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Dec 21, 2014

How to Determine Your Market Profitability

When it comes to market profitability, not all industries are created equal. According to Bloomberg’s Industry Leaderboard, while Apple commands the largest percentage of the computer hardware market, that market ranked No. 51 (of 60) in terms of profitability. The most profitable markets include banking, tobacco, biotech, internet media and rail freight transportation.

When determining your business’ performance, assessing your market’s profitability helps you determine whether or not your company can attain success selling a given product or service to your target audience.
Determining Market Profitability

While finding a niche market for your business may seem simple, determining the potential profitability of that market is more complex. Market profitability refers to the financial factors that affect a company’s ability to make money after subtracting overhead costs like employee salaries, rent and equipment. Whether you’re starting a new business or just introducing a different product in your market, it’s important that you determine whether the market can support you and your goals.

Along with determining the interest level in your product, you need to assess the competition among similar industries in the area. One of the most useful frameworks for determining market profitability is known as “Porter’s Five Forces.” Developed by economist Michael Porter, the framework assesses the following elements that affect a market’s profit potential:

Buyer power refers to the ability of customers, or buyers, to influence companies in a given market. When there are many sellers and few buyers, the buyers have more power over the price of goods and services. On the other hand, when there are few sellers and many potential buyers, the business can usually determine the prices for its products.

Supplier power is similar to buyer power, but the company is now the buyer, not the seller. A supplier is any entity that supplies a company with what it needs to produce its goods, such as raw materials, labor or machinery. In cases where the cost of changing suppliers is high, suppliers can charge more for their raw materials and therefore have more influence on a company.

Barriers to entry affect the ease with which businesses can enter a given market and may include factors like falling prices, government restrictions or limited distribution capacity. The lower the barrier, the easier it is to enter that market, which drives up competition and brings down prices. Before determining their potential market profitability, businesses must consider how any barrier to entry will affect how theymarket a product to their niche audience.

Threat of substitute products refers to products that can be substituted for both yours and your competitors’ products, therefore affecting demand for the goods in your market. For example, a substitute for television is internet video. A substitute for Coke or Pepsi is water. The easier it is for a customer to switch to an alternative, the greater the threat to your entire market.

Rivalry among competitors is affected by several factors, including the number of businesses in a given market, the cost of exiting the industry and the degree of similarity between competing products. In a competitive market, profits are often low because customers have the option of buying from the less-expensive brands. An important note to keep in mind is that rivalry refers only to prices. If firms within the same market are not competing on price, there is actually not a lot of rivalry, even though there may be a lot of competition.

If your analysis of the Five Forces turns out to look bad in terms of market profitability, you may want to consider altering either your business model or your place of operation to achieve a better outcome.

Why Market Profitability Is Important

Finding your market profitability is an effective way of analyzing your business’ financial health. By understanding how forces influence parts of a given market, you can begin to make important decisions about starting a new business or ensuring your existing venture remains competitive in your chosen area.

Once you’ve determined how much business you need to stay profitable, you can assess if and how you will be able to gain that volume of clients. If profitability is impossible within your current business model, you may want to consider expanding your business to include new product offerings. Businesses should research what their competitors are doing and, if necessary, adjust their own strategy accordingly. You can also tailor your offerings to accommodate your most profitable clients and take steps to alleviate decreasing profit margins. For example, you could decrease operational costs by changing suppliers or improve your sales approach to reach new customers.

When assessing your potential market profitability, choosing the right factors to examine is crucial. By performing a thorough market analysis that encompasses suppliers, buyers, rivals and other relevant factors, you can preserve the success of your business venture in the coming years.

Dec 21, 2014

How to Determine and Use Your Market Growth Rate

A business performs a market analysis to identify its customers along with their various needs and wants. A crucial aspect of a market analysis is finding the market growth rate, which refers to the rise in sales among your customer base over a given period of time. While healthy companies note a growth in sales that is greater than or equal to the growth of the market, floundering companies record sales growth at a rate below the market. By understanding your market’s growth rate and how it relates to your sales growth rate, you can evaluate the success of a given product or service and make important decisions about marketing your business moving forward.

Determining Market Growth Rate

Companies can use the following formula to evaluate their market growth rates:

First, determine what your market size is by researching and calculating how much revenue the market made in monetary terms (e.g. dollars). This includes total sales of the entire market, you and all competitors combined. The resultant sum is your current market size. Next, find an earlier figure to serve as your original market size. Remember to take note of the time interval between your original and current market sizes (e.g. 6 months, 5 years, 2 quarters, etc.), as this will be used later.

For example, your current market size is $3 billion, and a prior figure from last year is at $2 billion. Subtract your earlier figure ($2 billion) from your current figure ($3 billion) to find a difference of $1 billion; this is your change in market. Divide your change in market size by your original market size, and multiply the quotient by 100. This will give you your market growth rate. In our example, the market that was $2 billion one year ago and was $3 billion this year had a growth rate of 50% over the past year.

Finding your sales growth rate is similar. You use the same equation for determining your market growth rate and just swap out “market sizes” for “sales revenue.” And remember to maintain the same time interval you used in the previous equation.

To continue our example: Your company generated $50 million this year and $30 million last year. The change in revenue is $20 million. Divide $20 million by $30 million, and multiply the quotient by 100, and we have a sales growth rate of 66% over the past year.

By comparing the market’s growth rate with a product’s sales growth rate, businesses can evaluate the success or failure of a given product or service. If your sales are growing by 10%, but the market is growing by 20%, you are lagging behind your competition. In our example, your company’s sales rate (66%) is growing faster than the market (50%), which is good news.

While the math for finding your market growth rate seems simple, the process of collecting the necessary data to evaluate it and your competition is far more complex. Tools like Sizeup let businesses analyze how they are doing in comparison to similar companies in their areas.

Additionally, business owners should do their research to predict future developments in their market areas. By assessing growth drivers and evaluating the performance of similar products or services in the marketplace, you can forecast your growth for the coming months and years. Companies can also review economic industry data to evaluate emerging trends and market forces.

It’s important to note that market and company growth rates vary by industry. For example, a good growth rate for a company that sells clothing might be considered low or even failing compared to a company in the technology industry. By analyzing the market and your competitors, you can better determine what growth rate is healthy for your business.

Why Market Growth Rate Is Important

Assessing market growth rate is essential to directing your business and marketing efforts moving forward. Companies experiencing low sales growth relative to their competitors should investigate the potential causes of their performance issues, such as high prices or insufficient advertising efforts, and take steps to correct them moving forward. Additionally, market growth can indicate how sustainable your business is in the long term. While a high growth rate indicates low saturation and high demand, a negative rate could suggest that consumers are losing interest in your product or service.

Market growth rates are also important to financial institutions, which may use this information to decide whether or not to invest in your company.Investors will assess trailing growth rates to determine how successful the company has been in recent years. Using this information, they can predict forward-looking rates for the months and years to come. If forward-looking rates for a business and its market are positive, investors are more likely to acquire and retain shares in the company.

Clearly, market growth rate is an essential factor when evaluating the viability of a new or existing business venture. By assessing your current rate of growth and comparing it to your industry or your competitors, you can make informed decisions regarding business planning and marketing strategy moving forward.

Dec 21, 2014

Strategies for Business Ideation and Brainstorming

Ideation, the process of coming up with business ideas and concepts, is critical to the success of your business; however, brainstorming is a bit of an art form. In a perfect world, a group of highly motivated people can sit down and bounce ideas off each other until one brilliant plan is revealed. In the real world, brainstorming sessions often backslide into disagreements and doubt. Or worse, no one offers any ideas, and the group fails to make any decisions.

Running a Brainstorming Session

It takes some preparation to pull off an effective brainstorming session where collaboration and teamwork result in fantastic ideas.Follow these tips:

1. Have an end goal in mind.

You must have a specific reason for meeting and be able to clarify that to anyone who participates in the session. If you want to brainstorm a business idea or a new direction for the company, this may be a much loftier task that requires multiple meetings. If you’re looking to improve your business in some way, be specific on how you want to do that. For example, brainstorming how to “increase sales” is too broad and vague. Brainstorming how to “increase sales in December without adjusting our marketing budget” is much more specific and increases the chances that you’ll receive workable ideas.

2. Prepare to brainstorm.

Some people can fly by the seat of their pants when it comes to generating ideas. Some of the best ideas will come organically, in unexpected bursts or sudden moments of clarity. Others will need time and brainpower to develop. Schedule the meeting and route the agenda at least one week prior to the session. Tell people exactly what you will be discussing, and ask them to come prepared to share ideas and research they’ve conducted.

3. Establish rules.

By design, brainstorming sessions are meant to be free-flowing without a lot of structure. However, ground rules can help keep you from losing focus. Some rules to live by:

  • People must speak one at a time. No talking over one another, and no side conversations.

  • Offer everyone an opportunity to share feedback. One or two people can’t dominate the discussion.

  • Encourage unusual ideas. Even the outrageous ones, when tweaked, can lead to great ideas.

  • Accept all questions. There are no dumb ones.

4. Come up with a vetting strategy.

A great way to make sure an idea is fruitful is to come up with a vetting process. Allow people to ask questions that analyze the feasibility and value of the idea. For example:

  • What problem does this solve?

  • Are there examples of others successfully executing this?

  • Can we compete with those who already do this?

  • Can this be executed in the designated amount of time?

  • Can this be executed within the designated budget?

  • What resources do we need for this idea?

  • Is this idea risky? If so, is the reward worth the risk?

5. Include varying perspectives.

It’s no doubt that your team can brainstorm and have great success. However, if your brainstorming sessions are lackluster, you may need to shake things up a bit. For example, invite someone from customer service to your marketing meeting. When coming up with new products or business ideas, inviting a customer, vendor or partner can offer great insight. Even friends or family members can offer ideas, concerns or feedback from the perspective of a regular consumer that your group may have never considered.

6. Stay focused.

When ideas are flying, people can quickly go off on a tangent. If the conversation veers off-track, bring the group back to the reason for your meeting. Say: “I’m impressed by all of these ideas, but today, let’s focus on the task at hand. How do we increase sales this month on the budget we have already set?”

Media for Ideation

If you feel you have the process down, but you’re not sure how to get the ideas flowing, here are three popular brainstorming techniques:

Mind mapping.

A mind map offers you a way to get all of your ideas out of your head and onto paper. All you need is a large sheet of paper or a whiteboard and various colored pens or markers. In the center of the paper/whiteboard, draw a picture that represents the topic of your meeting. Then draw lines radiating out from the center image to words, phrases or images that represent your key concepts. From those words or images, draw lines out to subtopics. You’ll gain a visual snapshot of everything the team is thinking. From there, you can begin to shape and mold the ideas. Mindmapping.com offers tons of information on the technique, or check out this free online mind-mapping tool MindMeister.

Free writing.

One of the simplest brainstorming tools, free writing allows you and other participants to dump all of your ideas onto paper before you begin discussions. Set a timer for 10 to 20 minutes and hand participants a piece of paper. Instruct them to write down everything they can think of regarding the topic. Tell everyone to write for the full length of time without stopping to review or edit what they have written. When time is up, go around the room and ask everyone to share an idea. Continue doing so until you have something you can work with.


Examine the topic from six different angles by asking: “What is it like?” (Description); “What is it similar to or different from?” (Comparison); “What does it make you think of?” (Association); “How is it made or what is it composed of?” (Analysis); and “How is it used or what can you do with it?” (Application). Spend just 3 to 5 minutes on each side of the cube, then analyze the data for emerging patterns or unique elements and develop your idea based on those.

Dec 21, 2014

5 Reasons Why You Should Start With Your Exit in Mind

During the critical early years of starting and growing your business, your top priorities will always be sales and marketing. However, there is an additional small but critical decision that business owners forget to make a priority as well: How you will one day tell your exit story. Will it be with pride and prosperity? Or with disappointment and unnecessary regret?

I know that you’re focused on selling and are probably not worrying about being sellable, but I promise that if you take the time to craft your exit vision with the same amount of care that you used to craft your growth vision, you will have a clearer, more exciting and faster path to success.

When you have an idea of your eventual exit story, it will subtly help you build a business that you love now because it will be strategic, focused and will run like a well-oiled machine. And as a bonus, if you start and grow a profitable business that you love, then the chances are high that somebody else will love it just as much and will some day pay you handsomely for it as well.

There are many ways to exit your business, such as a merger with a competitor, employee buyout, a partnership dispute or one of the disheartening D’s: divorce, dissolution or death. But for our purposes, we will focus on selling to an outside buyer.

Over the last 10 years, it has been my pleasure to help countless small business owners cash-out big, happy and free after building and selling a profitable business they loved. As such, I know the many reasons why you too should start with your exit in mind. Let’s have a look at those reasons.

1. You Will Determine Your Most Profitable Business Model

Starting and growing a small business is challenging, to say the least, but when you have an exit plan in place, it can help you make better overall business decisions, especially regarding your economic model.

When you are growing a sellable business, you’ll do your research to determine the most profitable business model for your offerings because you’ll understand that profits drive business value. And when your business is profitable, it can put more money in your pocket sooner rather than later.

So the primary benefit of having an early vision of your exit isn’t just about building something to sell down the road; it’s about building a better business for you to enjoy and benefit from in both the short term and the long term.

2. You Will Understand the Value of a Rinse-and-Repeat Revenue Stream

Rinse-and-repeat revenue is a fun way of describing a re-occurring revenue stream within your business. Examples of re-occurring revenue streams are monthly service agreements, subscription-based services that automatically renew, products that are auto-shipped, and memberships that are ongoing until cancelled by the customer (which is the best kind of re-occurring revenue stream there is!).

As you can see, the ultimate advantage of re-occurring revenue is predictable income.

Every growing business struggles with cash flow, so wouldn’t it be great to know exactly how much revenue you can expect each month? If you don’t have these types of agreements in place, brainstorm with your team (even if you’re a team of one) about new re-occurring revenue streams. This can help you make proactive hiring, marketing and other growth-oriented decisions because you know exactly how much revenue you have coming in each month.

3. You Will Make the Extra Effort to Document Your Processes

The success of franchises like McDonald’s is based on a documented, step-by-step process that any high-school kid can follow to ensure their signature burgers and fries are cooked the same every time. To ensure your long-term success, you should strive for that same kind of consistency.

If documenting your processes seems unnecessary and too time-consuming at the early stages of your business, try using one of my favorite and simplest business tools: the checklist.

Keep a yellow pad, paper or even your favorite mobile device next to your desk, and start a running list of the tasks that you do throughout the day. If you have staff, they should do this as well. As you create your checklists, you will begin to see a pattern of repeated steps that can be organized into a “proprietary process” to be leveraged as both a marketing differentiator and a training program for new hires.

A business that runs smoothly with documented processes gives a buyer confidence that the company will continue to be successful after a sale. More importantly, a smoothly run operation gives you, the business owner, more freedom, less stress and more time to focus on the activities that fuel your entrepreneurial passion!

4. You Will Know How to Value Your Own Business as a Measurement of Success and in the Event of an Unsolicited Offer

When your intention is to grow a business that is sellable, one of your key measurements of success will be its current potential market value. Knowing the value of your business at any given time (annually at a minimum) is like your business’ private report card that shows when and where it’s “exceeding expectations” and where it “works really hard but needs improvement.”

To value your business for your own internal purposes, use this “Back of the Envelope” Valuation (BOEV) formula:

Net Profit + Owner Benefit (i.e. your salary, payroll tax, retirement contributions, personal car leases and other owner perks) + Depreciation + Amortization x 3 = Back of the Envelope Valuation

Depreciation and amortization can be found on your tax returns. When you add these line items together and multiply them by three (also referred to as a “3x multiple”), you will have a general idea about the potential market price of your business. Of course, certified valuations and appraisals are serious business, but for your internal use, the BOEV will empower you to keep pushing ahead, to consider cashing out or possibly a thoughtful combination of both.

5. You Will Naturally Think Bigger, Grow Bigger and Have More Fun in the Process

Last but never least is your mindset. When you dream about your ideal exit from the start, you will be inspired to think bigger, because a bigger, more profitable business puts more money in your pocket, creates an exciting environment to work in and ultimately allows you to build something greater than yourself that someone else values as much as you do. And as a small business owner, it doesn’t get much better than that.

Hopefully you can now see why starting and growing your business with an exit vision from the beginning isn’t just for tech companies and IPO-bound entrepreneurs. You will benefit greatly from an exit that is planned, beautifully executed and comes with a pot of gold at the end of your entrepreneurial rainbow. If you remain resistant to your exit vision, you could find yourself at the other extreme with only one option: quietly and painfully shutting down your business for good.

In closing, always remember that your exit journey began the day you started your business, so understand it, embrace it and journey towards the biggest, most profitable and sellable business you can imagine!

Dec 21, 2014

Cell Phone Shopping Guide

When shopping for a cell phone, making the right choice can be an uphill task. This is because there are so many different models and designs to choose from with new ones coming out every quarter.

Dec 21, 2014

Magazine for Kindle

One feature of the previous Kindle which I didn’t specifically care for is the inability to view magazines and catalogs in the same style found in the print version. Part of the appeal of printed newspapers is definitely the craftsmanship of the magazine design layout. The Kindle Fire addresses this matter featuring its “Page View” option, which offers many magazines in full-color layouts just as the printed editions. Actually, the Amazon kindle fire offers even more than what printed version contains by integrating video, audio, as well as other interactive media.

Dec 21, 2014

Consider Shopping Online vs. In Store for Fine Jewelry

Shopping for fine jewelry is a big deal – it’s quite an investment, and it’s also very personal. While many people go straight to their local mall to shop for these gems, there is a superior alternative: heading online.

Here are several reasons why you may want to consider shopping via Web for all things sparkly.

Dec 21, 2014

Shopping Online with Style and Comfort

Shopping online has become commonplace today. This has mostly to do with the ease and convenience that online shopping offers. You can compare prices, get safety information, research the product and have it delivered right to your door step at the click of a mouse.