Steve's Small Biz Podcast

An “Assumption” is where you believe something to be true, but it is yet unproven while a “belief” is something you are certain is true. However, our beliefs may, in fact, be assumptions that are in the end false.

To understand this concept, we can start with our mindset. Our mindset affects the choices we make which in turn leads to the actions we take and the outcomes we experience. The outcomes we experience can then either modify our mindset, creating a new assumption, or the evidence can be ignored because of our belief system.

Image by eunice vera from Pixabay

For example, a young boy’s mindset may be based on the assumption that all dogs are friendly since he has only experienced friendly dogs. So he makes the choice to pet a passing dog. The action of leaning over to pet the dog startles the dog and the outcome is that the dog snaps at his hand. The boy’s new mindset is modified from “all dogs are friendly” to “not all dogs are friendly.” The boy created a new assumption based on the outcome and his experience.

Sometimes, however, our mindset is defined by our beliefs and are based on incorrect information. In this situation, we find ways to reinforce our incorrect mindset.

For example, until only recently, the collective belief was that the world was flat. The belief colored your observations. While standing on the beach, you watched a boat sail out of the harbor. As the boat approached the horizon, it got smaller and then disappeared. You attributed the disappearance of the boat to the commonly held belief that the world was flat and the ship just sailed off the end of the world, reinforcing your belief. However, as we know today, this belief, while commonly held, was in fact false.

Our belief system blinded us to the fact that in the afternoon the boat somehow returned. While inconvenient, the fact that the boat returned was ignored since it didn’t fit our beliefs.

A common belief that keeps many people on the sidelines when thinking about starting a small business is the belief that entrepreneurs are innovators or that entrepreneurs are highly educated. Some are, but many are not. Recognizing the difference between assumptions and beliefs can open up your mind to new opportunities.

Mark Twain once said,

“It ain’t what you don’t know that gets you into trouble… it’s what you know for sure that just ain’t so.”

So the lesson in business is you should always challenge beliefs and treat them as assumptions because your beliefs may not be facts.

What beliefs do you take for granted that may not be true at all?

Infomercials, like the classic Shamwow infomercial, are an example of how structure and technique can have a huge effect on how a user or prospect is driven toward taking a specific action like clicking a buy button.

Infomercials follow a specific structure that any small business can use to drive action but few businesses ever consider using it when they pitch their product or service. In this post, we’ll describe the structure and give you examples of how you can use it in your business

The infomercial structure is effective because at each step, the prospect is taking small, incremental steps towards your solution. These steps are rooted in both universal truths and emotion. Marketers can learn from the structure and techniques used by infomercials when they design their marketing materials. Whether you are writing copy for a landing page, developing a sales presentation, or creating an ad, the structure and techniques used in infomercials can help you achieve greater conversion rates.

The process involves drawing the prospect in, establishing a level of trust, removing any doubts, and convincing them that the time to buy is now. The process can be broken down into five steps.

1. Explain The Universal Problem

The process starts with knowing your user or prospect. Once you know your customer you should be able to understand their needs and problems.

In this step, you need to alert the user or prospect to a common problem by Illustrating the pain associated with their current state.

Marketers often use images or video where appropriate that exaggerates the problem, such as a ladder balancing precariously on an uneven surface, a person grabbing their back and grimacing in pain, etc.

“Are you losing business because when you are on a sales call, you don’t have the key customer or product information you need in the moment?”

2. Share The Ideal Solution

In this step, outline the aspirations or desires of a perfect future. Does your user or prospect want to become rich, beautiful, happier, save time, etc?

“Wouldn’t it be nice if there was a solution where your mobile device could access your back-office database, so you can always have access to customer and product information from anywhere?”

In this step, you want the user or prospect to be able to acknowledge and relate to the problem and solution. Often after the problem is clearly presented, it is very clear even without stating the obvious what the ideal solution would look like.

3. Explain Why The Ideal Solution Is Hard To Achieve Or Is Undesirable

In this step, highlight the risk or uncertainty associated with the solution framing the need for a better solution. Does it cost too much? Will it take too much time?

“Creating a custom app to connect your mobile device to your back-office data is difficult, time-consuming, and expensive?

4. Explain How What You Offer Is A Pivot And Better

In this step explain the benefits of using your product or services by suggesting a simpler alternative solution to mitigate ...

Dale Carnegie pretty much had a history of failing at every profession he tried. He tried farming, teaching, sales, acting, journalism, and even writing novels. Even his first marriage failed, and he never finished college. His long history of personal failures left him fascinated by the question of why some people were seemingly always successful.

After some research, he concluded that the key ingredient to success was self-confidence. He learned that the only way to become self-confident was to overcome your fears by confronting them head-on.

Being a very shy person, he decided to face his greatest fear and take on the subject of public speaking. He began lecturing his father’s livestock. As he built some confidence he entered several debating contests. He lost. He kept at it anyway and soon got pretty good at debating and speaking in public.

He persuaded a local YMCA to allow him to teach a course on public speaking. He wanted to earn $2.00 per night but the YMCA’s management was hesitant, saying that they didn’t feel his work was worth $2.00 per night, so he agreed on a straight commission. Soon he was earning $30.00 a night.

He got his students to confront their fears and speak night after night. He wrote about what he learned from the experience in his first book, called The Art of Public Speaking, and started what we now call the self-help movement.

He postulated that healthy people don’t write books about health; sick people who become interested in health write them. To him, it made sense that people with the gift of dealing well with other people would not write “How to Win Friends and Influence People“. However, with his initial lack of experience in this area and his interest in learning more about the subject, he could. The book went on to become a best seller.

Dale Carnegie also worried about everything and suffered from bouts of depression, so he researched the subject of worry and wrote another best-seller called “How to Stop Worrying and Start Living“.

He understood that successful people identify their personal shortcomings and acquire the knowledge and skills needed to overcome them. It is the personal improvement that makes you successful.

Often we limit all that we can be based on our fears and lack of self-confidence. By a process of identifying your fears and making deliberate efforts to attack them, little by little you can achieve success and overcome your fears.

What are your shortcomings and fears, and what are you doing to overcome them?

As a business coach, one of the single most common issues I see with new entrepreneurs is their lack of understanding of gross profit, gross margin, and the impact of operating expenses. Their focus is almost always exclusively on the revenue gained from sales. I often refer to this as the “drug dealer mindset.”

Petty street-level drug dealers are often fronted a bunch of product they are expected to sell by a distributor level drug dealer. As the street-level dealer sells their product, they are left with a fist full of cash. A wad of cash in their hand makes the drug dealer feel rich and leading them to believe that being a drug dealer is a great gig.

Unfortunately, what the drug dealer has in his hands is called revenue. Revenue is the result of sales and is not what makes you rich. A business needs to subtract their Cost Of Goods Sold or COGS from their revenue to establish their Gross Profit. Gross profit is what is used to pay operating expenses, including wages. When you subtract expenses from gross profit you get Profit which is what you have left.

The ratio of gross profit to revenue is known as gross margin. Gross margin and net profit are much more important measurements of a business’s health than revenue.

The drug dealer sees the cash generated from his sales but forgets that the cash is not all his. From that cash, he still owes the distributor the cost for the product he was initially fronted or he risks “getting fitted for a pair of cement overshoes,” as my dad would say.

What the drug dealer is left with after paying his distributor is gross profit. Gross profit is what he can use to cover any expenses and pay himself for his efforts. According to a study by the National Bureau of Economic Research, the typical petty drug dealer’s average wage is only $6.00 to $11.00 per hour and many earn far less.

Many books on small business say that businesses live and die based on making sales. However, this is a very misleading statement. Small businesses live and die based on their gross profit not from sales. After all, I can always make sales if I sell my product or service for less than my actual cost.

Even big businesses struggle with this distinction. My business was acquired by a publicly held company during the dot-com era for our revenue alone. It was not bought for our gross profits, gross margins, or even the free cash we could provide. In fact, after the acquisition of my company, their business model doubled down on the “revenue only” drug dealer mindset. After we were acquired we got new customers by agreeing to charge them less than the sum of our COGS and expenses.

We did this even if it meant our reduced price resulted in a tiny gross profit that did not cover even a small fraction of our operating expenses resulting in a negative net profit. We only offered this reduced price if the customers agreed to outsource their entire department’s work to our company. Since we were essentially giving away our services in the name of growing sales, it was no surprise that the division I managed grew from eight to thirty-two million dollars in sales in only eighteen months.

Let me say that this is no way to run a small business. It was in the dot-com era and wall street had the drug dealers mentality and only cared about revenue growth. The company’s strategy to lose money on every service job was only acceptable since the company had other product lines that made it revenue too.

In business, your key partners are the relationships that your business has

with other businesses to ensure your business model will be successful.

The most obvious key partnerships are related to your supply chain. When you

think about it, most companies are simply a link in a much larger value chain.

We often think of our customers as end-users of our products and services, but in

reality, our customers are most often simply the next link in the chain. To our

customers, we are their key partners. Without what we sell to them, they could

not produce their output.

Let’s consider buying a new car. There are literally thousands of key partnership relationships that made the car happen. If you are the car manufacturer, your key partners are the companies that make the tires, rims, and brakes. Moreover, if you are the tire company, you have key partnerships with rubber suppliers and the steel company that supplies you with the steel cords used to manufacture tires. Each link in the supply chain has key partners that help the company do what it does.

Types of Partnerships

Key partners are not restricted to just supply chain partners. Key

partnerships can fall into one of four broad categories.

1. Strategic alliances between non-competitors– As the name implies, this is a

strategic partnership between non-competitors. For example, your business may

choose to partner with a manufacturing company to produce a sub-assembly. The

tire company and the car manufacturer are not competitors. While the car

company could choose to be vertically integrated and manufacture its own tires,

it is far more efficient to contract with a tire manufacturer to source its

tires. Another great non-competitor strategic alliance was when Edger Thompson,

president of the Pennsylvania Railroad partnered with

Andrew Carnegie of Carnegie Steel to create its railroad tracks.

 

2. Coopetition– This is the strategic partnership

between direct competitors. For example, as an oil and gas guy, it is not very

efficient for every oil and gas company to try to sway public opinion about

fracking. Instead, many oil and gas producers pooled their money to create a

series of public service announcements (PSA) to debunk many of the claims that

fracking technology is bad for the environment and is responsible for polluting

water supplies. While the oil and gas companies are in direct competition with

each other, that does not mean that they may not have a key partnership with

other oil and gas companies to cooperate on some things.

3. Joint Ventures to develop new businesses– This is where

two companies combine their technology to create a new business. For example,

Google had a robust internet delivery mechanism, while NASA had a defense

mapping database with images of the planet. Through a joint venture, they

created Google Earth.

4. Buyer-supplier relationships– Last but not least is the

buyer-supplier relationship. Key partners in a buyer-supplier relationship can

build mutually beneficial and reliable relationships with Porter’s five forces.

There is a bit of a distinction that can be made between a simp...

When it comes to business, too many first time entrepreneurs spend too much time at the outset sitting at a computer and planning and not enough time in the field testing their business plan’s assumptions. For many first time entrepreneurs, business planning is seen as a step that must be completed in its entirety before they attempt to execute the plan.

In reality today the business environment changes so frequently that many business ideas and concepts that made sense last year are obsolete today. Therefore it is paramount that you test your leap of faith assumptions.

I love to hunt, and as a hunter, I spend a lot of time and money on my equipment, (rifles, bullets, bows, and arrows) to make sure that everything is well aligned and will produce consistent results. Writing a business plan is like making sure your equipment is tuned for maximum performance.

However, a key to any hunting success is hitting your target, which requires constant feedback on the location of your game animal. Even the most perfectly tuned weapon must be aimed properly to produce a quick and humane kill. The aiming process is where testing your assumptions come in

As a small business mentor, I often recommend that a person complete a business plan before taking the leap, especially when it comes to quitting a day job and going all-in on a business idea. While it remains sound advice to write a business plan prior to committing significant personal and financial resources to a new business, there is a case to be made for testing your ideas and assumptions to see if they resonate with your prospects before even undertaking the effort of writing a formal business plan.

While the principal goal of a business plan is to think through the whole business idea and align all the businesses efforts toward a single common goal, the drawback of an extensive business plan is that the author may have made some false assumptions and is focused on the wrong goals. All the equipment tuning in the world will not do any good if your aim is not true.

From the beginning, even before you undertake the effort to write a business plan, you must list your leap of faith assumptions and test them to validate that the market will accept your business idea.

According to CBInsights analysis, 42% of businesses fail because there was no market need for their offerings. Based on their research this was the number one reason for business failure by a wide margin. Just because you like your idea does not mean the world will embrace your vision.

According to Eric Reis, the author of The Lean Startup, entrepreneurs need to follow the lean startup methodology to remove the uncertainty of th...

The primary concept to understand when trying to find the best marketing and sales strategy is that a small business has three basic strategies to drive revenue. They can be sales-led, market-led, or product-led.

However, before we dive in, I once saw a great definition of sales vs marketing that can help make the points discussed in this post clearer.

* Marketing is an effort defined by the business to communicate to the masses. (One on Many)* Sales, by contrast, is a sales rep from the company communicating with a prospect in a face-to-face fashion. (One on One)

But where does product-led fit in? Not sure what they mean? This post endeavors to define the answers.

Sales-Led

Most Business to Business or B2B companies employ a sales-led approach based on the fact that most sales are complex sales. Sales-led businesses employ sales reps who pick up the phones and make cold calls to fill the sales pipeline. Being sales-led is a person on person approach where the salesperson can tailor their sales pitch based on the customer’s unique situation and position in the company and the salesperson is provided the latitude to construct a unique solution for each customer and situation.

Moreover, many small businesses tend to be sales-led since their business lacks much brand awareness or collateral material and requires a more personal touch in selling to fill in the gaps. Marketing efforts in a sales-led organization act more in a support rather than a lead role.

Sales-led companies spend the vast amount of their effort creating sales collateral such as datasheets. They participate in industry events as a way to generate sales leads. Every lead is worth pursuing in a sales-led organization, as very few lead qualification strategies are employed. Sales-led organizations frequently use pressure-based email marketing tactics, and the main metric used to assess performance is getting the sale.

Market-Led

Many Business to Consumer or B2C companies employ a market-led approach. Market-led organizations use content to create leads and use systems, often automated, to shepherd a prospect through the buyer’s journey.

Marketing collateral is made up of papers and eBooks to educate the prospect and helps to establish the credibility of the business as a thought leader in their industry. The content produced by market-led companies is often displayed using a “Take One” box where prospects gather and use strong calls to actions to move prospects through the sales funnel.

Since there is less reliance on a person on person sales rep to close deals, marketing efforts include ways to nurture and qualify the leads as they progress down the sales funnel. Multiple pathways exist for a lead to travel through the sales funnel based on their pain points and personas. Most sales are closed without the need for a sales rep. If a sales rep is required to make the final sale, rest assured only the most qualified leads make it to sales.

Product-Led

Most Software as a Service or SaaS companies employ a product-led approach. Product-led organizations use a bottom-up approach to make sales. Instead of trying to educate the customer or just telling them what they would get if they bought the product,

Awhile back, my son got a new phone and was demonstrating its native voice recognition software. The phone, which uses the Google engine, could answer some questions such as, “What is tomorrows forecast?” without him ever removing the phone from his pocket. However, his demonstration ran into problems locating answers to other questions such as, “How do you drive a car? ”Being in a teachable moment, I began to explain to him the difference between explicit and tacit knowledge.

One of the problems with obtaining any kind of knowledge, especially when it comes to business, is that while some kinds of knowledge can be easily codified and articulated to others, there are also some forms of knowledge that are much harder to pass on.

A non-fiction book about how to play better golf is a good example of capturing and sharing what is known as explicit knowledge. However, while I can read a book or even watch a video to learn to play better golf, which would be considered explicit knowledge, there is no substitution for actually playing golf to take that explicit knowledge to the next level.

Explaining how to ride a bike can only go so far. To truly ride a bike requires knowledge you can really only obtain by trying to ride a bike.

When I gave up riding motocross bikes for a street bike many years ago, I had to take a written test to get my motorcycle endorsement. In the study materials, they attempted to convey a piece of information which would make no sense to someone without some degree of tacit knowledge learned from actually riding a motorcycle.

The manual said, “to make a right turn, turn the handlebars to the left.” When I read it, I was sure it was a typo. I had ridden bikes for years and was sure I turned right to go right.

Defiantly, I dropped the manual, hopped on my bike, and tried it. Sure enough, they were right. We all had been turning left to steer the bike to the right ever since learning to ride a 2-wheeler bicycle as a small child, but we never could have explained the action to others in a way that would have made sense to them.

You can take all the business courses on the planet to learn how to start and run a business, but nothing substitutes for actual experience. So how does someone get that experience without risking it all? Take baby steps.

Robert Kiyosaki, the author of “Rich Dad Poor Dad”, discussed the value the game Monopoly had in his education when he wrote that “you buy four green houses and trade them in for a red hotel.” The message here is that to have a successful business you don’t buy the red hotel right out of the gate. You build up your tacit business knowledge so that when you can afford the red hotel you are more likely to be successful.

I often tell my clients to fail small. I can tell you how to write a business plan, how to do market research, or how to perform basic accounting skills which are all explicit in nature. I have a much more difficult time trying to explain how to identify new business opportunities, explain which local resources are best for them, or how to deal with business uncertainty which is more tacit in nature.

Before embarking on a new business with no tacit business experience, first, try starting a really simple business that does not cost much if it fails. The tacit lessons you will learn is the knowledge that ...

According to Strategyzer, when it comes to the Business Model Canvas, key

activities are any activities that your business is engaged in for the primary

purpose of making a profit. Business activities include operations, marketing,

production, problem-solving, and administration.

Your key activities will change depending upon the type of business you

operate. If you are a web developer, User Interface (UI) design and coding will

be key activities. On the other hand, if you are a business coach, problem-solving

and customer service are key activities.

While your means of production, problem-solving, and platforms or networks

are important considerations when defining your key activities, I take a

different approach when mentoring clients about the role of the key activities

block.

As with all the blocks associated with the business model canvas, it is

about looking for ways to find your uncontested blue ocean to

do business in by evaluating your business model from a cost, value

proposition, and customer perspective. Therefore, I believe the ultimate goal

when defining your key activities is to help you discover what activities you

need to address in order to differentiate your product or service from your

competition, so that you can effectively deliver your Value Proposition.

The process I advocate when it comes to assessing the key activities of your

business is to look at the related business model canvas blocks. While any of

the blocks are fair game when looking for key activities, I believe there are

two blocks that require your special attention. Since key activities are primarily

a bridge between your value proposition and your customer segment, you will

want to look long and hard at your channels and customer relationships when

coming up with your key activities.

For example, if we look at Amazon’s business model, a key activity that makes them different from brick and mortar retailers like Walmart is related to the evaluation phase of the channels block. By collecting and displaying product review information, Amazon assists the buyer in making a decision among similar products. Since it is not possible to read product reviews at Walmart, collecting and displaying review data is a key activity that helps differentiate Amazon from many of its competitors.

Another example is when it comes to delivery, two-day,  next-day Prime delivery and even drone

deliveries are shortening the time between purchasing and receiving the product

in your hands, making the delivery phase of its channels a key activity to

differentiate Amazon from other online e-commerce sites.

The 5 Channel Phases

When it comes to the five phases that make up the channel block of the

business model canvas, here are a few sample questions you will want to address

when developing the key activities block.

Awareness – How can you create awareness that you have something to

sell? Will a key activity involve being accepted as a speaker at your industry’s

annual trade show?

Evaluate – How can you make it possible for...

A company’s key resources allow it to create and deliver its value

proposition. Its key resources also allow you to reach its target market and

maintain a quality customer relationship with them so that the business can

earn revenue.

Depending upon the value proposition defined

in your Business Model Canvas, you will require more of one resource and less

of another. For example, a manufacturing company requires physical assets in

terms of machines, as well as financial resources. By contrast, a design

company requires more intellectual and human resources.

Key resources can be owned or leased by the business, or acquired from key

partners.

For a company to produce a product or service, it needs access to physical

resources, intellectual resources, human resources, and financial resources.

Physical Resources

Physical resources are often capital-intensive and include things such as:

* Buildings* Vehicles* Machines* Point-of-sales systems* Distribution networks

Large retailers like Walmart and manufacturing facilities rely heavily on

physical resources.

Intellectual Resources

Intellectual resources include things such as:

* Brands* Patents and copyrights* Proprietary knowledge* Partnerships* Customer databases

Intellectual resources often take time to develop. Some companies like Nike and Sony rely heavily on their brands as a key resource. Some companies, such as chip manufacturer Intel, and software companies like Microsoft rely on patents and copyrights to drive revenues. Other companies like Walt Disney generate a large share of its revenue by licensing its characters to manufactures. Unlike copyrights or patents, proprietary knowledge includes trade secrets which never expire, such as the secret formula for Bush’s baked beans or KFC 11 herbs and spices. Companies like Dodge and Cummins have created partnerships as their key resource. And finally, companies like Facebook have a huge customer database from which their entire business is based upon.

Human Resource

All businesses need some level of human resources to operate, but human

resources are particularly prominent and valued in knowledge-intensive and

creative industries. A pharmaceutical company relies heavily on its human resources

such as its skilled scientists and aggressive sales force.

Financial Resource

Finally, some business models depend heavily on financial resources. For

example, cell phone companies that finance the consumer’s phone purchases

across a contract period rely heavily on financial resources.

When considering key resources, you must consider which key resources your

value proposition requires.

* What key resources do your distribution channels require?* What key resources do your customer relations require?* What key resources do your revenue streams require?

When it comes to your key resources, do you have a clear picture of the

degree to which your offering relies on each of the four key resource types?

Next post in the series: Key Activities

There is also a FREE Podcast Series we offer on Applying the Busines...