Search

What is Business Mechanics?


Today's video is on business mechanics. If you're new to business, you may want to use this video as a checklist of sorts, because I'm going to walk through all the elements of business that you need. If you've been doing business for a while, this is a great checklist for you to see what gaps you may have in the mechanics of your business.

There are eight different mechanical components of this business machine. Each industry is just a little bit different. These eight fundamental components apply to every industry.


Operations

Operations is what you do it's the product or service that you offer your customers. The operations is the core of what any business is. If you’re an HVAC maintenance company, you install, and maintain HVAC equipment. This is your operations component. If you’re a restaurant, your delicious meals are your operations.

You must have systems and processes that you can repeat what you do in your company and get that same quality over and over again. Typically, in a in a new company, you're working on this as you go and you're trying to tweak your systems and processes.


You must have tools, supply chain, and vendors all set up. You must deliver quality and then check that you’re satisfying your customers.


It's important in operations that you're gaining efficiency. If you're selling a menu item at a restaurant for $12 and it's costing you $3 in food cost, that means you're adding $9 worth of value to that meal by the time that you serve it to your customer .


You must ensure that your product and services is convenient for the customers that you're serving.


While it's kind of boring, you must be in compliance with government regulations. You must create safety protocols and then ensure that they are followed. There are different compliance hurdles for each industry. Make sure you know and follow your industry’s regulations.


Marketing

If you don't have customers, you don't have a business. Marketing is the way that you get your message out there to the customers who need what you’re selling.

The first key to marketing your company is to fully understand who you are trying to serve. Otherwise known as your niche. Next is to understand your messaging: How are you going to say what you’re doing benefits your customer. What pain will you addressed from that customer?


Now that you know who you want to attract and have a compelling message, how will you advertise?


Most people mix up advertising strategy and tactics. The strategy of marketing is your overall plan to connect with your ideal customers or your niche customers. For instance, most buyers will not buy something right away. So, you may use an strategic approach to marketing that uses a lead magnet, then educates them, and then repeatedly connects with them until they are ready to buy. Others may use a mass-media advertising approach to repeat a constant message over and over again so that when a buyer is ready to buy, they remember the jingle or at least value the name recognition. Still other strategies could be immediate. Someone wants to buy something, and you ensure you are the first product or service they find.


An advertising tactic is the thing medium that you use to execute your strategy. It could be Google Ads. It could be Facebook Ads. It could be local networking. There are literally a hundred different tactics on how you can market.


Once you have figured all of this out, you must set up a marketing budget. This surprises new business owners. I teach my business owners that you should expect to pay about 10% to 20% of your revenue in marketing costs. The bad news about that is that you're paying that before you get the revenue. So, you really must spend your marketing budget wisely.


Sales

Many people confuse sales with marketing. They’re not the same things. Sales is converting a lead into a customer. Marketing is obtaining attracting a lead to your salesperson or process.

To be successful at selling, you must have a sales process. There must be an entry point for a prospective customer to start engaging with you in an educational conversation. You must educate them on your product and service. To do that there has to be a process. Typically, people are not going to pay to be educated. So, you have to work out a system where you can bring people in and educate them for no cost or low-cost. Then convert them to customers once they become educated and know that they need your product or service.


You must hire the right people to manage those sales people. Just like sales and marketing are different, sales managers and salespeople are two different personality types. You must understand how to compensate your salespeople, Typically, with low skill or low complexity items you will pay commission only to your salespeople. They don't have to be highly educated, but they must be highly motivated and highly active in selling to sell that product. If it's a very complex product or service that you sell… maybe a solutions-based product or service, you must pay a higher base compensation and a lower commission rate.


Employees

The next component is people… or your employees. This one is extremely important. Obviously. you have salespeople… you have marketing people… you have operations people… so it's not like you didn't have people in the last three cogs. But the people cog in business mechanics is how you're dealing with your people in general.

The first item of importance is how you have your organization structure set up. What is the information flow going to be like in your organization? This may not matter when you’re really small. However, it’s really important as you grow bigger.


How will you hire people? How do you orient them? How do you train them? What kind of workplace energy do you have? Do people like coming to work? Are you creating a great, high-energy workplace?


What's your leadership like? What is the leadership training you have in mind for people as you grow your business? Will you hire leaders from outside your company or promote your people to leadership positions? How will you build teams? What kinds of evaluation systems are you using to evaluate how well your people are doing in different roles and capacities in your company? How are you retaining the good employees? How are you getting rid of bad employees?


All these questions are questions that you must answer. Especially, as you grow… to more than 10 people, 20 people, or 100 people. These people issues… get more complicated as you grow your company. And, it’s vital that you treat your most valuable resource like it is your most valuable resource.


Finance

I can't tell you how many times I've started coaching someone and in the discovery session they say something like “Well you know Jeff… it's not about the money. I'm passionate about blah blah blah blah blah.” Honestly, I have to bite my toungue. It's as if you're just walking down the street. You meet someone and start up a conversation… and they say, “You know, it's not about the oxygen.” First of all, that's never happened to me. But it happens a lot when I'm talking about business. I get it! You don't want to just focus on money. But I'm going to tell you something that you may not realize…If you're not watching the numbers and paying attention to the numbers in your business, you won't have a business anymore. It's no different than if I'm living on this earth and I have no oxygen. My life is over… and it's the same for businesses. If you run out of money that's the end of the game.

A strong financial cog in business mechanics starts with accounting and bookkeeping systems. You must track what you do… how much revenue is coming… how much you're paying out… what your direct costs are… what your expenses are… what your gross margins are… the profitability.


You must make sure that you have cash flow which means that you have enough cash and credit to pay for operating the business before you get customers to pay for that operation.


You must understand how to set your prices so that they're not too low and not too high. That's really challenging. You must have a system to complete regular budgeting and forecasting. Budgeting is looking at how much money you can spend in different areas of your business. Forecasting is forecasting incoming revenue in the near future to yield a profit.


You must have controls in your business. Especially, as you grow. The bigger you grow, the more chance there is for embezzlement from people who are watching your money. Control systems prevent that.


You must also be aware of investment and debt. Both of these instruments can help you grow your business. They give you cash and there are strings attached to both of them. You must understand what those strings are. Financial planning is important and unfortunately many business owners don't do it…. and they fail.


Growth

Growing a company is vital to the health of any business. Unfortunately, many business owners have this mindset, “I'm going to grow up to 5 employees and I'm just going to stop. I'm going to grow up to 20 employees. I'm going to grow up to 100 employees. That's just where I'm going to stay.”

Here's the reality… your company will either be growing, or it will be shrinking. You must ensure that you have a growth strategy. The typical strategies are creating systems to grow your organization structure in a way that does not increase your price.

Here’s an example. Let's say that you're a structural engineer and you're doing the structural engineering. This architect is hiring you and you're getting some business. You're doing okay and you're charging… let's just say $150 an hour. That's your billable time. In the rest of the time, you're doing invoicing and setting up your books or your logo or some something else. All of a sudden, the workload increases and you need to hire another structural engineer. You have some choices. You can partner with another structural engineer, and they charge the same as you. Or you can employ another structural engineer. Maybe you could employ another four engineers. At some point you must manage these people. Right? You can't charge your architect customer any more money for structural engineering. So, you must make sure that as you scale up, you keep your prices the same.


That's an example of a very small micro practice. I guarantee you that many professionals have difficulty bringing on new people because they don’t know how to set up their pricing. It's important that you have a growth strategy and that your business is scalable. That means that you can grow without adversely affecting the price.


Legacy

The next cog in this business mechanics machine is Legacy. Legacy means a lot of things. As I’ve defined legacy, it's how you're going to make the world a better place because you're in it with… your business or… products or… services or… your.

Legacy is also your exit plan. How are you going to leave the company? Are you going to have enough wealth to retire when you sell your company? Are you going to leave the company to your employees? Are you going to leave the company to your family? If you're going to leave it to your family, do they even want it? There are a lot of things that people just don't want to think about as they're starting a company. In fact, with lot of new business owners… One of the first questions I'll ask is, “What's your exit plan?” They will look at me really angry and they'll say, “I’m so excited about starting this company and you're already asking me about how I'm going to leave it? I don't even know if it’s going to be successful and you want me to tell you what my exit plan is?”


The reason that I ask the question is because I need to know where you're going with your business. You're going to grow this business… it's going to be successful. Right? You'll have all this money. Then what?


If you don't have that end in mind, when things get tough you're not going to keep going. You'll just quit. I need to understand what your business really means to you. Is it important? Can it create the wealth that you need for your retirement? … or travel? Or… whatever it is that you want to do?


The other item that many entrepreneurs don't understand is disability and death. If you get disabled or if you die, what's going to happen with your business? What's going to happen with the employees? What's going to happen with your family? What’s going to happen with your customers?


Will you create a sellable business? What’s that going to take to grow your business?... What kinds of systems do you need to have in place? If you're going to sell your business, your role in that business must be minimized by the time that you sell it. Otherwise, you must be included in the sale which means that you will be in a forever job. If you’re in a forever job, you're not creating a business.


Legacy is important. But it's the thing that a lot of people overlook.


You

The 8th component of business mechanics is the most important component… it’s YOU. Many get so wrapped up in their business, they forget about themselves. You must make sure that you're covering yourself.

There are seven different spokes of what I call the life wheel: 1) personal growth; 2) spiritual awareness; 3)fun and enjoyment; 4)relationships both intimate and friendships; 5)health and aging; 6) personal wealth; and 7) family and parenting. Your business must be serving you in each facet of your personal life, or it’s simply not worth it. Yes, you will get out of balance for periods of your professional life. However, it’s important to take an objective view of your life to make sure you are working to live and not living to work.


I hope that you've gone through this checklist and you've checked a lot of these off with your business. If you haven't, maybe you should investigate some of those areas and do a little bit better. This is the checklist that I use for my business mechanics and mindset assessments in the mechanics component.


If you want to look at how I combine mindset with mechanics, I have published a book entitled Business Mechanics & Mindset: How Your Thoughts Create or Sabotage Your Business Success ( https://www.amazon.com/Business-Mechanics-Mindset-Thoughts-Sabotage/dp/1794119450/ ). These business mechanical components are described in more detail and you will learn how to energize each one of these components in your business.


If you want to how I coach my business owner clients and their employees, please visit my website at www.mmbizcoach.com.