The Challenges of a Family Business

This is a post from E-Myth World Wide – I thought I would share with Everyone!

Every small business faces challenges. Every business owner must deal with issues and problems in the course of building and running a successful operation. In many ways though, the challenges—and advantages—in a family business are unique.

The advantages are somewhat obvious. You work with people you know well and love, you experience greater flexibility and security, and often you’re building a financial legacy for retirement and future generations. These benefits often contribute to a positive business identity and a reputation of trust. It’s generally agreed that when customers see you as a family company, they have a tendency to trust you more. “Family owned and operated since 1948” has a nice ring to it, doesn’t it? And statistics consistently reveal that the long-term success rate of family business exceeds that of other, similar sized businesses.

Where’s the Challenge?

According to the University of Southern Maine’s Institute for Family-Owned Business, almost 35% of Fortune 500 companies are family controlled. Family businesses account for 50% of U.S. gross domestic product and they generate 60% of the country’s employment and 78% of all new job creation! Those are some impressive figures. Yet the failure rate among family-owned small businesses is still high.

Know Your Sales Margins

Do you make more money selling cookies or cupcakes? Who’s more important to your business

: the big customer who ties up half your workforce, or the dozen smaller customers who occupy the other half?

Knowing which of your products or services generates the biggest profit margins is critical to building a sustainable business. It helps you determine where you should focus your resources for future growth, and where you should be trying hardest to cut costs or raise prices. Yet surprising numbers of small-business owners overlook this fundamental exercise.

“Too many business owners think in terms of sales and revenues, and not the bottom line,” says Joellen Sommer, a certified public accountant whose New York City-based consulting firm, Your Own CFO, provides clients with on-call, part-time or interim chief financial officers. “They really don’t know what the cost is to produce a certain product, or at least not the all-in cost. If they provide a service, very few track the true cost of their employees who deliver it.”

Sommer recalls working with a firm in the advertising industry that was shocked to discover that its largest client was actually costing the company money. When it came time to rebid the business, her customer let the client go rather than try to hold its prices, then redirected its energy to finding new clients.

Engineer and entrepreneur Robert Sherwood had a similar epiphany several years ago. After a long and successful career in Silicon Valley in which he grew one of his startups to $100 million in revenues in just three years, Sherwood returned to his home state of Kansas and launched SmartText Corp., a small company that sells legal forms and business documents via the internet.

For years, Sherwood assumed that his highest-priced products generated his biggest profit margins. After all, once he’d developed a large and complex document, it cost nothing more to deliver over the internet than one of his simpler forms. What he failed to consider were post-sale costs. It turned out that customers spending $150 on a document were a lot more demanding than customers shelling out $10. When they had trouble figuring out how to download a purchase or save it to a hard drive, they were much more likely to call his company for help.

Sherwood tried beefing up the “frequently asked questions” page on his website and offering alternative delivery methods, such as file transfer protocol, to ease the burden, but to no avail. Finally, he began to position his lower-cost but higher-margin products more prominently on his website. That led to lower revenues as his average selling price fell, but higher profits as customer service calls went down. On sales of about $1 million annually, profits rose by nearly $150,000.

Crunching the numbers

Developing Your Brand Idea

It’s important to keep in mind that there is a difference between the brand idea and the actual execution, or what we typically call branding. Before you jump into the act of branding, it’s critical that you first develop your brand idea.

The Brand Idea

Your first job is to identify something that establishes your product, service, or in this case your retail store, as different and relevant to your customers. Make this difference simple to understand and you have your brand idea.

A successful brand idea is based on the concept of singularity. You want your brand idea to create the perception that there is no other store quite like your store. Essentially, your brand idea is about taking a position. Once you take a position, you’ll be able to close in on the core of the brand idea and all the words, images, and the emotions you want people to associate with your brand will start to take shape.

Without differentiating and positioning your business; you really can’t create any sort of cohesive branding signals. You may create a unified visual and physical appearance, but without knowing the essential idea you are trying to convey, there is no real unifying principle of singularity.

One way to zero in on your successful brand idea is to narrow your focus; instead of trying to be all things to all customers, tighten the focus and create that focus as your brand. Subway did just this in the delicatessen world, and so can you. You may need to limit yourself in order to more effectively have customers understand the brand.