For those that have been hiding under a rock for the last few days, American Pharoah is the name of the thoroughbred horse that recently won the triple crown. Horseracing may not be as popular as soccer or (futball for the rest of the world outside of the USA) or as popular as the MLB or NFL, it seems like there is always talk about a potential triple crown winner.
However, this is the first triple crown winner since 1978. It’s a rare feat, and the first time it’s happened in the last 37 years.
No… this blog isn’t really about horseracing and I really don’t care about horseracing either but I figure, what’s better than newsjacking and tying it into the theme of a blog? Maybe some good ole St. Louis style BBQ and beer, but I digress.
Triple Crown For Your Business
So here I go, tying this into the point of this blog post, and hopefully the last real reference to horseracing… You don’t have to spend millions of dollars on raising and training a race horse to be a triple crown winner in your business. You also don’t need to worry about it taking 37 years to have a triple crown for your business.
So what is the triple crown I’m referring to?
It comes down to:
- Sustainability and Diversity
These three things, make up the triple crown in business. That’s it. These things at its’ core are what matters more than anything else.
The Importance Of Growth In Business
You should already know growth is a prerequisite to any success in business. That’s what we all want.
This is the #1 milestone on your entrepreneurial journey.
The first focus you should have is on the growth of your company, and this sometimes contradicts what some popular consultants, coaches or gurus tell you. Yes, profitability is important but in a true, scalable business profitability isn’t the focus until you already have growth.
Look at amazon, Facebook, and other silicon valley “brat” companies that have the luxury to focus on growth instead of profit. While I disagree with how these companies are evaluated in terms of “value”, they have the growth part of things figured out.
Lets give an example of something we can relate to a bit better.
You have two companies selling web design, hosting and SEO.
Company 1 – Puts the first focus on profitability instead of growth. In 1 year, they have 50 clients and have a net profit of $300,000.
Company 2 – Places the focus on growth, not profitability. In 1 year they have 500 clients at $150,000 net profit.
Which company is more valuable? Some will say company #1 since they have a net profit of 300,000 with only 10% of the clients that company 2 has. It makes sense people would think that, because then they can focus more on growth and keep the same profitability.
However, the true winner is the less profitable company.
The reason company #2 is more valuable is because they already have a customer base, a user base, and it’s much easier to have higher profitability once you have high growth instead of having higher growth once you have higher profitability.
Two more reasons why company #2 is more valuable, is because it likely has proven processes and systems to be able to handle the client load. The other reason is because they are exposed to less risk than company #1. If company #1 loses 1 client they lose $6,000, or 2% of their net profit. While company #2 can lose 5 clients and lose only 1% of their net profit.
Growth in business is the most important thing in the beginning. If you are an individual consultant, you may not want high growth and want high profitability. That’s perfectly fine and understandable, but you aren’t building a scalable business, you’re building a lifestyle and job instead of a company.
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The 2nd Part of the Triple Crown is Profitability
Once you have necessary growth in your company, it’s much easier to be profitable.
Most businesses expect to run at a loss the first year, maybe the first few years. They focus on growth first, and then once they have that growth, profitability becomes a bigger concern.
Being profitable comes down to many different things. What is your overhead? Can you negotiate a better price on a lease, computers, can you cut down on staff, can you bring in more profitable business? There are a lot of factors to consider when you try to add a higher margin in your business.
Smart businesses understand that the true profit for them, especially in service related or b2b businesses, is the long term, lifetime value of a client. This is why hosting companies can afford to pay a years worth of hosting to an affiliate. This is why domain registrars go 2 years without ever making money on the domain name. They understand the lifetime value of the customer is more important in terms of profitability than short term gains.
This is exactly the reason why the first step is growth, and the 2nd step is profitability.
The Belmont Stakes Of Business, the Final Stop for the Triple Crown is Sustainability and Diversification
Yes, I know, I didn’t want to include another horseracing reference, but there it is. The final destination of a business is a 2 parter. Having a sustainable flow of cash, profit, etc. as well as having a sustainable market is the end goal of every business.
This is the dream of a founder or owner of a company to be able to have a self sustaining business. This comes with processes in place, systems, you’ve experienced significant growth, profitability, you have market share. This is when things get fun and you can live your life again LOL.
Unless of course, you decide life isn’t complete without new endeavors, and growth in your business.
What’s the end goal? Self sustaining business?
For many, the core purpose of the business may be self sustaining but rarely is that the end. You reach into new verticals, complimenting industries, services or products to minimize risk. You begin the process of diversification.
I’ve written about diversification in marketing and in business in the past. Most people get it wrong, they diversify way too early and that hinders growth, profitability, and sustainability.
Once you’ve met each one of these steps, it’s time to diversify.
Is diversification the final step? In a sense, it is… but if you look at it a bit deeper, you realize it’s just starting the process all over again.
Step 1: Growth
Step 2: Profitability
Step 3: Sustainability + Diversification
Step 4: Repeat the process.
The triple crown in business, is as described above. You have different phases in a business, but you’re never finished growing, you’re never finished when it comes to profitability, you’re always working to keep your business sustainable, and you need to diversify to expand and increase sustainability, profitability, etc. while reducing the amount of risk you’re exposed to.
Are you setting up your business this way? If not, you don’t have a business…. you’ve effectively given yourself a job.