All businesses operate like machines. The parts of the business machine include operations, marketing, sales, finance, employees, growth, legacy, and you. These components are called business mechanics. It doesn’t matter if you run a restaurant, a fitness gym, a plumbing service, an engineering firm, or a widget manufacturing business.
Today’s post describes each business mechanics component.
Watch the video on Business Mechanics on YouTube instead of reading this post.
There are eight different mechanical components of this business machine.
Operations
Operations is what you do; it’s the product or service that you offer your customers. Operations are the core of any business. If you’re an HVAC maintenance company, you install and maintain HVAC equipment. This is your operations component. If you’re a restaurant, your meals are your operations.
You must have systems and processes that allow you to repeat what you do in your company and achieve the same quality over and over again. Typically, in a new company, you’re working on this as you go and trying to tweak your systems and processes.
You must have tools, supply chains, and vendors all setup. You must deliver quality and then check that you’re satisfying your customers.
It’s important in operations to gain efficiency. If you sell a menu item at a restaurant for $12 and it costs you $3 in food, you’re adding $9 worth of value to that meal by the time you serve it to your customer.
You must ensure that your product and services are convenient for the customers that you’re serving.
You must comply with government regulations, create safety protocols, and ensure that they are followed. Each industry has different compliance hurdles. Make sure you know and follow your industry’s regulations.
Marketing
If you don’t have customers, you don’t have a business. Marketing is getting your message out there to the customers who need what you’re selling.
The first key to marketing your company is fully understanding who you are trying to serve, otherwise known as your niche. Next is to understand your messaging: How will you say what you’re doing benefits your customer? What pain will you address from that customer?
How will you advertise now that you know who you want to attract and have a compelling message?
Most people mix up advertising strategies and tactics. The marketing strategy is your overall plan to connect with your ideal or niche customers. For instance, most buyers will not buy something right away. So, you may use a strategic marketing approach that uses a lead magnet, educates them, and then repeatedly connects with them until they are ready to buy. Others may use a mass-media advertising approach to repeat a constant message repeatedly so that when a buyer is prepared to buy, they remember the jingle or at least value the name recognition. Still, other strategies could be immediate. Someone wants to buy something, and you ensure you are the first product or service they find.
An advertising tactic is the medium you use to execute your strategy. It could be Google Ads, Facebook Ads, or local networking. There are hundreds of marketing tactics.
Once you have figured all of this out, you must set up a marketing budget. I teach my business owners that they should expect to pay about 10% to 20% of their revenue in marketing costs.
Sales
Many people confuse sales with marketing. They’re not the same thing. Sales convert a lead into a customer, while marketing involves attracting a lead to your salesperson or sales process.
To be successful at selling, you must have a sales process. There must be an entry point for prospective customers to engage with you in an educational conversation. You must educate them on your product and service. To do that, there must be a process. People do not want to pay to be educated. This means you must devise a system to inform sales prospects without cost. Then, convert them to customers once they become educated and know they need your product or service.
You must hire the right people to manage those salespeople. Sales managers and salespeople have different personalities. You must understand how to compensate your salespeople. Typically, with low-skill or low-complexity items, you will pay commission only to your salespeople. They don’t have to be highly educated but must be highly motivated and actively selling to sell that product. If it’s a solutions-based product or service, you must pay a higher base compensation and a lower commission rate.
Employees
The next component is employees. The people cog in business mechanics is how you deal with your people in general.
The first item of importance is how your organization structure is set up. How does information flow in your organization? What authority and responsibility is delegated to each individual in your organization? This may not matter when you’re small, but it’s crucial as you grow.
How will you hire people? How do you orient them? How do you train them? What kind of workplace energy do you have? Do people like coming to work? Are you creating a great, high-energy workplace?
What’s your leadership like? What leadership training do you have in mind for people as you grow your business? Will you hire leaders from outside your company or promote your people to leadership positions? How will you build teams? What kinds of evaluation systems are you using to evaluate how well your people are doing in different roles and capacities in your company? How are you retaining good employees? How are you getting rid of bad employees?
All these questions are questions that you must answer. Personnel issues become more complicated as you grow your company. Indeed, your people are your most valuable resource. And you must treat your most valuable resource like it is your most valuable resource.
Finance
You won’t have a business if you’re not watching the numbers. It’s no different than if I fly to Mars without oxygen… my life is over. It’s the same for businesses. If you run out of money, that’s the end of the game.
A strong financial cog in business mechanics starts with accounting and bookkeeping systems. You must track revenue, direct costs, expenses, gross margin, and operating profit.
You must ensure cash flow, which means having enough cash and credit to pay for operating the business before you ask customers to pay for it.
You must understand how to set prices so they’re not too low or too high. You must also have a system for regular budgeting and forecasting. Budgeting determines how much money you can spend in different business areas. Forecasting is predicting incoming revenue in the near future to yield a profit.
You must have controls in your business to eliminate embezzlement. The bigger you grow, the more likely it is that people who are watching your money will embezzle. Control systems prevent that.
You must be aware of investment and debt. Both of these instruments can help you grow your business. They give you cash, but there are strings attached to both of them. You must understand what those strings are. Financial planning is essential; unfortunately, many business owners don’t do it.
Growth
Growing a company is vital to the health of any business. Unfortunately, many business owners have this mindset, “I’m going to grow up to X employees and no more.”
Your company will either grow or shrink. If you choose to grow instead of shrink, you must ensure that you have a growth strategy.
Many professionals have difficulty bringing on new people because they fail to properly set their pricing to pay for the overhead associated with growth. It’s important that you have a growth strategy and that your business is scalable. Scalability means that you can grow without adversely affecting the price.
Legacy
The next cog in this business mechanics machine is Legacy. Legacy is how your business will make the world a better place.
Legacy is also your exit plan. How will you leave the company? Will you have enough wealth to retire when you sell your company? Will you to leave the company to your employees? Will your family inherit your company? If so, do they even want it?
No business owner wants to consider exiting when they’re starting a company.
If you don’t know how to exit, you can’t see where you plan to grow your business. This not-knowing often leads to failure of some kind. One type of failure is growing a great business that generates millions of dollars but leaves you divorced and estranged from your family. A different type of failure is having many hopes and dreams and failing to create a financially sustainable business that won’t go bankrupt in its first year.
If you don’t have that end in mind, you won’t keep going when things get tough. You need to understand how your business serves you.
The other item that many entrepreneurs don’t understand is disability and death. If you get disabled or if you die, what’s going to happen to your business? What’s going to happen to the employees? What’s going to happen to your family? What’s going to happen to your customers?
Will you create a sellable business? What’s it going to take to grow your business? What kinds of systems do you need to have in place? If you’re going to sell your business, your role in that business must be minimized by the time that you sell it. Otherwise, you must be included in the sale which means that you will be in a forever job. You’re not creating a business if you’re in a forever job.
Legacy is important. But it’s the thing that a lot of people overlook.
You
The 8th component of business mechanics is the most important… it’s YOU. Many get so wrapped up in their business that they forget about themselves.
There are eight spokes to the life wheel: 1) personal growth; 2) spiritual awareness; 3)fun and enjoyment; 4)relationships, both intimate and friendships; 5)health and aging; 6) personal wealth; 7) family and parenting; and 8) business and/or career. Your business must serve you in each facet of your life, or it’s not worth it. Yes, you will get out of balance for periods of your professional life. However, an objective view of your life is essential to ensure you are working to live and not living to work.
If you want to see how I combine mindset with mechanics, I have published a book entitled Business Mechanics & Mindset: How Your Thoughts Create or Sabotage Your Business Success. This book describes these business mechanical components in more detail, and you will learn how to energize each one in your business.
