Profit is extraordinarily important. It’s a word often thought of negatively, like greed, frugal and heartless.
The truth is that profits are reserves which can protect businesses from job-risking downturns. Profits are resources which can be reinvested for the creation of more jobs and the provision of amazing new goods and services. And if the business owner pays him or herself a dividend, great. That money is then spent or invested, which recirculates through the economy to support a wider circle of jobs and businesses.
Some people have a slightly askew idea that entrepreneurs ‘hoard’ profits under their bed or in a safe. I don’t know small business owners who do that. I do know some - some - public corporations which do that temporarily until their shareholders demand the lazy capital back.
So let’s not marginalise ‘profit’. It’s central to producing all the goods and services we need and inventing new offerings we haven’t even envisaged yet.
Now, beyond profit, what makes a business a success?
Without a healthy bank balance, your business will fail. Cash is the fuel in the tank.
Low Concentration Risk Revenue
You need paying customers, of course. What is better though? One paying client of $100,000 or one-hundred paying clients of $1,000? In my view, the latter is better. If one client pulls out, you still have 99 paying customers. With the first scenario, if your solitary client fires you, you’ve lost 100% of your revenue. A successful business has a low concentration risk.
Your business should own technology that cannot be copied or would take potential competitors at least 7 years to replicate.
The technology should ideally create something completely new. If this cannot be achieved, it should improve a current solution or offer superior integrated design. Regardless of which three paths are taken, the technology should produce a 10X advance.
Use of the technology should accelerate by word of mouth. A customer's adoption of the technology should encourage reciprocal uptake by family, friends, colleagues and other business contacts. Referrals should fuel growth rather than heavy reliance on paid advertising.
Economies of Scale
Fixed costs should be shared more broadly over ever-increasing sales.
Niche Market Dominance
Your business should have offered the technology to an authentically-defined niche which it is dominating. It should not be diluted across multiple segments. Dominate a niche, not the world.
Your operation should articulate a credible exit plan, including a list of potential acquirers, their recent acquisitions, the valuations of those transactions, and the timing of a planned exit. Selling your business, after all, is the biggest payday of your life.
In summary, a successful business is profitable, cashed-up, has a low concentration risk, proprietary technology which advances the status quo by a multiple of at least 10 times, promotes by word of mouth rather than advertising, achieves economies of scale, dominates a sharply-defined niche and has a clear exit plan.
Prime among these qualities or attributes is profit!
I trust this helps bring you the success and fortune you deserve.