| | the basic truth about business
I've known how easy it is to be successful in business for many years. It comes down to two key elements:
Number of potential customers x Profit per customer = size of potential fortune.
Apply this equation to Microsoft Windows and see why Bill Gates is so wealthy. What is the number of potential customers? What is the cost of a disk? See what I'm talking about?
That's it. There is nothing else past this basic truth. So when business books say, "Step one, write out a business plan" (Shit I don't even know how to do that!) they normally say something stupid like, find a business consultant to write a business plan. Baloney. You just need to figure out the answer to the question to the formula above.
In wedding photography, I realistically had 52 potential customers per year. (# of saturdays) So, I decided to maximize the 2nd part of the equation (profit per customer) by doing pre-designing of albums, and marketing myself as a photographer who specializes in the design of custom albums. It worked.
It works everywhere. With my lighting products, I knew that with digital people were going to be mighty pissed off at blown out images. With millions of digital SLRs being sold every month (and climbing) I knew that the number of potential customers was going to be massive, and the profit per customer was going to be great because it's not the cost of the plastic, it's the design.
This goes for anything. Even economic trends or investing. In housing, the number of potential customers is very very small. The profit per customer is actually negative (house prices are collapsing). So what is the size of the potential fortune? Negative fortune. Many times multiplied.
As far as what to do in a really bad economy, take a moment and focus on the equation above. Something should start to become clear, and that is "scalability". If you can make a small profit on something, can you multiply this item without the profits shrinking? You can't do it in wedding photography, because while I had huge averages - if I put say, 1,000 staff photographers I'm pretty sure that the profit per job would not remain the same.
When we began selling my products through distributors, we were able to hit the little local camera stores who wouldn't carry our stuff because they would only order a few units per month and that would take my crew a lot of time to support them. But a distributor say, in Europe, can warehouse our stuff and distribute to these little stores for a profit. We make less of course, but the equation still works out because of scalability. The number on the left is higher because we reach more people.
It ALL comes down to that equation above. Nothing else is more important in business success in terms of planning. |
| | Posted 6/24/2008 1:21 PM - 1362 Views - 12 eProps - 12 comments
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