Opinions expressed by Contractor the contributors are theirs.
You are reading Entrepreneur United States, an international Entrepreneur Media franchise.
The business world is like a kaleidoscope – the picture is never the same for very long. Keeping your business alive through all the changes usually requires transforming it. But how do you know when you need to do something different and how do you actually do the pivot?
Sign his time of transformation
Usually there are three big red flags that indicate it’s time to transform.
1. Decreased income
Revenue refers to all the money your sales channels make to you before you take all the expenses. A drop in income means that, for some reason, people aren’t buying as much in one or more of your business areas. This indicates that people have changed their preferences or have new needs that you don’t meet.
2. Profits go down
Profit is the money you have left after you subtract your expenses from your income. It is money that allows you to explore and evolve, so it has a direct influence on future planning and your ability to compete. It can go down because your income goes up, but profits can also go down because your costs go up. So don’t assume that profits are going down just because you went wrong or missed something.
3. Revenue per customer decreases
Income Per Customer (RPC) is the amount of money you can expect from a single customer to earn you. A lower RPC can mean that you are not communicating well enough about everything you offer, that you don’t have much variety, that the quality has dropped, or that you are not interacting in a way that supports feelings of trust and confidence. customer loyalty.
None of the above issues are strictly interpersonal or operational. So, to fix it, look at the big picture and avoid treating anything like it exists in a vacuum.
Related: 3 tips to build trust and boost business transformation
A concrete example
Years ago I worked in a company that maintained devices such as laptops, printers, desktops, servers, and televisions. Back then, it was quite common for people to pay a bit more to get a two, three, or five year warranty on these products. People bought warranties and our company repaired devices.
Then the price of these technologies started to drop. People began to realize that it didn’t make much sense to pay, say, $ 500 more for a three-year warranty on a $ 1,000 item. It became more and more practical to buy a shorter warranty, and people came to understand that if something was wrong with the item, they would just buy a new one.
You can probably guess what happened next. We couldn’t do as much maintenance, so all three points – revenue, profit, and RPC – fell. We knew business weren’t going to magically improve later with people wanting collateral again. Prices had already fallen enough that customers were ready to buy new instead. We had to face the fact that, if we continued to operate without change, we had to either eat the drop in money or close our doors. Since we recognized that doing the first would not help us in any way, it was time for the business to transform.
Related: Transform your business by encouraging experimentation and change
What to do once you know transforming is the right choice
If you see your three KPIs plunging and you know you need to change, the next thing to do is take a hard look at your core skills and resources. What skills can be transferred to another area, or what can you use a little differently?
In the IT company I worked for, we knew that people no longer wanted guarantees on these specific items. But we still had a lot of people with tools and vans that could go to homes or businesses and fix things. When we looked at the markets, we could see that going into the medical field made a lot of sense. Many medical items still have warranties as they can cost thousands of dollars, and clinics and hospitals will always want to make sure devices are working well to keep patients safe. In addition, many elements worked with computer technologies, with which we had a lot of experience.
Sometimes you have all the resources in-house to make the transformation happen, and that’s great. Other times, it is good to bring in outside consultants, industry experts and strategic architects. Sometimes you even have to bring in new leaders – a vice president of product development, a new CEO, or a new sales manager. Whoever you bring, should know your new area like the back of their hand.
Related: 5 simple steps to digitally transform your business
Make “evolve or die” your motto
Not all businesses recognize the warning signs that it’s time for change and are doing something about it. One of the most famous cases is probably Blockbuster, which rejected the future of streaming and said no to an offer to buy Netflix. Netflix is âânow a giant, while Blockbuster has filed for bankruptcy and has a single store left. But by keeping an eye on revenue, profit, and CPP, you can quickly spot signs of trouble, transform when needed, and avoid Blockbuster’s fate. Watch your numbers and don’t be afraid to change.