Building a Profitable Business Structure
Building A Profitable Business Structure: Foundations of a Solid, Scalable Business
50 percent of all businesses fail within the first 5 years, according to the US Bureau of Labor Statistics.
And one of the biggest reasons for business failure is a faulty infrastructure or business model.
A lot of people who start a business often do so without thoroughly thinking out the structure or business model. Some just establish a business because they think their idea will be an instant sell, and that alone will mean money will automatically follow. But that’s a sure way to end up being among the statistics.
To avoid business failure, entrepreneurs need to be able to build a rock-solid, scalable business foundation that can adapt to changes in the internal and external environment.
The kind of business structure that you want should be one that clearly solves an identifiable problem, for an identifiable client at a price they will pay for and will still meet the company’s revenue goals. It should also be in alignment with what you want out of life.
Principles of a Bulletproof Business Structure
Think of your business structure or business model as the wheels and cogs of a revenue machine. It’s how your business will be organized to sell products and services to your identified target market. It also outlines how you’ll be making a profit.
A well-built business structure will follow the minimum requirements for a scalable business:
Your business structure must be adaptable
A solid business structure does not need to be perfect. In fact, waiting for your products, services or business model to become perfect can be counterproductive. Most of the time, entrepreneurial success is about timing. People who are able to seize the opportunity while it’s hot easily find success than those who wait around for everything to be perfect.
As you’ll soon find out, there is no such thing as perfect in business. You’ll have to tweak as you go along to find the best version of your business model.
Your business should serve the needs of the market
You’ll find it hard – or even impossible – to build a business when there’s non-existent demand.
So you need to find out if there’s an existing market out there for the business you’re planning to do. Then you have to identify unmet or underserved needs of the market in order to deliver products and services that can fill them.
You need a good product-market fit
Your business has a market, now what? It’s time to zero in on your products and services.
Your products and services are essentially solutions to problems that customers have. However, many entrepreneurs make the mistake of assuming that they know the best solutions for their customers. They make their business all about themselves.
Instead, you have to make sure that you’re developing solutions based on the perspective of your customers. The best way to know is to ask them through interviews and thorough research.
Your business should be scalable
In business, you grow or you die. Your business may not die a sudden death but it will surely stagnate from a lack of scaling.
To avoid this, your business structure should have systems and processes that will support your future expansion and revenue growth, and at the same time help you minimize operational costs.
You need a point of differentiation
Customers should be able to tell your brand and products apart from all the other products and alternatives out there. Which is why your business should have a point of differentiation from a really standout brand personality, a great customer experience, a unique selling proposition, or any other way that you think this can be achieved.
The last thing you want is for your brand and products to be perceived as generic. You don’t want to be seen as someone who can be easily replaced by one of your competitors.
Your business should have a sustainable profit margin
Your business needs to make enough money to sustain the people that run it.
It’s entirely up to you to choose a low cost or premium business model. What’s important is that you have realistic expectations of your potential revenues and the overhead costs and other expenses.
This way, you can make the best decisions when it comes to market positioning, pricing structure, and other business activities that will allow your business to operate profitably in the long haul.
Understanding Your Business Versus What You Sell
What business are you actually in?
It’s a common mistake for business owners to equate their business with their product. There’s a big difference between the two.
Here’s an example: McDonald’s may sell food products, but they’re not in the food business. McDonalds is actually in the franchise business. They make money by providing food business systems to other entrepreneurs.
So don’t confuse your business with the product that you’re selling. To learn what type of company you are, you have to understand where your core competencies lie.
Clearly Identifying Your Products and Services
Most people, when planning their business, do not start with the problem they want to solve.
This is a big mistake. You have to first identify a clear problem that needs a solution or an unmet need to fill in your target market. Only then can you determine the best products and services to offer.
By clarifying what problem/s you solve as a business, you can develop targeted, focused products and services that can meet the expectations of your customers.
Decide on a Pricing Model
Price is the value that your customers have to pay in exchange for your products and services. Choosing a pricing model can be tricky, but it’s a critical task for building a solid structure.
Here are the most common pricing models you can consider:
- Cost-Plus Pricing – price is determined by the sum of all the costs that goes into the production and delivery of a product and then adding up a mark-up or a percentage for profit
- Value-Based Pricing- here you set prices based on the perceived value to the customer
- Fixed Pricing – your products or services have a fixed charge. This is applicable for instance when you’re offering project-based services
- Performance-Based Pricing – price is based on the ability of your certain products to perform according to specific metrics
Pricing decisions should be based on thorough research around your products, customers, and market. Ensure that your products or services are not only priced fairly but also appropriately depending on your market positioning, target customers, and actual and projected costs associated with production and delivery.
Building A Business Structure to Save your L.I.F.E.
In a previous blog post, we discussed the importance of your business serving the lifestyle that you personally want.
Say, for instance, that you started a business because you wanted more time to spend with your family or a hobby. Now you find yourself working 12-14 hours, 7 days a week, and barely have enough time for sleep. I’d bet you’re not happy with how your life turned out as an entrepreneur. This is a clear sign that your business structure may not be working for you even if it’s making money for you and your clients.
So aside from making sure that your business is financially viable, you have to examine its holistic implications on your L.I.F.E:
- Lifestyle – what kind of lifestyle do you want for yourself as an entrepreneur? Do you want to be able to splurge on a vacation, buy your dream car? Do you want more work-life balance? Your business should support the kind of lifestyle that you want for yourself.
- Impact – what impact do you want your business to have on your family, employees, customers, and the community? Whether you like it or not, your business will affect the people who are directly and indirectly related to your life as an entrepreneur.
- Finances – how much money do you need for your business to support the lifestyle you want? You should consider this when designing your entire business model.
- Enjoyment – how much are you going to enjoy working on the business? Your sense of enjoyment will ultimately affect your ability to serve your customers and clients. It will also affect your motivation and energy to sustain your business over time.
Putting up a business is a commitment that will affect you on a deeply personal level. So you have to think about your decisions carefully and be circumspect with planning.
Set Your Business Up for Success
Building a solid, scalable and adaptable structure is one of the most difficult areas of being an entrepreneur.
There’s no magic bullet to ensure a totally solid foundation. It takes hard work, determination, and a love of experimentation to find out what kind of business will both be profitable and enjoyable for you. There’s also no assurance that your perfect business structure will still be the best one for your business five or ten years down the line.
Successful businesses evolve over time. Your job as an entrepreneur is to make sure that your business structure is prepared to adapt, scale and evolve with the changing needs of both your market, your lifestyle, and your bottom line considerations.