I’ve been having a number of conversations recently with clients as to where is the sweet spot for their business. If we think of a sweet spot, most of us can relate to this term in sports. The spot at which on say a golf club or cricket bat hits the ball and it effortlessly flies where you want it to go.
In business, the sweet spot is often considered to be where or when your business makes the most profit.
However, I believe the term should be viewed wider than this. The sweet spot should be when your business is making the most profit and you are working the hours you want, (because you have the right systems in place and the best team) and you are largely ‘enjoying the ride’.
What usually occurs in the normal business lifecycle is the business starts off, often slowly, where the owner works frantically to grow their baby. Often taking on many new clients and staff along the way. They grab any work they can, large and small clients, doing work for some in line with what they do best, and others (in hindsight) they wished they didn’t have on board.
At some point the owner stops briefly for a while to reflect on their journey, where they have come from and what’s up next. Ideally, they have grown their business over this time. But is bigger better? Not always.
How do you find it?
If we look at the profitability on a curve over the lifecycle of a business, most businesses will have a point at which their profitability will flatline and start to diminish over time. This may occur even though the business is continuing to grow and invest in resources. Larger businesses also mean more clients, more staff, more bills and often more debt and headaches.
A business will also come to a point where a significant change or investment is required. Often called a step change, where the business invests in new plant, new physical space for an office or warehouse, new staff or a new market. Usually there is a lag from the time from when a business invests to when the investment is repaid and profitability catches up. Often this time period can be years.
What will a bigger business look like for you in terms of office or warehouse space, in terms of team numbers, company structure and number and type of customers? Have you crunched the numbers to see how the investment will pan out and when you will get payback?
Finding your sweet spot is about:
- Regular financial reporting, analysis and forecasting
- Having a clear and structured plan for getting the right team
- Identifying your most profitable and rewarding customers
- Having a clear understanding as to how and where your business makes money
- Determining what you want out of life, including work life balance
Why do it?
Finding your sweet spot results in more ‘high value’ clients or customers, more efficient use of resources, a stronger and better skilled team, more internal structure, improved profitability, a better return on investment and more fun along the way.
Be wary however, your sweet spot may not last. Businesses change, markets change and most importantly technologies change. You can’t get too comfortable and you need to be ready to shift your business model if required to grab new opportunities.
As a business owner do you know the sweet spot of your business?