Are you struggling to figure out how to run a successful business? Many business owners don’t figure it out on their first try, but Afshan Abbas, the owner of Fuchsia Shoes, told us:
We’ll share insight from successful businesses to help you learn how to run a business that lasts over a decade.
Why Do Businesses Fail?
Businesses fail for many reasons, but the primary ones are:
- Poor financial decisions
- Failure to grow sales
- Inability to manage inventory and growth
- Lack of Experience
Experian explains these points in greater detail.
How to Run a Business Well
#1. Use a Business Plan
To run a successful business, you need to focus on what the company is trying to achieve. A new business should write a business plan to help manage the company. Make sure to include:
Read our blog about writing a business plan or watch our interview with Mike Andes about writing a business plan below.
Let’s look at how many small business owners set profit goals to run a business.
#2. Use Profit Goals as Benchmarks for Success
Running a successful business means knowing your profit goals and measuring performance against them while running your business. These goals should be in a business plan, but you should frequently review them to measure your progress.
The easiest way to establish profit goals is to start with the profit you’d like to make. Let’s assume your profit goal is $100K annually. Follow the steps below to find out how much revenue you’ll need:
- Look up the net income ratio for your industry on NYUs Margins by Sectors chart.
- Divide your profit target by the net income ratio.
- That’s how much revenue you’ll need unless you can figure out ways to get a higher profit margin.
Using the total market average of 8.19%, you would need to make $1.221 million to make a $100K profit. That’s pretty much the worst-case scenario when running a small business.
Successful businesses often keep the cost of goods sold under 33% and all other expenses under 25% of revenue. In that scenario, your total payments only need to be around $240K to make $100,000 net income.
#3. Mission Statement
Successful business owners also use their mission statement to help guide business decisions. Your mission is simply what you do and why you do it. It is usually only a sentence or two. For instance, the following is Tesla’s mission statement:
It clearly states what the business leaders focus on accomplishing. Prominently displaying the company’s mission where you and others will see it helps keep your team focused on your goals.
You should write down your core values and keep them where you can view them regularly because your values should guide everything you do as you operate. Business functions such as customer service, hiring employees, and negotiating with vendors should all be based on your values.
When you start a business, the values and mission are new ideas fresh in your mind, but as you progress further into the company, you may lose sight of them because of stressors like not having enough money. Make sure you review them consistently to align your business with your values.
Keep reading for more tips on running your own business.
#5. Key Performance Indicators (KPIs)
To effectively run a business, KPIs are necessary to measure progress. KPIs are metrics that measure how well your company is achieving goals laid out in the business plan, following your core values, and achieving your mission.
It’s commonly known that employees focus on what is measured and emphasized as important. Ensure that key performance indicators help measure the things that will keep you focused on running it as a business.
Keep reading for more business tips on how to run a business successfully.
#6. Show an Interest in Your Customers’ Problems (and a Desire to Solve Them)
A famous quote attributed to Theodore Roosevelt says:
Keep this in mind when you run a business because small businesses become successful through personal service. To truly understand how to run a company, you need to care about your customer base and help them solve their problems.
Sometimes showing compassion can be a real challenge, especially when a customer is frustrated, but we can build our levels of understanding through conscious effort.
Greater Good in Action is a site run by UC-Berkeley to help people develop better practices around compassion, forgiveness, and other qualities that help us be our best selves. I strongly recommend it.
Keep reading for more business running tips.
#7. Providing a Reliable Service Is Crucial
Potential customers expect to get what they need when they need it. When starting a business, make sure you make informed decisions about operating and what you carry. You must be reliable, or your target market will go elsewhere.
The owner of Wild Wheat Bakery told us:
Check out our interview with him below.
If you don’t provide your target market with the product or service they need, you’ll have difficulty maintaining your customer base and attracting new customers. Ensure you give the customer base the products and services they expect.
#8. Deliver More than Is Promised to Every Customer
Imagine your air conditioning or heater stops working on an inclement day. So you call an HVAC company at 10 a.m., and they tell you they’ll be there within the next four hours. Meanwhile, you are highly uncomfortable waiting for them to get there. They call at the last minute to say they’ll be there in a couple of days.
That’s a stressful scenario, and it’s not how to run a business. Sure, things go wrong, but that’s why a lot of creative professionals use the saying:
New businesses can do this by:
When running a business, make your customer base feel like you’ve gone the extra mile for them. It will pay off.
#9. Reward Customer Loyalty
To effectively run a business, it is necessary to reward customer loyalty because two-thirds of new customers come from referrals, according to SignPost.
If you don’t already have a loyalty program, set it up now and offer benefits that show you value your returning customers. To find a loyalty program that works for your business, check out Capterra’s shortlist.
For best results, make sure it integrates with your customer relationship management software and accounting software so that you can effectively measure the results of your loyalty program.
There’s more! Keep reading our tips on running a business. Keep reading to learn how to run a small business when a customer complains.
#10. Handle Customer Complaints Immediately
One of the hardest things new businesses deal with is customer complaints. If you handle them well, they can help create a loyal customer, but you might lose a customer if you don’t satisfy their needs.
When a customer has a complaint, try the following process:
- Hear them out.
- Apologize for the inconvenience.
- Ask what you can do to make it right.
- Do what they ask (within reason).
The majority of the time, it will solve the problem, and because you handled it well, there is a good chance they will return to your business.
#11. Operate Lean
Operating lean should be considered one of the basics of running a business. Lean focuses on several factors, including:
But how do you run a business with Lean concepts?
Paul Akers is an expert in lean manufacturing and has turned FastCap into a multi-million dollar per year company. He told us:
Check out our interview with him below.
If you enjoy reading, check out Paul’s book about how to run a business, 2 Second Lean.
#12. Avoid Unnecessary Loans
Borrowing money makes it harder to grow a business unless you have a solid plan for it and follow through. Loan payments increase expenses, and interest rates quickly become higher than your profit margins, especially when using credit cards.
In one of his interviews, Paul told us that he avoids loans and selling equity because someone else thinks they have a say in the business.
#13. Manage Your Margins
To run a business successfully, you have to manage your margins. For some companies, managing margins is easy.
Sanford Booth, a Big Frog franchise owner, told us:
Restaurants will often run such slim margins that they have to actively manage them by the hour to make sure their labor costs don’t rise too much and ruin their profitability. That’s why servers often don’t work eight-hour shifts.
#14. Cut Underperforming Lines
If you are offering products or services that tie up resources without making a reasonable profit, eliminate them. There’s no reason to have money tied up in inventory that isn’t selling. If you are using net-30 payments, slashing the prices to pay it before the interest kicks in may be necessary.
#15. Outsource as Many Functions as Possible
As a business owner, focus on making the business money. You should outsource anything that doesn’t increase your business’s revenue to the best provider for your budget. Areas you should consider outsourcing to another company or freelancers on Fiverr or Upwork include:
- Administrative work
Unless it costs substantially more to outsource than hire an employee, it will save you time and money. Outsourcing can let you focus on increasing cash flow and net income instead of supporting functions that don’t generate revenue. Hiring someone already trained for a specialized task can save you time and frustration.
#16. Offer Industry-Leading Pay and Benefits
If you decide you need to hire people, take care of them. A Harvard study showed that increased wages improved productivity more than the cost of labor, reduced turnover, and increased the ease of recruiting.
The old saying, “Take care of people, and they take care of you,” definitely holds in business. Do some market research to find out what competitors in your industry are doing and then offer a little more.
If you pay your people as much as you can and give them the benefits to take care of themselves, it will create loyalty that eludes many businesses today.
#17. Hire Passionate Employees
Remember the mission statement and values we suggested you review frequently? Review them before every interview. Most jobs you can train people to do, but it’s much harder to teach people to have a positive attitude, passion for what you do, and share values they don’t already hold.
So look for people who already embody your company culture. Just be easy on them in the interview. Some people are highly passionate but clam up in job interviews. If you can do a “working interview” and allow them to do the job with you for a few hours or a day, do it!
If you can do a “working interview” and allow them to do the job with you for a few hours or a day, do it!
You are far more likely to see a potential employee’s personality than if you just do a 30-minute interview. Most people have some anxiety in interviews. Based on my work in photography, it takes about 45 minutes for someone to shed their nervousness. Give them a chance to show their true self.
#18. Maintain a Marketing Budget
Even if it’s small, you need a marketing budget. On average, businesses spend around 8-10% of revenue on marketing, but some spend up to 30%. During the early stages of the company, spend 8-10% of what you want to be making on marketing. It will pay off once you get there.
Be careful when marketing. You don’t want to spend it blindly. Pay attention to your cash flow and if it gets too low, alter your business plan to adjust for the marketing lessons you’ve learned.
#19. Hire an Agency
One of the benefits of hiring an agency is having multiple specialists to help you achieve your goals. A good agency should have:
The time it takes to create content marketing that works can easily be a full-time job, and if the only employee is you, you won’t have the time to manage everything. Before hiring them, make sure you have done your market research to communicate effectively with specialists.
#20. A Successful Business Tells a Story
Marketing is like Hollywood storytelling. In it, your customer is the main character, and you are the sidekick, the person who helps them overcome their antagonist (the problem they are trying to solve). Make sure your marketing keeps that in mind at all times.
If you successfully tell a story that communicates how you can help them achieve their goals, you’ll be on your way to knowing how to run a business.
#21. Stop Wasting Time and Money on Marketing that Doesn’t Work
Many business owners allow marketing to go far too long without improving it. You have to monitor the results, mainly social media marketing and paid ads.
If you just let it run without observing what channels are making a profit, you’ll lose too much money. When fine-tuning your marketing, make it a point to check its performance weekly. Once you’ve figured out which channels work, keep optimizing them and drop the rest.
Closing Thoughts on How to Run a Business
Business success relies on a variety of different skills. Regardless of what industry you are in, you should make it a point to be resilient, open to change, and learn when to cut your losses. Learning how to run a business is highly challenging but equally rewarding. Don’t be too hard on yourself.
What are the most challenging parts of business operations for you?