Founding partner of CEO Advisory Guru, LLC. Best-selling author of The Private Equity Playbook and The Exit-Strategy Playbook.
In my career as a business consultant, board member and coach, I’m fortunate enough to work with all sizes of businesses across a myriad of industries. Over the past few months, one of the things I’ve seen—and I’m far from alone in this—is that consumer discretionary spending is down across the board.
It’s no surprise, really. There’s a war raging in the Ukraine and another war threatening the Middle East. There’s political turmoil in the United States and abroad. And, to top it all off, economic cycles seem to be getting shorter, with less and less time between downturns.
In short, volatility exists everywhere, and it affects business owners and entrepreneurs in every sector.
I’m not telling you all this because I want to bring doom and gloom into your day. I’m telling you this because thriving as a small business owner means preparing for the volatility that’s always lurking. Luckily, there’s a three-step process you can use to do just that: Set goals and objectives, measure leading indicators and take intentional actions to protect and grow your revenue in the face of any and all uncertainty.
1. Set goals and objectives.
The first step every business owner should take to insulate themselves from volatility is to set concrete revenue goals. Without this foundation, I find that it’s almost impossible to know what you should work towards or how to make sure you’re on target.
Let me give you a real-life example of what I mean. When I started my coaching business in 2021, I had two main revenue goals. First, I wanted to replace the annual base salary I had previously made as a CEO. Second, I wanted to help more business leaders through more than coaching alone, so I decided to conduct several seminars each year. I had a specific dollar amount I wanted to earn yearly from that aspect of my business, too.
Once you identify your revenue goals, you can then work backward. In my case, I determined how many clients and seminars it would take to hit my targets and then created a plan to reach those objectives.
Of course, you shouldn’t stop there. Goals should never be static, so revisit them at the start of every year. I like to write them on a whiteboard I can see from my desk and throughout the year. I keep that whiteboard updated with my progress toward each goal and objective.
2: Track your progress.
That brings me to the next step: Measuring your progress. Once you’ve set your goals and objectives, it’s imperative that you track them. Ideally, you should do this using leading indicators. That’s because, while trailing indicators (which look at how you did the previous month or the previous quarter, for example) are certainly useful, they don’t predict what might happen in the future. And, without knowing what’s on the horizon—both good and bad—you can’t protect yourself or your business from future volatility. For that, you need forward-looking indicators.
Take my core coaching clients, for example. I rank my revenue from them using a volatility index, a great leading indicator. If it’s feasible for your business, I suggest that you do the same. My volatility index uses a simple system to highlight each client in green, yellow or red. Green indicates clients I know will stay with me for more than 24 months. Yellow indicates revenue from a client I expect to retain anywhere from 12 to 24 months. Red indicates clients I expect to drop off within 12 months.
Creating an effective volatility index (or any leading indicator, for that matter) requires you to be honest with yourself about your industry, your clients and your offerings. If you aren’t sure how to determine how volatile your current income streams are or how to develop the right forward-looking metrics for your type of business, consider working with a coach, a peer group or a mentor.
Ultimately, regardless of how you generate them, identifying the right metrics is time well spent, and it’s the only way to accurately forecast the future—and more importantly, prepare for it.
3. Protect and grow your revenue.
Finally, the third step in the process is to protect and grow your revenue. This step relies on getting the first two steps right. By continually monitoring progress toward your goals using leading indicators, you can start taking action before your numbers start to go down.
This often means aggressively working to acquire new customers while simultaneously cutting down on unnecessary expenditures. It also means thinking about strategic pivots, cross-sells and upsells to existing customers.
In my book Empire Builder: The Road to a Billion, I share an example of how to do this using a mythical landscape business. Their core service is cutting lawns, but to drive up revenue and insulate themselves from economic downturns, they can also offer ancillary services like mulching, sprinkler repair and landscape lighting repair. Regardless of the nature of your own business, you can adopt a similar strategy to increase your revenue and safeguard your business against economic downturns.
Remember, customer acquisition is the hardest part of growing any business. Once you’ve landed a client, think about how you can build an ecosystem of products and services around their needs. That can help you protect your revenue streams, no matter what’s happening in the world around you.
Maximize your business’ revenue potential.
Every entrepreneur and business leader in the world is impacted by economic volatility and uncertainty. That’s a large part of why 50% of small businesses fail within their first five years.
However, by taking the right steps, you can greatly reduce the chances that volatility will hurt your business. So, set goals and objectives, revisit them regularly, track your progress using the right leading indicators and, finally, be willing to take steps to adapt and pivot.
The bottom line is there’s no getting away from the ups and downs of the markets. But, by taking these three steps, you can help ensure you’re ready for the challenges that will inevitably come.
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