If there’s one thing every business owner should know, it’s that it doesn’t pay to be stingy. The entrepreneur who fails to invest in their business will quietly watch their business grow stale. Revenues gradually drop until there’s no longer enough money to invest back into the business, and the death spiral begins.
But there’s another frequent problem entrepreneurs encounter: throwing money in the garbage.
Ironically, these problems seem to be closely connected. The failing entrepreneur simultaneously refuses to invest in new strategies, while at the same time spending profusely on frivolous business operations and dated strategies. It’s time to evaluate where you stand.
What are you doing to make sure you’re spending money to invest in your business, and not throwing it out the window?
There’s Money in Your Budget
Unless you’re already on your last limb, I can virtually guarantee you have the money to invest in new strategies, and that doing so is going to be a positive move. All you need to do is root it out.
It all starts with the 80/20 rule. Unless you’ve done any real optimization, you can expect about 20 percent of your resources to be responsible for 80 percent of your results. Meanwhile, you’re pouring about 80 percent of your resources into tactics and strategies that are only responsible for 20 percent of your results.
It’s not always this bad, especially if you’re making genuinely data-driven business decisions, but there’s almost always some waste.
The problem is that whenever revenues swell, so does spending, and most of that spending doesn’t get invested back into the strategy that generated the revenue in the first place. Instead, it tends to get spread thin on incremental changes that seem small at the time, but eventually take over the majority of your budget.
Then, when there’s a dip in revenue, things start to look hopeless, because you have no idea where to start cutting costs, or how to separate the clutter from the stuff that really matters.
Waste is almost always the result of bad measurement. You might think you need to buy an ad in the phone book this year, but are you putting that belief to the test? Are you measuring how many sales were generated by the ad? Do you really know it was profitable? How profitable? Are the margins even remotely comparable to your most effective strategies? If not, it’s probably time to reinvest.
I’m not arguing against experimentation, quite the opposite. I strongly believe you should always be testing and experimenting with new strategies. I also believe that you should drop the strategies that aren’t working as soon as you have the data. That’s why they’re called experiments.
Most businesses are wasting money, spending it on failed experiments that should never have become habits. What are you spending your money on?