Leadership has three key elements; Vision, Action and Spirit. Think of any leader you may have found inspiring. They will have had a vision. A place they were leading you or others. They were taking action on that vision. Otherwise it’s “all talk and no action”, an empty promise. And almost always, there was something about them and their cause, we’ll call it Spirit, that gave value and importance to the journey. A key concept of our work at Business Design Corporation is that the reason for owning a business is to get more of what you “really” want. What you “really” want, and what your business will look like when it can finally give you that, is your Vision – what we call your Strategic Objective.
Taking action and measuring the forward progress taken on that action is what we call the Key Strategic Indicators, the metrics that tell you whether or not you are making progress on your vision.
And, if the Vision is what you “really” want, chances are the passion you feel is subtly communicated to others – the Spirit of the organization. Creating a Vision and a Plan of Action to getting there is not a time consuming task. In this article, we’re going to give you some key questions to spark your thinking. The documented synthesis of your answers to the questions is all you need.
There are two types of questions; ones that produce tangible or measurable answers, and others that require more intangible answers. Let’s begin with a tangible question – with profit. What is Profit? Most people report; “It’s what’s left over after everything else is paid”. I’d like to re-frame that definition. Profit is your goal. It’s what you’re shooting for. It’s the very foundation of your business model because without profit, your business isn’t going to do very well. Without profit, rarely will your business ever be able to give you what you want. The first question to ask then is how much money do you need every year to live the life you deserve? Assuming you never have to work again, how much do you need to pay all of your bills, cover all of your expenses and do the things you want to do? Is it $100,000? $250,000? $3 Million. Add another 15-20 percent to your answer and you have the estimated net pre-tax profit figure your “future” business needs to make.
Once you have that number, estimate an efficient Net Margin that your future business could and should generate. Some businesses will only be able to generate an 8% Net Margin. Other serviced based business can generate as much as 25% – 30%. Whatever you estimate, take your profit figure and divide it by the Net Margin to calculate the gross sales your business will need to generate. Let’s suppose, for example, you need $150,000 each year to live your life. If you add 20% to that figure, your profit number is $180,000. This thinking here is that your future business will generate $180,000 in profits, of which $150,000 goes into your pocket, and the other $30,000 gets reinvested back into the company into some liquid, income producing asset.
Imagine that. Year after year, your business pays you this money and the rest continues to build in a savings vehicle. And this is what you’re paid for “owning” the company. If you work at the company, you’ll also get a salary commensurate with what you would pay someone else to fill that position. In other words, your $150,000 pay check is your reward for starting the business and for all the effort, worry, hard work and risk invested.
Let’s also assume that a good Net Margin for this business is 15%. In other words, 15% of every dollar of gross sales is net profit. Following the calculation above, that would mean this business would need to generate $1.2 Million in sales annually – ($180,000/15%).
This then generates a flurry of other mostly tangible questions:
- Who is your typical client? Describe them.
- How often will they buy from you each year?
- How much will they spend on there average purchase?
- How many new clients will you need to generate annually?
- How loyal will they be? How many years will they continue to buy from you?
- What products and services will you be selling?
- How many sales people will you need to get this number of sales?
- How many other positions will you need in the company to service this volume of business?
- How many offices will you have?
- What geographic areas or markets will you be serving?
Following this, there comes a list of questions that can generate a less tangible series of answers. For example:
- What will it be like to work at your company?
- What will your life be like?
- What will others, (clients, vendors, colleagues) say about your business?
- What will be unique about the products or services you offer?
- Why will someone buy from you and not the competition?
The answers to these questions will help build an accurate model and a future vision for your business. It’s a vision that you can share with your existing employees as well as with your future new hires and all of those who come in contact with your business. And it’s a vision that puts everyone on the same page with you. You’re now all in league striding towards a defined destination. It’s a very powerful tool. Some time ago, a study was completed at the Harvard Business School. The survey found that only 3% of that year’s graduating class had actually thought about and documented their goals. Another 12% had thought about their goals but had not taken the time to write them down and the rest, 85% had not seriously considered their goals.
The same group was re-surveyed 10 years later. As a baseline, they used their average salary or earning power. The survey found that the smallest group, the 3% who had actually documented their goals, on average, were generating 10 times the income of the largest group who had not considered goals. The study went on to illustrate that by documenting your goals and tracking your progress towards those goals, you have a 300% better chance of reaching them.
Having a documented vision and a way of tracking the progress towards that goal seems like an obvious and useful tool. After all, having one gives you a 300% better chance of getting there.