Many businesses offer too many products and services, to too many different types of customers, at too many prices and in too many markets. This leads to diffusion of effort, increased expenses and reduced profitability. Success in business, though, requires that you develop absolute clarity about the products and services you’re going to offer.
Entrepreneurs tend to be optimistic and ambitious. For this reason, they become enthusiastic about offering more and different products and services to more and different markets. They’re easily distracted by new profit opportunities and often fail to focus on those areas where the greatest business success is possible for them.
Every business has a driving force that determines its strategy in the marketplace:
A product-driven driving force requires that you focus all your efforts on selling more of a particular product to as many customers as possible.
A market-driven driving force means that you develop whatever products or services are required to satisfy a particular market.
A method-of-sale driving force means that you select products and services that can be sold with a sales methodology that you have mastered.
A technology-driven driving force means that everything you do is determined by a special technology of your business.
A profit-focused driving force means that you offer any product or service to your market where a specific level of profit is possible from sales.
The keys to success in business and in life are contained in two words: focus and concentration. You should continually define and determine your core business. Your core business will account for 80 percent of your profits. Concentrate on becoming excellent in your core business and protect your core business from competition by continually improving in that area.
Divide your products and services into four strategic business units:
Cash cows are those products and services that sell well and are major suppliers of cash to your business.
Stars are products and services with the potential to generate excellent sales and cash in the future.
Question marks are products and services that are neither cash cows nor potential stars.
Dogs are money losers and users of cash, with no real future for your company.
Whenever your business and sales slow down, or if there is a drop off in your sales, retreat to your most profitable products and services. What products yield the highest profits per unit of sale? What products would you not get into again today if you had to do it over? If you were starting your business again today, what products would you keep? What products would you drop?
The most effective way to grow a business is with logical product extensions. Each product should be an extension of your existing product and be something you can sell to your existing customer base. It should be an extension of your existing expertise and fit into your existing product or service mix.
Always carefully analyze your company and your market before adding a new product or service:
Do you have the necessary money and resources to produce and market the new product?
Do you have the necessary people to produce and sell the new product?
Only introduce new products and services where it is possible for you to become a market leader.
Only engage in those activities that you can do in an excellent fashion.
Conduct a regular profit analysis on every product, service and activity in your business. Determine exactly how much of the product/service you’re selling today; exactly how much it costs to produce and sell that product or service; and the profitability of every product or service, from the highest to the lowest in your business.
You can earn profits from focus and concentration on a single product or service, on something that you do in an excellent fashion. You can also increase sales and profitability by offering several products and services, each of which lead to more sales for your other products and services.
Your ability to continually analyze your product or service mix, and to work toward achieving the highest levels of profitability in your business, will be key to your success.