I am a huge fan of reinvestment whether it is part of your growth strategy or a method of dealing with taxes. With the government facing potential bankruptcy in the next 10 years — see IOUSA on YouTube — Solopreneur's are prime targets for the next administration's tax policy. Inc. provides excellent resources on tax strategies so check it out or talk to your accountant. My focus is growing your business through reinvestment while positively affecting your tax situation — our 20/20 Solution. 20% Improvement in Margin, 20% Improvement in Revenue.
Our previous conversation was about two primary constraints of growth — CAPACITY and SALES. Today's blog will deal with the CAPACITY constraint, next time we will discuss SALES. My advice is always pursue being the lowest cost provider in your niche or market. This doesn't mean the lowest price, which is a brand decision. It is all about building products or delivering services with the fewest amount of steps. By reducing how many times the item is handled, it increases speed, raises quality while reducing cost. Being the lowest cost provider does not conflict with quality or profitability. If fact my experience in manufacturing and service is the best quality providers are also the best at containing cost. That poses the question — how?
Here is what you need to do. First grab a pad of easel paper and draw a picture of every step in your marketing, sales, production, and service process. You don't need a lot of detail, just ensure it is accurate. Save that sheet and now on a separate page create a "map" of just the production and/or service process. Since most Solopreneur's are in service based businesses — I will continue using service as our example.
On your service delivery map, on one side detail exactly what you do, how long does it take, what are your costs. The result is a reasonably accurate picture of activities, time, and cost for the process. Next on the opposite side and in a different color, detail what value the customer receives from each step — in other words if you sent them a bill for the step — what would they pay for? You will find some of those items are part of the bill and the customer is willing to pay, and there will be other areas the customer doesn't see and would balk at being charged.
With this picture, start with the areas the customer doesn't know about and/or unwilling to pay for and answer this question: "can I reduce the cost by eliminating the step or finding a way of doing it faster or for less." Do the same for "billable" areas looking for the same improvements — reduction of steps, increased quality, and reduced cost. My experience from this approach is a 20% improvement is awaiting discovery and you have isolated a part of the business where spending money is actually an investment, not just an expense. Imagine if you could reduce cost by 20%, deliver it faster, maintain or improve quality while keeping the same price?
The key metrics for managing margins — decrease the number of steps, decrease the amount of time per step, decrease rework and give-a-ways because of poor quality, automate everything possible, and delegate where ever possible.
When reviewing how to achieve and improve your 20% Improvement in Margin, two solutions are technology and outsourcing. By investing in hardware and software you can automate many of the steps and then outsource some of those functions to a virtual assistant, you improve delivery and free yourself to focus on the other constraint — Sales and the 20% Improvement in Revenue. BTW this is a tax reducing method.
Be sure to check out our companion articles on employing the principles of lean manufacturing to small business at Solopreneur.