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DO YOU HAVE A ‘LIFESTYLE BUSINESS’?

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Have you created a saleable business, or just a job for yourself? And how do you change that?

 

‘Lifestyle business’ is a term that, understandably, gets up many entrepreneurial noses. When used in certain circles, it can sound patronising, or as if the speaker is seeking to diminish a business’ achievement in getting started.

 

So firstly, we’d like to make one thing clear: there’s nothing wrong with having a ‘lifestle business’, one that can’t really be sold easily or grow exponentially. Creating a sustainable job for yourself and others is a real achievement. However, many entrepreneurs do want an exit strategy for their business – whether they want a big payday, or simply to do other things later in their working life. In that case, having a business that they can’t walk away from is a problem.

 

How do you tell if you’re running a lifestyle business? There’s one easy litmus test. Imagine the business if you weren’t working in it, and with another employee drawing down your salary: could it work? If you can foresee it humming along under a competent manager, you have a business that you can sell. If you instead see the whole thing coming apart within a few months, then you’re working in a lifestyle business – one that you just can’t sell and walk away from.

 

Some business just can’t advance beyond this dependence on the founding entrepreneur – but some can, even well after the start-up stage. If you want to shift away from running a lifestyle business to operating a more independent (and saleable) company, there are a few key steps to take.

 

Delegate and Replicate

Many businesses are dependent on an entrepreneur who works punishing hours for comparatively little financial reward. However, does this have to be the case? If you look at your team, they may well be able to take some of your workload, especially if this is presented in the right way: most good employees will welcome added responsibility, for example, if this means that they’re being groomed for management positions as the company grows. Taking some of this day-to-day work away will let you work on the business rather than in it. In time, your goal should be to replicate your own role within the company – this will allow you to adopt a strategic position, identifying opportunities, trouble-shooting and stepping back from day-to-day minutiae.

 

Maximise Profit

Growing a business can be expensive, especially when you’re looking to take on new employees and manage the cash-flow ‘lag’ that comes with new clients. In order to do this, you’ll need to maximise the profitability of current and future clients – this takes discipline and nerve. You can find some useful advice here on getting through the process.

 

Tie Down Clients

Many businesses could operate without their owner doing the day-to-day work, but are dependent on them because of client relationships. If your customers work with you because of you (rather than the advantages of your company), then that’s an issue you need to address.

Getting customers to feel that they’re working with a company rather than the entrepreneur requires a deft touch, and patience. Introduce them to members of your team, and gradually get them used to dealing with those people rather than yourself. In the early stages, of course, you will probably need to reassure them that you’re just a phonecall away if an issue requires your input. Also, tie clients down to long-term contracts if possible – if you’re looking to sell the business, this will reassure a potential buyer that the customers won’t just vanish when you leave yourself.

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

PRICING PRODUCTIVELY

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Many businesses are facing up to an unpalatable truth – they need to improve their margin from existing customers. Doing so without pushing them away requires skill and foresight.

 

In a recent blog, we covered the tricky and sometimes traumatic task of evaluating your own profitability. While doing so, however, many businesspeople will face an unappealing revelation: their valued existing customers simply aren’t paying enough.

An arbitrary price rise without warning or explanation is guaranteed to get up anyone’s nose – and, in a competitive marketplace, will cost you customers. While some clients will always balk at an increase in their bill, there are ways to cushion the blow – and hopefully retain their business.

 

Add Value

One of the clearest cases that you can make for a price rise is added value – giving additional service, or extra features, beyond the scope of your original agreement. In some cases, you’ll have already been doing with this for free. Sitting them down to discuss this situation, and getting them to pay for something they’ve taken for granted, will be difficult – but it has to be done.

If this isn’t the case, how best to upsell them is down to your knowledge of the client, and how important it is that they pay more. You can, for example, present it as a fait accompli: explain that you’re no longer offering the service or product package that they’re using, and advise them of the package that you want to offer. Alternatively, you can sit down more consultatively and sell them the added features or service that will make the contract more profitable – just be prepared for the fact that they may reject your offer.

 

Explain

Explaining where a price rise is coming from doesn’t always satisfy customers, but it’s better than springing one on them out of the blue. Some customers will accept a simple explanation that your own costs have risen, and that you need to pass some of these on. Others will want a more detailed breakdown of where increased costs are coming from, and why you can’t just absorb them. What detail you offer depends on their comfort zone.

In some cases, you’ll be tempted to explain to customers that they have simply not been paying enough to make the business worthwhile. While this can be effective, it’s also a dangerous tactic, as it leaves two potential avenues for the customer: take the price rise or leave.

 

Offer Options

Of course, as any entrepreneur will tell you, ‘take it or leave it’ isn’t an appealing proposition to most customers: people want to feel that they have some say in what’s happening. For that reason, it’s a good idea to approach underpaying customers with a list of options. These can include taking a larger package, a reduced portfolio of essential products or features, or a staged increase in fees. In either instance, giving your customer options at least avoids them seeing your price rise as high-handed and arbitrary.

 

It’s important to be realistic – when you raise your prices, you will lose some customers. The tactics above won’t prevent that from happening altogether but, by giving the customer an explanation and some input into the change, you stand a better chance of keeping them.

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.