No doubt most of us will remember the exchange between Cuba Gooding Jr and Tom Cruise in their 1996 film, Jerry Maguire, where the Cruise character, Jerry Maguire, is impatiently listening to Rod Tidwell (Gooding Jr) wax lyrical about his “family motto” whilst all his other clients are deserting him to his protégée and arch nemesis Bob Sugar. After some build up we are introduced to the fact that the motto is simply “show me the money”. It makes me smile when I think about this scene as it reminds me of my first conversation with most potential clients. When we talk about what they want to achieve with their business, ten or fifteen minutes of listening can be effectively distilled in that one phrase; “show me the money”.
The most common goal for small business owners is to increase net income. Invariably, when I first speak to a potential client, it’s for that reason. I’m a nice guy, but I know that unless they thought that I could help them earn significantly more money than I cost, they wouldn’t be speaking to me. Thankfully, in almost every instance, I am able to do exactly that. Potential clients are often surprised, however, when I start to talk with them about how I propose that we go about achieving that. They are waiting for me to start talking about cost cutting or sales and marketing. There is a time and a place for both these profit maximisation tactics but first there is a fundamental lesson that needs to be learnt that, once understood and applied to your business, will invariably shift the focus of your efforts and make a quantum difference in attaining your goal of increased net income.
I first came across the idea that I share with all my potential clients in University, when on the advice of a friend, I picked up a book by Robert Kiyosaki called “Rich Dad Poor Dad”. The take away message of that book for me can be distilled into a short phrase which is the basis of all business development work we do here at Continuous Business Planning. It is simply this:
What do I mean by that? I normally explain it in terms of the rental property market. If you had a two bedroom property with a rental valuation of £400 a month, you would obviously rent it out for £400. If you had a fantastic sales and marketing team, you might get as much as £450 a month or you might through shopping around get a team to rent out your property for £400 a month that will take a comparatively smaller fee for their work. In either scenario, your rental property is more profitable for the marketing or cost cutting work. After fees, you might be £20 or £30 a month better off. That’s great news and that’s where most people stop.
Now, imagine if we could improve the asset, extending the house to make it a three bedroom house. Rental income might rise to £550 - £600. With a fourth bedroom, we could get to £700 - £800 per month, effectively doubling the monthly income. By improving the assets, we automatically increase income. With a great sales and marketing team, could you be more profitable still? Absolutely. Could we find a cheaper agent and make more money? Of course. The point is that these are profit maximisation tactics. What drives the most significant increase in income is the improvement in the asset. Income follows assets.
Now ask yourself, what are the assets in your business? For a small business development company like ours, our principal assets might be our customer and lead database, our brand, our network of affiliates , our systems and any intellectual property we own. If we could double the size of our database, the strength of our brand, the number of affiliates, the strength of our systems and the amount of intellectual property we own, our business would explode in a way that is entirely sustainable. Not only would sales soar but the valuation of the business would be at least twice what it was before the company assets doubled. If we doubled marketing spend for example, a reasonable proportion of it would be wasted in the short term whilst we sought to match sales resource to the increased number of leads. Unlike the investment in company assets, this is not sustainable as the marketing spend would need to remain at least double that which it had been to keep things up and eventually the campaign would run out of steam.
Sustainable, increased profitability is the reward for those companies that learn this simple lesson. The greatest investment any company can make is in their productive capacity. As Jerry Maguire showed Rod Tidwell as the film progressed, he would need to invest time and effort into fundamentally changing himself if he was to have any chance of “showing him the money”. And as they worked together on these changes, the reward for Rod was an $11.2 million contract to carry on playing for the Arizona Cardinals. Now, Jerry Maguire is a work of fiction. So, it is alleged by many who have questioned the existence of the two dads in Rich Dad, Poor Dad, is Robert Kiyosaki’s work. But the results that can be derived from this shift in thinking toward an ongoing investment in business assets are certainly not fictional. Call us today for a free consultation and we’ll help turn fiction into reality for you and your business.