5 Deadly Business Sins

Avoid these mistakes if you want to create wealth and earn your proper compensation.

By: Chia-Li Chien | Published 02/18/2010

The 29.6 million small businesses in the U.S. (those with fewer than 500 employees) employ half the U.S. work force, according to SCORE 2009 statistics. Seven out of 10 new employer firms survive at least two years, and about half survive five years. As a woman business owner, if your annual revenue is more than $1 million, congratulations, you're in the top 3 percent of the 29.6 million-strong business community, according to the Center for Women's Business Research.

If you're engaging in this risky business, you want to be certain you're adequately compensated for the amount of the risk you're taking. Are you truly making more money? I am not talking about the salary you take from your business. Are you really getting the return on your investment in the business you created?

There are five mortal sins you must avoid to position your business for "value growth." It's not just growth in revenue, it's to create value or wealth for you so you're adequately compensated for the amount of risk you're taking by creating and running your business. I include the five sins below, plus the solutions one entrepreneur found in her bid to avoid them. The circumstances: Luna has been in the physical therapy business for 10 years, and her business has been enjoying steady growth. However, her largest client did not consider her bid for the 2009-2010 school year. Aware she had to make a change, she figured out how to avoid the five sins:

Sin No. 1: No sustainable economic engine. If I were to ask, "What does your business do?" you could probably answer in 30 seconds. However, if I were to ask, "What is your business model?" you might pause awhile before coming up with an answer. A lot of business owners can't effectively answer this question. That's because most businesses have misaligned their business model, so they don't have a sustainable economic engine. (For more information, see the column "Now's the Time for Reinvention.")

Solution: Luna clearly defined her business model and realigned it with her passion and purpose, along with multiple economic drivers. Today, she offers speech, occupational and physical therapy along with both private and Medicaid revenue sources.

Sin No. 2: Push marketing only
. Many businesses are great at push marketing, such as advertising, listings in the phone book, building a website, public relations, social media, etc. But very few businesses know how to strategically deploy pull marketing along with push marketing. Find your market makers and deploy this strategic marketing to pull your customers and clients to you.

Solution. In addition to her push marketing, Luna defined a number of market makers in various market spaces and services. She has a multi-year pull-marketing plan to attack targeted market makers.

Sin No. 3: Lack of predictable profits
. It's not just revenue, it's profits. Profits matter; profits will determine your value and how much wealth you create in your business. There are two major measurements to help you achieve predictable profits:

  • Critical success factors: As an example, this can tie into your pull-marketing strategy and indicate the number of market makers you should have in place.
  • Key performance indicators: How do you measure your critical success factors?

Solution. Luna's critical success factors are county school systems, private schools, preschools and Fortune 500 companies. Her key performance indicators for one of the county school systems is eight schools by the second quarter of 2010 and 12 schools by the third quarter of 2010.

Sin No. 4: Don't know the ROI of each producing employee. Many business owners don't know what the return on investment should be when they hire a vice president of sales. Yes, you're in business for profit; you need to know not only the ROI for the VP of sales, but the ROI for every producing employee.

Solution. Through careful calculation, Luna has determined that her company must make 15 percent profit on the new sales employee she hired. The sales employee must generate enough revenue to cover her salary, in addition to 15 percent in profits she must contribute.

Sin No. 5: Unable to capitalize on the "know how." You have to maximize your intellectual property. At the end of the day, your business wealth lies in your "know how," or intellectual property. It's something you must capture over time so you can increase the value inside your business.

Solution. In next two or three years, Luna is going to take her paper processes and translate them into an online training module to train her customers and future staff.

It's still early in 2010; Luna expects to surpass her 2009 revenue and plans to be in the top 5 percent of the 29.6 million business community, with help from the value she has begun to capture. That way, she will be adequately compensated for the amount of risk that she is taking.

It's time to position your business for "value growth." At the end of the day, it's a risky business you're in; demand adequate compensation.


Chia-Li Chien, CFP®, CRPC, PMP; helps women entrepreneurs to convert their business into meaningful personal wealth.  She is the author of Show Me The Money and columnist for WomenEntrepreneur.com & Fox Business online.   She is available for consulting, speaking engagements and workshops.  She can be reached at www.chialichien.com or jolly@chialichien.com.


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