10 Reasons Small Businesses Don’t Hit Their Numbers

Underpricing

As counterintuitive as it sounds, you can lose business by not charging enough. Good customers, who appreciate the value of things, will tend to avoid buying the cheapest solution because they will equate low price with low quality. The customers you do get will be a pain in the ass. They complain, blow up your inbox, leave negative reviews online, and/or demand their money back (assuming they pay their bills in the first place). No one wins the race to the bottom. Been there, done that, bought the t-shirt…not fun. I’ve found that underpricing is driven by unconscious and emotional factors, which stem from “unconscious competence” (Google the 4 stages of competence). I talk about underpricing more in this video.

Lumping Your Numbers

If you don’t know what it costs you to sell something (materials, labor cost, etc), then you don’t know which service lines and customers are generating the most profit. Don’t tell me you have “a sense” of what’s profitable. I’ve seen too many shocked expressions when people were confronted with the reality of their numbers after too many years of operating on guesswork, false assumptions, and “gut feelings.” Without an accurate measure of profit by service line and customer, it is much harder to focus your sales efforts and target your messaging. You may be losing money on some jobs and not even realize it, which takes time and resources away from profitable endeavors.

Treating Your Time Like It’s Free

Successful business owners value their time; unsuccessful ones don’t. Successful business owners offload and delegate anything they responsibly can; their unsuccessful counterparts try to do it all themselves and “save money.” Sometimes, the biggest costs in a business are the ones you can’t see on a bank statement or a P&L. Every minute you spend doing tasks that someone else could easily be doing, you’ve lost a minute that could have been spent making sales, solving high-level problems for your clients or otherwise doing your best work. Attorneys tend to understand this intuitively in my experience, mainly because they get paid by billing hours and they know their billable rates. They realize that they can’t afford the luxury of letting $300/hour billable work sit undone while wasting time on $20/hour administrative tasks.

Not Tracking Time

This seems painfully obvious to me, but I’ve lost count of how many business owners have told me they didn’t think it was necessary to track where time was being spent. Invariably, these same business owners usually complain that they don’t know why their teams aren’t as productive as they could be. If you aren’t tracking time, you might just as well not bother to look at your financial statements or your bank account balance, because you’re basically flying blind. You won’t know who’s pulling their weight or whether or not you are charging appropriately.

Lack Of Workplace Discipline

Here’s one reality check: look at each employee on your team. Would you still hire every one if them if they were applying for the job today? If not, why are they still working for you? In unhealthy work environments, there’s always “that one” employee that nobody trusts, and everybody knows who it is. Sometimes, there are more than one. If you think you can ignore the problem and that it’s not impacting your sales, you’re living in fantasy land. If an employee gets away with mouthing off at the boss in front of everyone, what message do you think that sends to the rest of the team? Or when someone gets away with padding their time card or misusing a company expense account, or sexually harassing a fellow employee? All of these things happen in companies of every size when spineless management looks like other way, sometimes even claiming that someone is “too valuable” to let go.

Sloppy Or Reactive Hiring Practices

Nothing cripples a business like high overhead, and payroll can easily get out of control if you don’t have a grip on your costs and time utilization. Small business owners often have no way to gauge the true capacity of their teams, and these are the business owners who tend to make hiring decisions based on feelings. Just because everyone is busy and there’s plenty of revenue coming in the door does not automatically make it a good idea to hire more employees, especially if you don’t know how much of that revenue is profitable or how productive your staff currently is. And don’t even get me started about hiring your neighbor’s kid or your brother in law.

Throwing Away Advertising Money

It never ceases to amaze me how much money business owners will throw at advertising without having a clue if it’s working or not. While I realize that it’s not always easy to measure the impact of marketing in every possible way, there is still plenty that you can measure. Ironically, I’ve seen some businesses spend thousands of dollars per month on advertising and not bother asking their customers where they found them. Yes, I realize that customers often forget and that you won’t always get accurate data. But there’s no excuse for not even trying to gauge what works and what doesn’t. Yes, it can be hard and frustrating to market a business and it takes trial and error, but it has to be done.

Losing Focus On The Core Business

As a lifelong Jim Collins fan, I’ve found a common thread in all of the studies in his books (most notably Good To Great, How The Mighty Fall, and Great By Choice). In all of his research projects, Collins and his team compared strong businesses to weak ones, and the most common pattern I have observed throughout his books is the tendency of the stronger companies to stay focused on their competitive advantage while resisting the temptation to start doing too many different things. Small business owners don’t have bosses, and sometimes that’s a bad thing. It is all too easy and tempting to say, “Sure, we can do that!” If cash flow is weak, business owners often feel they have no choice but to do anything and everything that looks like it might bring more money in the door, but spreading a company thin is financial suicide.

Copying What Everyone Else Is Doing

There are inherent similarities between different companies, usually due to the nature of the product or service and sometimes due to legal restrictions. But there’s a difference between following standard conventions and blatant copycatting. I’m talking about suddenly rolling out new product offerings that bear an eerie resemblance to the ones your competitor just rolled out last month, making sudden changes to your marketing language to include the latest buzzwords and trendy acronyms (without really understanding what the jargon actually means), or otherwise blindly mimicking your competitors in a monkey-see, monkey-do fashion. It looks dumb and it doesn’t work—and yes, we all noticed.

Holding Fast To Obsolete Business Practices

Just as a company can drain its resources by knee-jerk reacting to every twist and turn in the marketplace, it is equally problematic to hold onto obsolete business practices. In 2020, the COVID-19 pandemic changed the business landscape forever. This is just one example and history is filled with others; when the world moves in a new direction, new opportunities appear. The businesses quickest to recognize where the wind is blowing and get themselves in position early are the ones who win. Every time a major shift in supply and demand changes buying behavior, most companies are late to the party. Blockbuster Video is the classic stereotype, but the same thing happens in the small business world. Case in point: the move toward virtual meetings has changed the geography of business networks.
If any of the above sounds like you, and you’d like to do something about it, drop me a line at dave@dave-baldwin.com. I enjoy helping business owners create an objective, data-driven framework for making real-time strategic business decisions.

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