John Mullins is the CEO of Zahra Media Group, a man who loves his numbers and very well-versed in the trials & tribulations of business life.
You read that correctly. Money does not grow on trees but in threes. With most business ventures and all amateur boxing fights, you will find that there are three rounds. Once you recognise and prepare for these three rounds, you will make it to the end of the fight and hopefully find yourself still standing.
Budget versus reality but reality always wins so round one to reality.
You will have planned to spend €10,000 on product development, 5,000 on marketing and 15,000 on staff and overheads to get your product to market. Of course, everyone is going to want what you are selling because you have identified an obvious gap in the market (but is there a market in the gap?), so you plan for 30,000 in round one sales. God loves a budget, particularly a break-even position budget.
In reality (where we spend most of our time), there will be delays to your product development and additional costs, so you pull back on marketing but your staff costs are up due to the delay in getting to market. Now your neat 30k spend has become 45k and your revenues are softer due to a smaller marketing budget so now we are in the red.
Do not despair, make red a comfortable place. If you have a positive cashflow position, this will buy you time. Alternatively, if you don’t have a positive cashflow position, have pre-arranged access to additional working capital from family, friends, investors and banks. Don’t go looking for funding from a position of desperation or need.
Round one is the battering round. If you find yourself still standing, then stay upright.
Just do better than round one.
View round one as your learning round — it is your mistakes round. If you have hired too many people to support your soft sales, don’t wait to adjust accordingly.
The manufacturing process which will have been painful and expensive must be refined and made more efficient. This is the responsibility of you with your supplier. If they are unable to improve, move. Don’t let the same mistakes repeat – if you don’t repeat a mistake, it is not a mistake, it is a lesson.
Don’t expect everyone to rush to buy your product but you should see increase in sales by pulling back from areas it is not selling and increasing supply to where it went better. Refine your marketing message and get the biggest bang for your buck. Remember, you don’t need to be everywhere, you just need to be everywhere you are selling.
Okay, we still lost money but sales are up and costs are down – this was a good round.
Up or down?
Round three is the money round. You are either going to make it or not. Round two was your learn and apply round and now round three is refine, refine, refine.
Refine your direct and indirect costs and always ask yourself is this expenditure is going to add value to the end product. If the answer is no, then the next question is why spend it (particularly indirect costs– do you really need to invest in new desks for the office when it adds no value to your end product or consumer and will be covered in paper and computers within ten minutes of arriving?).
Be smart about what you spend your money on, it was hard enough to get in the first place.
Refine your product. Can you make it better, cheaper, faster or slower? How can I make it more cost effective? Do I need overnight delivery? What about volume discounts?
Refine your message. With all the marketing intelligence you have picked up from round one and two, you should have a laser sharp marketing message delivered to your target audience, which if your product is right, will drive sales and get you closer to the budget from round one.
Round three should be break-even round. Costs must be in decline and revenue should be increasing. If you find yourself here, you are well set. If however, the opposite is true, rethink, reset, repeat and good luck.
The three rounds are the natural cycles of your business. If it is a Christmas tree business, it will be a three year cycle. If it is a monthly magazine business, it will be three months and so on.
And if you find you have reached the goals of round three after the first round, write the book.