Whether finances are tight, your dealing with staffing issues, technological failures, or whatever: when things are going wrong, that’s when you need to be at the top of your game. You can’t let the stress of the situation get to you. It will be difficult. You’ll need to rely on business partners, employees, friends, and family. Whatever you need to do to get through it, do it. Once you get your business healthy it can take care of you, but you need to take care of it when it is suffering.
At some point during your business’s life you’re likely going to have to choose between high volume, but low margin sales; and high margin but low volume sales. It can be a very difficult decision, and there’s no one right answer. Generally speaking though, it comes down to profit. Which way will ultimately give you the most profit with the least hassle.
Recently I was forced to make this decision for one of my businesses, and I ended up choosing to go with high margin, low volume. This particular business has quite a few things that aren’t easily scaled to deal with high volume. Which means that scaling is costly. In hind-sight the decision should have been easy, but when you see the high dollar values of high-volume contracts it’s easy to think about revenue rather than profit.
If you’re trying to figure out pricing for your start up, you should learn a little about asymmetric dominance theory, which is also called the decoy effect. In short, by providing potential customers with an option that is inferior to the one you want them to choose, but superior to the other levels, it will help them make the better choice.
Imagine that your little startup actually does what millions of others fail to do, it finds success! Now imagine what happens if you aren’t prepared to deal with it.
Growing too rapidly can kill your business just as quickly as not being successful in the first place. Worst of all, you’re less likely to be prepared for massive success than you are massive failure. You won’t see it coming fast enough.
Here are a few ways your business might grow that could kill it:
- You might try to do everything your customers ask for. After all, you want to please them because they’re paying the bills. The problem is, you need to grow at a pace that’s sustainable for your sanity and your pocketbook. If you don’t you’ll either grow broke trying to invest in the next thing before you have the money, or you’ll go insane working too many hours.
- You might back the wrong audience. Maybe early on both consumers and businesses decide your business is great, and they sign up. Let’s say businesses are more profitable initially because they buy more stuff. So you mould your business around that one audience segment, potentially alienating the other segment. Now the business audience dries up. You’re sunk.
- You might back yourself into a corner. You sign a lease on an office, warehouse, or retail space. It is 3 times bigger than what you need, but you figure you can grow into it. Well if you grow really fast, you could outgrow the space faster than the lease expires. What do you do then? Open a second location? Move out and pay the lease on both spaces?
- Supply lines run thin. Maybe you’re growing so fast that either your suppliers can’t keep pace with you, or you can’t hire enough employees to do all the work. Do you have a plan for that?
These are just a few ways success can kill you. Don’t get me wrong, I’d rather deal with these issues than lack of success any day. But it’s also good to plan for this silent killer in addition to the more obvious dangers ahead of your business.