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3 Questions to Make Your Business Better

question As business owners, we often hear that we have to work on our business, not just in it. It’s a concept that sounds simple when you say it, but how do you get started?

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A lot of entrepreneurs thrive on bending the rules so the starting point isn’t always obvious. You have to create the rules – the operating system – so you will have time to work on your business in the future.

So, early in your business, you work on your business by working in your business!

You begin to develop those systems that will make delegation to your future employees more effective. To do that, ask yourself three questions:

  • What is your vision of the perfect transaction?
    Map out a transaction from beginning to end. Think about what you want your customers to experience during each step of the process. This will include: your advertising, the first interaction, and the closing of the transaction. But don’t forget to include what happens internally to support the transaction and follow-up with the customer.

But here’s the interesting thing when you bring your customers’ perspective in – every customer probably has one or two little things that they really like. If you can gear your organization to make that one customer happy on that one point, you’ll probably thrill the rest of your customers by doing it! They probably want it, too. They just haven’t vocalized it.

  • How can you improve one thing one percent?
    Take your bigg picture and bring in all the things that your customers have told you and begin working on one at a time.

We have a confession to make … these three questions aren’t ours. They come straight out of Ken Blanchard’s Raving Fans. It highlights these three questions through a great story and we highly recommend that you read his great book.

So these three questions will improve your performance, help you develop your operating systems, and keep you focused on the most important people in your business – your customers.

Putting it to work

Now you want to improve one thing one percent. We saw a great example of this in action. A company had their entire process mapped out on the wall of their conference room.

They had all these sticky notes up on the wall. Each sticky note represented something they wanted to test – something that represented a potential one percent improvement. These suggestions had been made by customers and by employees.

That’s what makes this concept so useful. It’s a great tool to get employee buy-in.

They get on board because they can see that their suggestions are being considered. More than that, they may get tested. The test results may call for full implementation!

It makes your employees feel like they’re a significant part of something bigger. They are valued. That leads to bigg success with your employees. 

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Thanks for checking in on us today. Join us next time as we make a special announcement – a new beginning for Bigg Success. Until then, here’s to your bigg success!

 

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00354-031909.mp3

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Is Your Project Worth Your Time?

time_pieces Last time, we looked at the two most common ways to analyze a potential project. We focused on the money side which works great for business decisions because the cost of time is included implicitly.

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But if you’re a business owner, do you include the value of your time in your calculations? How about when you’re making a personal decision? It’s important to add time into the equation.

To do that, follow this process:

  • Step 1: Estimate project hours. How much time will you spend if you do this project?
  • Step 2: Select your alternative activity. What would you do if you weren’t working on this project?
  • Step 3: Calculate your opportunity cost per hour. Your opportunity cost per hour is the amount of money you could earn (or not spend) per hour on the alternative activity you chose in Step 2.

For example, if you would watch TV instead of working on this project, then that time wouldn’t be valued at much. Maybe, instead of watching TV, you would clean your house. Now that’s worth something!

How much would you pay somebody to clean your house? How many hours would it take you to do it yourself? Divide the amount you would pay someone to do the work by the number of hours it would take you to do it yourself to get your opportunity cost per hour.

  • Step 4: Determine the total cost of your invested time. Multiply the number of project hours (Step 1) by your opportunity cost per hour (Step 3). That’s the value of the time you will invest in this project. This should be added to the money you will invest to find your total investment.

Example – Getting certified (Part II)

Let’s look at the same project we considered yesterday – you decide to go back to school and get certified for some specialty. Here are the details:

Cost: $2,000
Incremental income: $2,000 in Years 1 through 3 (then you retire)
Opportunity cost of your capital: 6%

Now let’s add in the time component. Assume that, if you put the same time into another activity instead of this certification program, you would expect to earn $2,000. That’s the opportunity cost of your time. So instead of an investment of $2,000 (as mentioned above), your investment is really $4,000.

Payback period doubles

We see that your payback period is two years. You’ll be fully compensated for your invested time and money by the end of the second year. But remember, when we didn’t factor the value of your time into the equation, your payback period was only one year. So it doubles in this case.

Net Present Value falls

We said yesterday that calculating the Net Present Value (NPV) was a better way to determine whether or not you should do a project. In this case, with the value of your time factored in, the NPV is about $1,300 as shown in this screenshot from Microsoft Excel:

Microsoft Excel Time Set Up Screen Shot

As you may recall – if our NPV is greater than $0, then we take on the project. That’s the case here so we would want to do this project. In fact, even factoring in our time, this project – under the assumptions we’ve made – would return 23%. That’s a pretty good return on our time and our money!

But not nearly as good as the 84% we thought it was when we weren’t placing any value on our time. That’s why it’s so important to include our time. As we said, businesses do this implicitly because they have to pay people to do projects. But when we’re taking them on ourselves, we have to be sure to place the appropriate value on our time. We forget this too often … to our own detriment. 

Now you have the ammunition you need to determine whether or not you should take on that project you’re considering! 

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We thank you so much for reading our post today. Join us next time when we share a magic elixir we just discovered … it’s success in a can! Until then, here’s to your bigg success!

 

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00322-020309.mp3

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Is Your Project Worth Your Money?

money If you’re like most bigg goal-getters, you have a lot of ideas. But how do you know which ones you should invest in? That’s what we want to talk about today – project selection.

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This process can be used for so many things. You could use it to decide if you should start a business. It would help figure out if you should expand your existing business. You could even use it to determine if it’s worth going back and getting more education.

To get started, you’ll need to make some projections, using assumptions, about the expected income and expenses of your project. The process itself is a science but the assumptions are definitely an art. It requires that you use your own judgment and the only way to learn how to do it is by doing it.

So let’s look at the two most common ways to determine if a project is worth doing.

Payback period

As its name implies, this method simply looks at how quickly you get your investment back. So if you invest $100 now and earn $25 the first year and $75 the second year, you have a two-year payback.

Payback is commonly used because it’s so simple. But think about it … it ignores all the money you could make after the payback period. And that can really skew your investing decisions. You choose projects that return your investment quickly and neglect projects that may offer greater potential but more patience. 

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Discounted cash flow (DCF)

Fortunately, there is a better way to calculate the worth of a project. With this method, you explicitly recognize that a dollar today is worth more than a dollar tomorrow. However, a dollar tomorrow is still worth something which isn’t recognized by the payback method.

It’s called discounted cash flow because we look at all of our expected cash flows and determine how much they’re worth right now by discounting them back to today. That is called the “net present value” (NPV).

Calculating the NPV is a four step process:

  • Determine how much you will invest by year.
    Usually most of your investment in a new project is made upfront (and probably in the first year). But if your project requires that you make an investment over a few years, you’ll want to account for that.
  • Estimate how much income this project will generate by year.
    Obviously, you don’t want to take on a project if it doesn’t increase your income. So look at how much you think you will make with this project and compare that to how much you think you plan to make without it. That’s your increased income from the project.
  • Decide upon your opportunity cost.
    Here’s where it gets a little tricky. Consider where you could invest your money if you didn’t invest it in this project. Weigh in how certain you are about your projections.
    For example, if you determined your project was no more risky than investing in Certificates of Deposit at a FDIC-insured bank, you could use the interest paid on those accounts as your opportunity cost.

Most projects aren’t that certain so your rate will usually be higher than that. Just remember – the less certain you are about your incremental income, the higher your opportunity cost.

  • Run the numbers in Microsoft Excel (or your favorite spreadsheet program) using the formula:

NPV formula

Example – Should I get certified?

We’ll offer an example so you can see this concept in action. Let’s say you want to go back to school to get certified. It costs $2,000 for the certification program. You expect to make an additional $2,000 a year if you do it. You plan to retire in three years so the increased income won’t benefit you for too long. You’ve looked at other opportunities and determined that you need to earn at least 6% on your money.

We see that your payback period is one year. That’s how long it will take to pay you back the money you invested.

Using DCF, your NPV is $3,157 as shown in this screenshot from Microsoft Excel:

Microsoft Excel set up screen shot

To get that, use Excel’s “Insert Function” command:

Microsoft Excel insert formula command screen shot

With DCF, the rule is: If NPV > $0, then invest in the project. After all, your expected return exceeds your expected cost. So in this case, your NPV is over $3,000. Therefore, you should go for it! 

If you want to know what your annual return is, just change the opportunity cost field in your spreadsheet until your NPV equals $0. In this case, your annual return is 83% over the life of the project.

In general, pick the projects with the highest NPV until you run out of money to invest. However, there is one important variable we failed to account for in this calculation – your time. We’ll discuss that tomorrow.

Thanks so much for stopping in to read our post today. Until next time, here’s to your bigg success!

 

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00321-020209.mp3

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Are You a Victim of Your Own Success?

stress You’ve made it! You’ve arrived! You’ve reached that next level of success! You’ve achieved your dream!

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But you’re swamped. Now, you have a seemingly endless list of things-to-do. And it all just keeps coming. Minute after minute, day after day, week after week. It’s sheer chaos.

You find yourself busier than ever. You’re more successful than ever. But are you happier than ever?

It seems that you’re a victim of your own success – too much to do, too many clients, too many constituents. So what can you do about it?

Congratulate yourself

Take a deep breath and a little pause. Enjoy it for a bit!

Get away from it all for a day

We know … you’re too busy. But here’s the thing – you’re too busy not to get away because, on your day away, you’re going to contemplate. What’s most important? What’s least important?

After you’ve thought about those two things:

Hire an assistant, outsource, partner, joint venture … you get the idea

Delegate – in some way, shape or form – those things that aren’t most important.

You might be asking, “Can I afford to hire someone?” But you’re asking the wrong question. The question really is, “Can I afford not to?”

Because the most important things – the people who are most important for you to spend time with, the projects that only you can and should do – will get pushed aside by the less important things if you don’t take this step.

Set the expectations for the people in your life

You need to establish boundaries for all your people. You may set certain times when you’re available to employees, vendors, and even customers. We think customers can’t be trained, but even they can. 

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georgeIn one of my early businesses, my second biggest customer was constantly calling with demands for immediate service. Finally, I presented them with an option – they could work within our time frame for the price we negotiated or I could offer them quicker turnaround for a higher price. They chose the better price!

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Finding your model

Now you’re only working on the most important things and you’ve communicated your boundaries to the most important people in your life. You’re ready to do those things you do in the most efficient way possible.

So let’s look for a model. Think about a manufacturer’s assembly line with products coming down it. What are your products?

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marylynnFor us, it is shows to produce. Articles to write. E-mails to return. People to reach out to. Products to create. Services to deliver.

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Your production cycle may flow over an hour, a day, a week, or a month. Think about all of the important things you do – that’s your product – and engineer your processes to move that product down the line in the most efficient manner possible.

Engineer your processes

What is the best way to do it? Think about it logically. Step back and look at it again. Walk yourself through the whole process, step-by-step as it exists today. Now, start looking for ways to save little bits of time.

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georgeOne of the guest speakers for my class became a billionaire by turning his little business into a Fortune 500 company. One of his secrets was finding ways to get more done with the same people. For example, they discovered a way to change how they labeled packages for shipment. It saved them 55 seconds. That’s time they could spend on something else!

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So if you find yourself a victim of your own success, start with effectiveness – make sure you’re doing the right things. Then work on efficiency – doing those things the right way.

Doing the right things the right way … before you know it, you’ll be an even bigger success without being victimized by it!

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Get the tips and tools you need to be a BIGG success!
Subscribe to the Bigg Success Weekly – it’s FREE!

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Next time, we ask, “Are you afraid of success?” Until then, here’s to your bigg success!

 

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How to Get Your Employees to Own Their Job, Not Just Do It

employee As business owners, we’re told that we should work on our business, not in it. But how do you do that when you’re just getting started? How can you do that if you don’t have any employees? Here’s the secret …

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At first, you work on your business by working in your business.

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george
Mary-Lynn’s always trying to get me out of the business!

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Seriously though, you begin working on your business by documenting your procedures, position by position, as you work in your business. Before you hire your first employee, it’s essential to put this structure in place so that, when you do hire someone, you can train him or her them effectively.

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marylynn My favorite General Managers in radio had worked in all areas of the business. They had been on the air. They had produced commercials. They had sold commercials. So they knew the business because they had worked the whole business.

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As a new business owner, you do that anyway, right? All you have to do is document what you do, position by position. Maybe you don’t do it all – you’re not comfortable with accounting, for example. So you get a partner who documents the procedures for those positions. Or you outsource them.

You’ll work through each position that your business will need. As you do, you will document every task that your business performs.

This leads to your employees OWNING their jobs

Now you’re going to build upon the work you’ve done. Put together two or more procedures and you have a process. Two or more processes start to build your system. You’ll end up with a full-fledged Operations Manual.

You get there by working on your business as you work in your business. Because while you’re doing that, you can test your procedures to make sure they are effective and efficient.

Assume you own a retail store. You would want to greet your customers as they come into your store. Here’s a typical conversation:

You: “Hi, may I help you?”

Customer: “No, I’m just looking.”

End of conversation.

Michael Gerber, in his great book The E-Myth Revisited, said he has consulted with retailers who increased sales by 10 to 16 percent when the following question was asked:

“Hi, have you been in here before?”

Now, if the customer says “Yes”, you can offer a special program for repeat customers. If the customer says “No”, you can make another offer for new customers.

So you set up one procedure to greet your customers. Then you test it. That’s working on your business. You’ll have a separate procedure to promote your special offer for customers. These two procedures are the beginnings of your process.

Keep doing this, procedure by procedure, process by process until you have a complete operating system. Document that and you have your Operations Manual.

Now when you hire an employee and start to train him or her, you can involve them in the process because you have it in writing. You’re ready for the five step process for training your employees.

Since you’ve tested your procedures, you can tell your new employee why you do things the way you do. This helps them understand the idea behind the procedure which helps get their buy in.

You’ll also tell your employee that your testing isn’t over yet. In fact, you want them to help you test new ideas. You’ll emphasize that it’s important to follow your system, but you also want them suggesting ways to improve how you do things.

That’s how you get employees who don’t just do their jobs; they own them!

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Next time, we’ll look at an inexpensive way for families to connect and compete. Until then, here’s to your bigg success!

 

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