionally the culture of a business can change or form on its own if you don't attempt to push it in the right direction. You can't write down your company culture and hand it out to your employees and make them adhere to it. You can influence your small business culture through your vision, leadership style and actions. If you create a company culture that is aligned with your vision and goals your business will scale.
Your business processes are equally important to scaling. In order to scale, your business needs to be able to operate without you. In order for your business to operate without you the business processes need to be defined in great detail. Try taking this approach: if you were to die one minute from now would your business continue on as if nothing happened? If you answered yes then your business processes are detailed enough to scale your business.
As small business owners we all face similar challenges. It is important to understand that all challenges can be overcome. You just need the right mindset, vision and team to overcome them.