Implement the 8020 principle to expand and grow your business.
The things I have discovered in talking to small business owners is that to get to that first $1,000,000 takes passion, drive, and talent on the part of the owner who almost literally has carried the business on his or her back to that first million-dollar stage.
To expand and grow to the next level of $2,000,000 and beyond now requires the help of others and focusing on the right people and activities. The 20% that generates 80%.
It requires collaboration and the implementation of what Proverbs 15:22 identifies as “the counsel and advice of others.”
There’s a very relevant axiom that says, what you have to do in this world can seldom, if ever, get done without collaboration.
Once the lone ranger entrepreneur has reached this magic $1,ooo,ooo mark, they are typically performing an “ungodly” number of $10, or even the $100 tasks versus the $1,000 to $10,000 tasks of an 80/20 business owner.
To break out of this $1,000,000 earning stage, you will have to spend more time in the nexus of your talent and passion. That is the 20% of the activities and people that produce 4x’s, 16x’s and even 100x’s more results.
According to a study done by Infusionsoft, there are 5 stages to small business. I’m going to address two of them, stages 3 and 4.
Stage 3 is where you have grown your business from around $300,000 to the $1,000,000 level.
The hurdles you needed to overcome to get to that first million are marketing and customer service.
In other words, generating customers, and providing excellent service so as to create customer loyalty.
Doubling your business to the next million or stage 4, now requires not only focusing on the marketing and service issues but two additional hurdles – Finding, hiring, & keeping the right employees and creating the right systems and processes to keep it all running smoothly.
The first critical area is to find, hire and keep only the “right” employees.
These are the ones who generate 4, 16, and in some cases even 100x’s more and better results than your average employees and generally they have higher integrity, are more reliable, have a positive attitude, fit well into your culture and typically require little to no micro-managing on your part.
Your second area is to have a “bucket” that is overflowing with leads and opportunities made up of the “right” customers – the 20% that generate 80% or more of your revenue, profits and cash flow.
Let’s say you have 1,000 customers generating an annual average revenue stream of $1,000 each. The 80/20 Principle states that 200 of those customers are generating in the area of $800,000 and the other 800 customers generate the other $200,000 and to make matters worse, you are likely actually losing money on a small percentage of those 800.
We all instinctively understand that not all customers are equal, but only a rare few business owners have really put a pencil to it and determined who those customers are and what their true Lifetime Value is.
These 200 customers deserve and require a different level of service and communication than the other 800.
This is not to suggest you lower your level of service to the 800 but rather start paying more attention to the 20% that are generating 80%.
When you do that effectively, that 200 can easily double, through referrals, organic word-of-mouth and replication by proactively targeting others who are like them.
Now instead of having 200 customers generating $800,000, you have somewhere in the area of 400 generating $1.5 million or more.
When understood properly, 80/20 is as much about disqualifying as it is about qualifying.
The 80/20 Principle states that you have customers, products, and services that need to be “fired” because the ROI is negative.
Thirdly, the ultimate objective is to grow your business to the next stage in less time and effort then it took you to get to your first $1,000,000 and accomplish it while maintaining or better yet, increasing your gross and net profit margins and making sure your cash flow remains consistent and positive.
Finally, for those who are just beginning to think about an Exit Strategy, how much more valuable would your business be and how much easier would it be to find the ideal buyer, when you are getting better results with less time effort and money invested?
There is no better Exit Strategy than to implement 80/20 strategies and tactics in these four areas of your business.
Once implemented you may decide you really don’t want to sell after all because you are now getting better results with less time and effort invested.
Who do you know needs help to implement the 8020 Principle into their business?