In this article, read about the core things you need to manage to run a successful business.The five dimensions of small business management are:
- Offering, Sales and Marketing
- Finances
- People
- Processes
- Tools
Let’s dive in.
Managing Offering, Sales & Marketing
The most important task for a small business is to generate revenue. To do this, you need to manage
- What you’re selling
- Who you’re selling to
- How you generate leads
- How you convert these leads into paying clients
This is the fundamental thing you need to get right. Most businesses fail simply because they don’t have enough sales.
What you’re selling and who you’re selling to
You need to constantly reevaluate your product or service offering. If you find a product that your clients really need, you’ll know right away.
All the work that you invest in fine-tuning your offering to really resonate with your target audience will outperform all other things you do down the line.
First, be clear about the clients your targeting:
- Who are they?
- Where are they?
- What pain points do they have?
- What tasks do they need to complete?
- What gains are they trying to achieve?
A great tool to define this in detail is creating a client persona.
Once you have dialed in on who you’re selling to, you need specify and continuously improve what you’re selling and how it helps the clients achieve their goals.
Questions to answer and revisit continuously are:
- How does my product or service help relieve pain?
- How does it help my client complete their tasks?
- How does it help them to achieve the gains they’re looking for?
- How do they use my product or service, and how do I deliver it?
- What’s the pricing and offering structure that works best for my clients?
- What upsells and add-ons might provide additional value to my clients?
Focus on what drives value for your clients, and them make the product or service as easily accessible and low-risk as possible.
How you generate leads
Once clear about your offering, you need to decide how you want to generate leads. Small business management will revolve around creating revenue for your business, so this task is critical.
When you start, focus on one or two channels. Master this channel, and only then add another one. Master this new one, and then you move on.
If you’re trying to do everything at once, you won’t do anything well.
Popular channels for lead generation for small business are:
- Word of mouth
- Google Ads
- Facebook Ads
- Landing Pages
- Lead Magnets
- Email Marketing
- Social
- SEO + Email Marketing
- Local SEO like Google my Business
Select the channels that are most likely to resonate with your client profile.
How you convert those leads
Having leads is great, but you need to convert them for your small business. Manage all aspects of conversion closely.
Conversion has typically a few different stages, here are the things you should look at:
- How do you nurture leads that have interacted with your small business
- How do you convert leads that are ready to buy
- Do you need a sales script that tells you or your sales team how to best present your solution and tackle common objectives?
What conversion looks for you will depend on the type of business you run. Smaller consumer services typically have shorter buying cycles, whereas high-ticket B2B services tend to have long buying cycles, with prospects moving slowly through the stages of your funnel.
Managing Finances
Small business management needs to focus on finances, once you have Marketing and Sales under control.
There are two fundamental pillars you need to constantly manage and improve:
- Profitability
- Cash Flow
While profitability is a necessity to keep your business alive and thriving, cash flow is the far more important aspect of small business management.
Managing profitability
There are two aspects to consider when managing profitability:
- Gross profit margin
- Net profit margin
Gross profit margin
For your small business, it’s key to make sure that everything you sell produces a large enough gross profit. Gross profit is the difference between your sales revenue and the cost you incur to deliver the product or service.
As a rule of thumb, aim for a gross profit margin of at least 50%, better 60 or 70%.
This means if you sell your product or service for 1,000 USD, you should keep at least 500, better 700 USD after everything and everyone involved in delivering that product or service is paid.
Net profit margin
You’ll need a healthy gross-profit margin to pay for your overhead cost. This includes the CEO salary, office or shop rent, insurances, marketing and advertising.
After you’ve paid all of this, you’re left with a net profit. Aim for at least 20%, better 30%
To sum up: As long as you make sure that everything you sell produces a healthy gross-profit, and you keep your expenses for overhead in check, your net profit should be fine.
Managing cashflow
For small business management, it’s often more important to manage cash flow. Cash flow describes how much money you receive from sales in any given period, minus all cash outflow. Resulting is your cash flow.
A healthy cash flow makes your business sustainable.
Important: Small business management often means sacrificing profit to safeguard cashflow. An examples: You might want to tackle juicy enterprise clients with your business, because they promise high profits.
But also, they typically have long payment cycles, so you’ll receive your cash inflow rather late. As a result, you can’t tackle them, otherwise your business will run out of cash.
Another example: Many small business give discounts for early or upfront payment. They deliberately accept a hit in profitability for a stronger cash flow.
Another aspect: As long as your business grows, you can easily survive low profits as long as cash flow is good. Contrary, you can have the most profitable offering in the world, but if you run out of cash, you’re out of business.
To sum up, profitability is necessary, but without good cash flow management, you can’t survive.
Tools you have to improve your cash-flow:
- Collect quicker
- Use discounts for early or upfront payment
- Use retainers to generate recurring revenue
- Pay your vendors or contractors later
The overall goal is to collect money as quickly as possible, and postpone cash outflow as far into the future as possible. But be careful, if you use loans or credit lines, this needs to be managed well.
Managing People
The next most important aspect in small business management is your team. The team, regardless of whether you’re running a product or service business, is what makes your business a success or a failure.
Finding the right employees
For small businesses, finding the right people is equally important as it is difficult. Often you can’t yet pay high salaries, so you need to rely on other benefits to attract new hires.
Be intentional and structured about who you hire. Describe each role you’re hiring for in detail, and use a structured interview process to make sure you not only rely on gut feeling.
We often recommend an adapted version of the framework in Who – The A-Method for Hiring.
Once you have found new team members, you need to onboard them well.
Managing your team well
Manage your existing team well. This includes various aspects, from how you set goals, over the degree of autonomy they have, to how you interact with them on a daily basis.
A quick health check for how likely you are to retain your team: Every employee is looking for a mix of money and personal growth, paired with having an attractive outlook (“Where can I develop in the next 1-2 years? What opportunities will I have?”).
If you can offer all three, great. If you can offer two, still good. If you can offer only one, you might still be lucky if the people you have are looking for that exact one thing. But aim to have at least two things in place.
Managing Processes
For your small business, clear processes are the backbone of operations and growth.
Document
When you’re small, document your processes in a lightweight form. Documenting processes will allow you to:
- Stabilize delivery
- Onboard new team members faster
- Have a place to improve processes
It’s important to focus on your most important processes and don’t get crazy with documentation. Keep things simple.
Improve
Small business management needs to focus on continuous process improvement. As you grow, you’ll need to constantly innovate and adapt the way you deliver your services or products.
Process improvement will allow you to:
- Maintain profitability while you grow
- Ensure a great client experience
- Prepare your business for the next stage of growth
- Ensure great quality of your products or service
Everybody in your company should have a continuous improvement mindset, where they take ownership of the work they do. If your team finds something to be inefficient, they should know that they’re allowed to and expected to suggest or implement improvements.
Managing Tools
Another important aspect of small business management is managing your tool set. This could be your manufacturing equipment, but in today’s day and age, most importantly software tools.
Finding the right tools
One important rule: Process first, software second. It’s easy today to get carried away by the vast possibilities the software space provides.
So if you chose new software, be clear about your process and requirements first. Then select the tool that best delivers on these requirements.
Avoiding tool creep
Every software you don’t have saves you money. Less spend for training, licenses and managing complexity. Aim to have as few tools as possible.
Regularly review your tech stack and eliminate tools you don’t need.
After all, making your team adopt the tools has a far greater impact than adding another one.
Using AI
Despite the rule of process first, software second, it makes sense to monitor what’s happening in the AI space. Artificial Intelligence has the potential to speed up work that you currently do manually.
Conclusion
Small business management can be a daunting task, but is also one of the most rewarding things you can do professionally.
Focus on your product, clients and sales, finances and operations, and you’ll be successful.