Work On Your Business, Not Just In It - Example
Alright, I promised you an example of this 3 question process a couple of weeks ago. I’ve tried to keep it as simple as possible to give you an idea of what I’m thinking here. Hopefully, you’ll be able to see how you can adapt the questions to your unique situation and business. Without further ado let’s get started.
Intro
Let's say that you are running a small e-commerce business (but could be any type of business).
You are feeling overwhelmed by all the things you need to know and do to keep the business running. At the same time you feel like all the hard work doesn’t really show off at the end of the day when you’re looking at your bank account. You know that things can be done but where the heck are you going to start and how are you going to find the time for new initiatives?
It all starts with taking a bit of time off to look at your business from a different perspective. As stated in the previous article we’re going to approach this with 3 simple questions.
Where am I right now?
I want to emphasize that with this question we’re looking for facts about the situation but that doesn’t mean feelings about how the current state isn’t valid. In fact, most of the time you need to start with how are you feeling and then from there work your way toward a more factual description of your current situation. Since this is often neglected I’m going to base this example on feelings.
- I feel like I’m working in the dark. I don’t really know the numbers of my business. Where are my customers coming from? What I’m spending my time on? Or how much revenue do I need in order to make ends meet?
If you are like this then trust me you are not the only one and I don’t blame you. You are focused on getting shit done and therefore you haven’t allocated the time necessary to work on the business and really understand it. I promise you though that getting out of the dark and gaining a better understanding can only benefit your business - as well as your relationship with it.
But how to proceed? One small step at a time. First, let us define where we want to go based on this feeling.
Where do I want to go?
I want to no longer be in the dark. I want to understand my business so I can identify areas that can be improved. Understanding my business and where I spend my time is a step towards becoming less overwhelmed and ultimately creating a better business. Specifically, that could mean stating the following five goals of where you want to go.
- I know my monthly and annual revenue.
- I know what I am spending money on.
- I know how many visitors come to my website and how many of them convert.
- I know what is my average order value.
- I know what I’m spending my time on and why?
These five goals or destinations give us a sense of direction and make it easier for us to actually get started on the journey.
If you can only come up with two goals that’s okay. The idea here is not quantity but rather to create a process that allows you to get a better understanding. One, two, or five destinations at a time.
What steps can I take to move toward where I want to go?
Okay, but how am I getting to the above destination of no longer being in the dark? You set out on an exploration. If you know how to get there you go there but if you don’t then you ask someone or research. Not much different than traveling to a new destination. When you start out, you have no idea how to get there but by knowing where you want to go it gets easier to figure out how. So let’s have a look.
- I know my monthly and annual revenue. This information is available on your income statement
- I know what I am spending money on. I can look through my bank statement and list all of the expenses in the last year and arrange it in an excel spreadsheet or a google sheet.
-
I know how many visitors come to my website and how many of them convert.
I will look in Google Analytics or where I measure my website traffic and list the number of sessions and users in Excel month by month.
- I will look in my e-commerce software and list the number of sales each month in the same excel sheet.
- I’m going to research how to calculate the conversion rate by using the above-listed numbers. I’ll save you the trouble and share the formula here: conversions (sales) / interactions
- I know what is my average order value. I’m going to figure out how to calculate average order value or in case you run a different type of business lead value. Again, I’ll make it easy: Divide the revenue by the number of sales.
- I know what I’m spending my time on and why? For the next week, I’m going to make a list of all the things that I’m doing. Nothing is too big or too small. I’m going to track every single item. And then afterward I’m going to write down why it was important to do.
You see how this gives you a plan without even knowing a single thing about strategy or such. It’s about looking at the business from the outside and thinking about what can be done to improve and get closer to where you want to be.
My hypothesis is that all though we don’t necessarily know what we don’t know we can always move one step closer if we approach it in a simple manner and don’t overcomplicate things. If we approach the business side of things with curiosity.
On purpose, I have tried to keep this so simple that you almost get annoyed with me simply because I wanted you to take one step back from your day-to-day and start working on the business rather than only in it.
Feel free to send me an email with your questions or just general feedback. I’m here to learn and enable people to build better businesses and the only way we can do that is by growing and learning together.
Bonus Example
I’ve added a little bonus example to show you what the next iteration of this process could look like.
This example takes its starting point from the feeling that all your hard work doesn’t really show off at the end of the day when you’re looking at your bank account. So let’s have a look. The actual numbers don’t really matter. It is more about getting an idea of the process.
Where am I right now?
- Your monthly revenue is 20.000€
- Profit after everything is 2.000€
- The conversion rate is about 1%
- About 10.000 website visits a month.
That means 100 people are converting at an average order value of 200€. The majority of my traffic comes from Google Ads and organic traffic. I’ve tried social media and email marketing but without great success.
This already gives us a lot to work with. But let’s first state where we want to be.
Where do I want to go?
- I wish I could generate 3.500€ a month in profit
- Because then I could start putting 500€ on a savings account every month. Which would build up a buffer if something unexpected comes up.
- Furthermore, it would allow me to pay someone to help me with admin as that is something I really don’t like doing.
Perfect, so what this tells us is to up our profit with 1.500€ and that generate 500€ to put in a savings account every month. Get help doing admin stuff. So what happens when we ask the last question?
What steps can I take to move toward where I want to go?
- If I am going to have 1.500€ more in profit every month I can up my revenue to 35.000€ which would require 175 people to convert and 17.500 website visits. If we presume that our conversion rate and average order value stay the same.
- Therefore I could try to attract more people to my store. I could do this by giving email marketing and social media another shot. I could also maybe start a blog since I’m already doing quite well organically.
- I’m going to ask myself how I can show up for my customers and provide even more value for them and be relevant for new customers.
- Decrease expenses by focusing on the following two things
- That I could do by looking into the financials and looking for redundant expenses
- Negotiate better prices with suppliers and distributors
Again this provides us with ideas of the next steps and how to proceed. Some readers might see flaws in this as not all of it is equally realistic or feasible but there is a point to this. You’ll never get to the absolute right strategy (not such a thing exist) straight away but it gives you direction. It gives you something to work with. Something to iterate upon.