I talked with a business owner this week whose sales are down nearly 50% year-over-year. He’s had some technical issues on his main sales platform, but we discussed a deeper, more fundamental reason his business started declining.
Protect the core
Every business has a core selection of products, marketing strategies, and people that produce the majority of the company’s sales and profits.
Entrepreneurs love to build. That’s how they create companies out of thin air. That skill and desire can also kill what they build.
The best businesses relentlessly protect the core that drives sales and profits. Google has pursued self-driving cars, floating internet balloons, fighting aging, smart contact lenses, and smart glasses. But advertising drives up to 80% of its profits.
Google employs 30,000 people in its advertising division to protect its core. That business could probably be run by 20 people with laptops. Google can’t take that risk. Everything else the business ever wants to pursue comes from keeping its golden goose warm, happy, and well-fed.
70 to 80% of your time, energy, and attention should be focused on protecting the core money-making activities of your business. Only when you have an equally smart, equally motivated, equally hungry person with a proven track record responsible for those activities do you get to step away. Even then, you must keep your eye on performance. Wolves are always waiting to slaughter your goose (or maybe it’s gold bugs who want the eggs? …you get the idea).
Explore within limits
Eventually, your core will die or must evolve. 20 years ago, the iPod produced more than 40% of Apple’s sales; today, it’s zero.
Coca-Cola still sells a sugary drink 140 years after its founding. But along the way, it had to stop putting cocaine in its product. Times change. Products must evolve to survive.
Exploration is the area of the business that entrepreneurs love most. They get to play. Playing is fun, within limits.
Great businesses devote a relatively small portion of time, energy, and money to exploring unproven marketing strategies and products. A good portion of resources to devote to trying new things is 20 to 30%. Eventually, one of those new things will replace a main thing.
If you devote too many resources to unproven bets on future growth, like a card-counting, mathematically favored blackjack player whose dealer won’t bust, you can run out of money, time, or both before probability works in your favor.
To survive and thrive long-term in business, keep the main thing the main thing. Explore, but do so while ensuring what’s got you this far stays strong.
—Matt