Aaron Hoos

Starting businesses is fun. Growing them is also fun but it’s hard work too, especially if you want to grow them profitably.

One client of mine, who is a serial entrepreneur, has a handful of businesses in various stages of start-up and operation. But they were running out of time and money, worn ragged by demands of each business and unable to eke out growing profitability because they couldn’t focus on a single thing. Although I was initially focused on their sales funnel for two of their businesses (obviously), we ended up looking at the bigger picture of ALL of their business(es) to find ways to make them all more profitable.

Here’s a chart I put together to help my client analyze the demands of his time and attention on each new or existing business.

UNDERSTANDING THE TIME-AND-ATTENTION DEMANDS CHART
Across the top, the chart lists three key functions of the business: Administration, Marketing, and Deliverables. The three functions are divided up into 5 segments with “P” for passive on one side and “A” for active on the other. Down the left, are the businesses, business ideas, or projects/initiatives that are being analyzed.

For our purposes, let’s use the following broad definitions:

• Administration includes the various “housekeeping” functions that keep a business running.
• Marketing includes all of the sales and marketing efforts to move your contact through the sales funnel to the point of purchase.
• Deliverables include the things a business does to provide the products or services it sells, such as manufacturing, assembling, shipping, analysis, etc.

(Yes, there are other ways to divide up the business but this provides a quick-and-dirty thumbnail sketch that is suitable for our purposes.)

An example of a passive business:
A business might be passive in the Administration section if everything is outsourced and automated. A business might be passive in the Marketing section if they have a lot of word-of-mouth marketing or advertising that is running without much input from them. A business might be passive in the Deliverable section if they sell digital content.

An example of an active business
A business might be active in the Administration section if it requires a lot of hands-on delegation and management. A business might be active in the Marketing section if they have a lot of social media marketing that requires constant participation and engagement. A business might be active in the Deliverable section if they provide services that require the full attention of the owner – like consulting, freelance writing, or graphic design

I’ve created the above 2 fake examples below:

Now that you know what the chart is about, it’s just a matter of figuring out where the time is being spent for YOUR business. (Or, in the case of business ideas, it’s just a matter of figuring out where the time is GOING to be spent).

These are just estimates to get a general idea of your time. This isn’t an exact science but it is still revealing. Think of each of the five “P” to “A” segments as something like:

ANALYZING THE TIME-AND-ATTENTION DEMANDS OF MY CLIENT’S BUSINESSES
First we drew the chart for his 8 businesses (actually, businesses 1-5 exist and businesses 6-8 are in progress). In the example below, I have removed the names of my client’s businesses and just numbered them.

Then we went through each business and figured out how much time he was spending on Administration, Marketing, and Deliverables.

Administratively, he’s getting his business in order by trying to consolidate and automate his administrative functions. Unfortunately, it’s his marketing and deliverables that are killing him. He’s marketing almost all of these as separate brands with little cross-over or overlap. That means 8 different identities on Twitter, 8 different Facebook pages, 8 different identities in other marketing channels. And on the deliverable side, he’s spending A LOT of time delivering his services, with each business demanding his full attention to provide paid services.

This amount of active administration, marketing, and deliverables might be fine for a business that employs several people or is able to outsource more, but my client is an entrepreneur with some outsourced administration, but he loves to market his businesses himself, and it’s his expertise that is being hired. That means a lot of HIS time in marketing and deliverables.

I’ve highlighted the two key problem areas – he’s spending so much time trying to market and deliver services for 8 different brands.

No wonder he’s feel like he’s running around, and no wonder his profitability is suffering!

Of course, this time-spent is only one side of the equation. Cash flow and profitability should also be taken into account. Businesses that provide more cash flow or profitability to the business owner should be allowed to take more time and attention than those that do not.

So, here’s what we did to solve it this serial entrepreneur’s problem:

Businesses 1 and 2 provide the most cash flow and profitability. Those ones are going to be the key. We also determined that Business 4 could have a positive impact on cash flow and profitability in the near future.

Our goal there was to find ways to reduce the active demands of Administration and Marketing. (You can see our results where I’ve grayed out the previous demand and put the new one in blue. It’s not always possible but it can be done.

Next, we explored some ideas about consolidation. Business 3 is closely linked to Business 2 so there was an opportunity to combine them together. Both Business 2 and Business 3 had a lot of deliverable demands, and my client was worried about losing the income, but since he didn’t have a lot of time to provide the deliverable anyway, we don’t think he’ll see a significant drop. I think he’ll actually see an increase income because he can focus. Business 8 could also be consolidated into the Business 7 brand.

Then, we had a brainstorming session to explore how his new businesses should be focused more on passive administration and passive deliverables. And even if they required some initially active marketing in the beginning, the goal should be in the near-term to make the marketing as passive as possible, too.

The result? My client has gone from 8 businesses that were requiring a lot of his time to 6 businesses that are requiring moderate amounts of his time. This is not a perfect picture but it’s a step in the right direction.

The goal for every business is to move toward the passive side of each of these business functions. That doesn’t necessarily mean that the perfect business requires NO effort for administration, marketing, and deliverables, but rather that these are managed in a way that take less and less time and attention with the goal of providing greater profitability.

Tomorrow, I’ll give some ideas about how your business can increase the “passivity” of each of these three business functions.

A sales funnel is a roadmap of the relationship you have with your contacts, and the journey the two of you take from Audience to Evangelist. But a sales funnel isn’t JUST a roadmap. It’s also a crystal ball that can predict the success or failure of your business.

As your contacts move through each stage of your sales funnel, some will drop off because they don’t feel that your product or service can help them. But many will continue on through your sales funnel and ultimately buy from you.

As those contacts move from one stage to the next in your sales funnel, what they do and how long it takes them will act as a fortune teller for your business:

Start by figuring out your sales funnel ratios. How many contacts are in each stage?

Then, figure out how long an average contact takes to get from your Audience stage to become a customer.

With these two numbers, you have a very useful way to predict how your business will do in the short-term future.

HOW RATIOS HELP TO PREDICT YOUR BUSINESS SUCCESS
We’ll use some really simple numbers to illustrate how your ratios will help predict your business.

Let’s say you have 10,000 Audience members.
Of those Audience members, 1,000 become Leads.
Of those Leads, 100 become Prospects.
Of those Prospects, 10 become a customer.
Of those Customers, 1 becomes an Evangelist.
So, your ratio is 10000:1000:100:10:1.

Using this number, you can predict what would happen in your business if the only thing you did was double the number of Audience members. Assuming all else remains equal, your numbers would increase overall to 20000:2000:200:20:2. Double Audience means double everything!

By keeping tabs on this number, you can observe how slight changes in your business impact your sales: Let’s say that you had a ratio of 10000:1000:100:10:1 and then you made some changes in your Leads stage marketing and in your Prospect stage. Then you look at your numbers again and they look like this: 10000:600:120:12:1. This tells you that whatever you did in your Leads stage is hurting your sales funnel (driving the number of Leads down from 1000 to 600) but whatever you did in your Prospect stage is actually very good (because your Prospects should have dropped to 60, since the Leads dropped to 600, but they actually increased slightly).

So, you end whatever you are doing in the Leads stage and you increase whatever you are doing in the Prospect stage!

These ratios help you to know how changes to specific stages impact your business. This helps you to know how changes earlier in your sales funnel will impact the number of customers you have.

HOW DURATION HELPS TO PREDICT YOUR BUSINESS SUCCESS
Duration is the amount of time that a contact takes to go from Audience member to Evangelist.

Here’s an example from my own business. As a business writer, I not only write about sales funnels but I also write marketing and sales content for businesses. And I discovered early in my career that it took an average of 2 weeks for a Lead to become a Customer. I knew that active Lead generation would result in Customers almost exactly 2 weeks down the road.

So, in order to know how much Lead generation I needed to do today, I just looked at my calendar 2 weeks from today and figured out how much time I had to give to clients. Then I performed various Lead generation and Prospecting activities, and sure enough, I had the right amount of clients at the right time.

The reverse was true, too: If I didn’t do any Lead generation, I would have a lot of spare time on my hands 2 weeks down the road. So, knowing the duration of your sales funnel helps you to know how much business you’ll have in the future based on your Audience members today.

WHY BUSINESS PREDICTIONS ARE SO VALUABLE
Running a business is like juggling — there are so many things to keep moving. Having the ability to predict your success based on how many people are at each stage in your sales funnel, and based on how long they take to get through your sales funnel, gives you a serious advantage over your competition. Here are a few highlights:

• A predictable business lets you invest wisely to build capacity so you can handle more and more customers.
• An entrepreneur that knows what business is going to be like down the road can spend less time worrying and more time serving Customers.
• An entrepreneur that can accurate predict the amount of business coming down the pipe can optimize the entire business for greater profitability.
• A business that is that predictable can be set to autopilot faster and easier than a business that is unpredictable.

I’ve only listed a few of the many benefits that accurate sales funnel predictions offer.

Get to know your sales funnel ratio and sales funnel duration!

A friend of mine works at a Starbucks not too far from my house. I’ve known him for several years and he became a barista at Starbucks maybe a year or two ago.

Well, earlier this week he was rushed to the hospital because his lung collapsed. He’s been at the hospital ever since, sometimes returning home but frequently staying at the hospital overnight for observation. He seems to be doing okay, although we’re not yet sure why his lung collapsed.

Now here’s what shocked me: I just found out today that some of his Starbucks customers came to visit him in the hospital.

That’s impressive customer loyalty! In fact, that goes beyond customer loyalty to a true relationship!

Loyal customers are profitable customers. They buy again and again with very little prompting, and they talk up the business to others.

HOW CUSTOMER LOYALTY IS CREATED
I’ve found that creating customer loyalty is rarely something that happens at the business level. It happens at the employee level. Customers may become loyal to businesses (and a lot of Starbucks customers are loyal to Starbucks!), but customers more frequently and more easily become loyal to the people in those businesses.

So, are you helping your employees create customer loyalty?

• Give your employees the freedom to stop and chat with customers. By comparison, a lot of retail-based companies take the approach “if you have time to lean, you have time to clean”, and their staff rush around cleaning instead of pausing for a moment to strike up a conversation with a customer. The downside is that your employees might not get that counter as clean as you’d like it. The upside is higher profitability from customers who feel that they have a relationship with the person behind the counter.
• Give your employees the tools to strike up a meaningful conversation and build a relationship. Not everyone is socially savvy, so a few conversation starters is a good way to help your employees.
• Give your employees the freedom to go the extra mile for customers. They do anyway (everyone learns how to game the system to give a little extra to those extra-special customers) so why not help them by giving them lots of ideas.
• Give your employees the authority to fix mistakes. Nothing takes away from loyalty-building like an employee who says, “I have to call my manager to fix that for you.” Help them know what challenges they will likely face and what an adequate response those challenges might be, then give them the authority to fix it.
• Give your employees a reason to be proud of the company they work for. Do good things; make a good product; strive for high quality; smile a little and try to brighten your employees’ days.

When you have employees who love where they work and are empowered to fix things and have the freedom to build relationships, they will create massive amounts of customer loyalty.

THERE ARE RISKS TO CREATING CUSTOMER LOYALTY
There’s are risks that comes with this employee-specific customer loyalty, and I think that employers are so afraid of the risks that they skip the loyalty-creating ideas I’ve listed above.

The risks include:

• Employees who create customer loyalty and are empowered to do so become more marketable and therefore potentially less loyal to an employer.
• Customers who are loyal to employees may move with an employee if that employee quits and moves to a new business. We see this happening in industries like beautician/hairdressing, where someone moves to a different salon and advertises that old customers are welcome at the new salon.
• Employees could abuse the additional freedom (intended for relationship-building) or authority (intended to fix problems).

These are risks, but the downside created by these risks can be mitigated with fair pay, empowering management, and an enjoyable work environment. Sometimes you will get employees leaving, customers following them, and employees abusing the system. But more often than not, you’ll get customers who become fiercely loyal to the employees who serve them.

How loyal are your customers? Are they so loyal that they would visit one of your employees in the hospital?