In this week's article I am going to stray from my usual style to have some fun. OK, this is totally geeky / nerdy fun but I've found the concept so powerful and insightful it seems to be a lot of fun for everyone that's done the exercise with me. Here's the story:
About three or four months ago I started out with a very simple diagram to help myself understand how marketing and sales play a role in building a successful business. I'm no stranger to marketing and sales, but venturing into the online part of my business forced me to understand how this stuff works in the online world.
The first diagrams proved to be useful and they evolved into something called the Business Accelerator Framework, a totally accurate but incredibly boring name. A suggestion from my weekly mastermind group turned that into what you now know as the Tornado Method. As I started formally teaching the method feedback from workshop and online participants have added a lot of additional concepts and refined the overall method.
One of the most powerful concepts is that of your Revenue Profile.
Your revenue profile
Your revenue profile is simply a graph of your business' revenue over time. In the first few workshops that I did on teaching business owners how to deal with overwhelm, the thing that really jumped out at me was that there are a number of archetype profiles - and each archetype has a number of common causes for looking the way it does.
In this article I'm going to describe the 8 archetype revenue profiles (plus the ideal revenue profile we aspire to), together with the common causes for each.
Understanding your revenue profile is tremendously useful - not only does it make it very clear where you are in building and growing your business - it also gives you a very good idea of where you need to improve.
Your profile may be a hybrid
Not all businesses fit one revenue profile perfectly. Your profile may be a hybrid of two or more, most often one profile for a period followed by another profile over another period of time. Still, understanding where you are now is going to help you zero in on what's not working.
Useful for startups too
I've found that understanding these revenue profiles are useful for startups too. Even if you're pre-revenue or just started booking your first sales, understanding the revenue profiles gives you advance warning of where you may be headed.
So without further ado, let's take a look at the profiles.
Profile 1: The Startup
This is the classic revenue profile promised by startups to investors. Although less common today than it was in the dot-com era, the basic principle is the same: we're going to be under water for a while but then revenue is going to take off exponentially and we're going to take out Google and Facebook and rule the world.
When you see a profile like this there's not a lot you can do but shrug and wait to see what happens - but if you're the startup presenting this to potential investors you're probably in trouble. Very few businesses actually follow this profile so you may want to think about the underlying assumptions that led you to think this is feasible.
- unbridled enthusiasm and a disconnect from reality
Profile 2: The Roller Coaster
The Roller Coaster also goes by the poetic names of Feast and Famine or Starving Artist. It is most commonly seen with solopreneurs or small businesses where the principal is expert in his or her field but very little else.
In this profile, revenue is great when there is a client, but quickly drops off when the client engagement comes to an end. A mad flurry of marketing and sales activity ensues, you land another client and revenue swings up again - only to repeat.
If the business owner is not able to create a marketing engine that creates a steady steam of leads this profile will continue indefinitely - or until the business owner gives up.
- insufficient marketing and lead nurturing to build a steady stream of leads;
- insufficient knowledge of marketing, lead nurturing and sales; and
- no time allocated to marketing and lead nurturing when there is revenue.
Profile 3: The Cliffhanger
This profile is common amongst professionals new to running their own business. They set out on their own, land a big client and enjoy the riches while it lasts. The contract seems to go on for ever, but one day it ends - and with no marketing or lead nurturing revenue drops to zero.
This profile has two outcomes:
- The business owner gives up in disgust and goes to find a job; or
- a mad scramble to land the next client ensues leading to a Roller Coaster profile.
- no appreciation that all client engagements come to an end some day;
- no time or effort spent on creating the marketing, lead nurturing and sales engines that will inevitably be required to build a sustainable business.
Profile 4: Maxed Out
This is the profile of a successful business that has hit a ceiling and can't seem to break through it. The business is profitable and sustainable, but longer-term growth seems difficult to achieve.
I've seen this profile with quite a few of my clients, and the underlying causes are not always easy to solve. One common cause is that the owner is stuck working in the business and believes that he or she is so critical to the success of the business they can't delegate work to their team. Another common cause is geographical constraints - growth opportunity in their local market has reached its peak and expanding requires going to new markets - which is expensive and risky.
This is one of my most favourite problems to solve for clients - provided of course that the client is aware that breaking through the ceiling will require a substantial shift in their mindset and are willing to undertake the journey.
- owner stuck working in the business;
- growth is prohibitively expensive or risky; and
- fear of the unknown - growing further is going to change everything.
Profile 5: The Grind
This is the profile of a business that slowly, agonisingly built up a revenue stream, became profitable and through sheer dedication and hard work is keeping it afloat. However, the amount of effort required to run the business is so high that it weighs on the business owner and they rarely have a life any more.
This is a difficult profile to sustain. It is testament to the hard work and determination the owner is putting into the business, but wears them down. Businesses in the retail sector where low margins are common often suffer this profile.
Surprisingly, this is one of the revenue profiles that can be fixed relatively easily - though it does require some courageous actions on the part of the owner. The appropriate fix is usually indicated by the underlying cause:
- pricing (specifically margins) are too low to afford the owners anything outside of working hard in the business;
- competing in a crowded marketplace forces the business to compete on price (resulting in low margins).
Profile 6: The Icarus
Icarus is a figure from Greek mythology. He and his father tried to escape from the island of Crete using wings made by the father - but before trying to fly off Icarus' father warned him of complacency (flying too low and close to the sea which would cause the wings to become damp and heavy) and hubris (flying too high). As legend has it, Icarus flew too close to the sun, his wings melted and he fell into the sea where he drowned.
This profile was a lot more common in the dot-com / dot-bomb era when VC's threw money at promising ventures. Somewhere along the line the venture ran out of money, or spent all the money on developing their products and services, landed their first clients and then ran out of money to sustain their business.
We still see this profile but it is a lot more rare than it was.
- unsustainable business model;
- insufficient cashflow management.
Profile 7: The Disrupted
This profile is becoming more common. It shows a profitable, sustainable business that suddenly experiences a drop in sales because someone invented a complete new way of solving the problem. When the business owner realises that this is happening they can often get an uptick in revenue by re-invigorating their marketing, but quite often the disruption is too big and the business eventually becomes irrelevant.
Getting out of this mess can be difficult - the business owners have to compete in a new paradigm against new technologies and shifting marketplace demands. Innovating your way out of trouble is one way to get back on track - and if done correctly the incumbents can leverage their existing customer base to compete with the upstarts.
- complacency - a refusal to accept that the world is changing;
- arrogance - an attitude of "we're too big to fail" or "what do those new kids know about this business anyway".
Profile 8: The Sunset Cruise
This profile is becoming more common as baby boomers hang on to their businesses and don't adapt to changes in the marketplace, technologies and trends. They operate a profitable business but have been doing so for 20 or 30 years and change is difficult - so they slowly but surely see their market erode and new entrants taking over market share.
This is a tough one. Very often the owners of the business are so entrenched in their business that it defines them - making radical change is often anathema and handing over the business to someone with new ideas is almost impossible.
Unfortunately, every business will eventually fail if it does not continuously innovate and adapt to changing times. So the owners sit out the cruise, eventually retiring and leaving behind a business that is barely viable.
- long-time business owners who fail to realise that they need to continue to innovate to keep up with changing market demands.
Profile 9: The stairway to heaven
The last profile in our collection is The Stairway to Heaven. This is an idealised profile of a business that grows, stabilises, makes another growth spurt and stabilises again before building up again.
Needless to say there aren't many businesses that fit this profile, but it is the profile that each of us should be chasing. Uncontrolled growth is extremely difficult to manage, so the ideal curve gives the business some time to stabilise and iron out the kinks inherent in any growth curve. (This is a macro version of the kaizen technique made popular by companies like Toyota.)
What's your revenue profile?
So there you have it - the 8 archetype revenue profiles and an idealised model for a perfect world. You should be able to draw your own profile in a minute - and chances are that you're pretty close to one of the archetypes or a hybrid of two.
How does this help?
Understanding your revenue profile is the first step in determining where you're going to have to pay attention. Fail to do that and business failure is almost inevitable.
The Revenue Profile is the first exercise I do in my workshops and working with my clients - whether that is focused on dealing with overwhelm, getting out of billing by the hour or helping my clients break through a revenue ceiling. It defines the problem we're trying to solve and allows us to do an initial ROI calculation - because you should never be doing anything in your business that does not have a clear ROI.
The Beginner's Guide to the Tornado Method shows how to use the Tornado Method - including the Revenue Profile - to get an idea of where your business needs attention, determine where you need to focus now and plan your time so that you can get it done.
If you haven't downloaded The Beginner's Guide to the Tornado Method yet, you should do so right now from the Britewrx web site.