by Gene Muchanski, Executive Director
Dive Industry Association, Inc.
Making it through your first year is a monumental achievement. Business experts say that 50% of all new businesses fail in the first year. Just by staying in business for 365 days means that you are in the upper half of all start-ups. Congratulations may be in order, but this is not the time to rest and relax. I will spare you tales about the percentage of start-ups that go out of business in their first five years. Instead, we will discuss a number of things you can do to beat the odds even further.
By this time, you may have figured out that delegation of tasks in running a business is important. As Michel Gerber said in his landmark book, The E Myth, someone has to work in the business, and someone has to work on the business. That could not be more true than in the recreational diving industry during your growth years. Your first year was all about creating systems that made your business operation work smoothly and efficiently. It was about finding out the things that worked and the things that did not. Hopefully, you kept track of the tools you used and the systems you created that produced your outcomes. In your second year, we are going to improve our results (outcomes) by doing more of the good things and less of the bad things than we did in the first year. I believe that long-term success is achieved by constantly improving your results in measurable increments. Of course, to do that, you would have had to record your inputs in your first year and analyze the outcomes they achieved. The most valuable asset that you are bringing into your second year is the history you created in the first. How many students did you certify? What percentage of them packaged out and became active divers? What were your annual sales? What was your average inventory, and what was your inventory turn rate? If you own a dive resort, what was your occupancy rate? Who were your best travel wholesalers or dive travel specialists who did business with you? If you are in equipment manufacturing, how many dealers do you have? What are your average sales per dealer? How well did your Sales Reps perform, and who were your top performers?
Knowing what you did last year will become the basis for improving your results in the second year and beyond. Improving your outcomes does not necessarily mean growth in numbers or dollars. More customers, more sales and more activity are not always a good thing. In fact, uncontrolled growth can put you out of business quickly. That’s because growth costs money. If it costs you more to grow than you receive in additional revenue, then the growth is not worth it. Your growth efficiency ratio will show you how efficient your change in profits are compared to your change in revenues. Think of your growth strategy in terms of costing you more time, money and manpower. What you should be working on is making your business better and more efficient, not necessarily bigger. Growth will be more welcome when you are better prepared to handle it.
Growing your business is necessary if you want to stay in business doing the things you enjoy doing. Positive growth allows you to increase the programs, products, and services you sell to your customers. Economic growth helps you take advantage of economies of scale that make you more efficient and profitable, but only if you understand the incremental cost of growth. The secret to successful growth is to plan for it and control its incremental implementation. I say incremental implementation because there are costs and consequences every time you increase your activity, sales, or customer base.
When we think of growth, the first thing that may come to mind is more sales. More sales come from either having more customers, selling more products, or selling more products to each customer.
More Customers: On average, businesses lose up to 25% of their current customers through attrition. For that reason alone, dive businesses should always be prospecting for new customers. It’s called keeping the customer pipeline full. When you prospect for new customers, you might want to match the demographics of your current customer base. Make it a practice to ask your current customers for referrals and offer them an incentive for referring their family, friends and neighbours. Prospecting for new customers outside of referrals is the most expensive way to acquire new customers. Prospects unfamiliar with your business don’t know who you are and have no idea why they should do business with you. Current customers, on the other hand, know who you are and have already done business with you, and hopefully, you have their current contact information on file. Former customers are people who have not done business with you in the past 12 months. It is inexpensive to recapture their business with just a little effort. Maintaining a current customer database that you use often is one of the most important things you should do for your business. Knowing how much each customer purchases from you will give you an average purchase per customer figure. Now you can estimate how many active customers you need to meet your annual sales goals.
Selling More Products: This is a big decision to make. Based on your experience, you should know how many lines you need to carry to service your customers properly. We know that you can’t carry all the lines from all the equipment, training, travel, and lifestyle vendors, so some hard decisions must be made. The Dive Industry Association publishes an International Trade Directory & Buyers Guide to keep Qualified Retail Buyers up to speed on the numerous vendor choices they have available to them. Their purchase decisions will depend on the products they are familiar with and whether their vendors keep their contact information current and easy to find. Also, some vendors have territory and dealer restrictions. After an equipment buyer makes his vendor choices, the thing to consider next is the width and depth of their inventory with each vendor. Selling too many product lines from too many vendors is expensive, confusing for your staff and customers, and totally unnecessary.
More Profitable Customers: I like to think of customers as good, better, and best. A good customer buys products from you. Better customers take scuba lessons from you, buy their equipment from you, participate in your local dives and go with you on your adventure dive travels. The best customers do the same, and they do it over their recreational lifetime. We call them lifetime customers. When dealing with your customers as part of your growth plans, it’s a good idea to have a customer strategy in place. I can’t recommend which customer strategy is best for you, but I can share a number of different strategies that have been used in our industry. In the Retail business, some Instructors try to teach as many people as they can. They never develop a strategy as to what is required from their students as far as the requirement to purchase equipment, requirements for rental equipment, and place of open water certification. Some stores require their students to purchase mask, fins, and snorkel. The remainder of the pool and ocean equipment can be rented. I met a store owner who required his students to purchase an entire scuba outfit from him in order to take lessons. When they “packaged out” he would include the lessons at no charge. He said he would rather teach one person to dive who bought all their own gear from him than teach a class of 10 students who bought just a mask, fins and snorkel. The policy you set is your decision to make, but you should have a growth strategy behind your policy decision.
Whenever we increase the number of customers we are serving or sell more products from more vendors, it puts a strain on our physical and financial limitations, in addition to requiring more time and human resources. If we accept a growth strategy, will we have to increase the size of our physical structure? Will we need to increase our inventory level and operational equipment? How about employees and support contractors? Will we be working longer hours? Basically, how much is this growth going to cost us in time, money, and manpower?
The easiest variable to increase is manpower. It’s scalable. As our business grows, we can always hire more people. For a profitable business that is run effectively, efficiently, and professionally, the increase in costs should be covered by the increase in revenue. That’s why your growth has to be profitable growth. On the other hand, time is a limited resource and usually requires the purchase of additional business and marketing tools that allow us to get more done in less time. Now you know why I always recommend that a separate individual be responsible for running the business. It can’t be the owner–operator who is teaching classes, doing open water checkouts and going on all those exciting tropical dive vacations. It has to be someone chained to a desk in their office, sometimes for 10 hours a day, making sure the business is running smoothly. OK. Maybe not chained. Still, want to open your own business?
As we get ready to end this series on Starting Your Own Business, I hope we have covered some important considerations and decisions you have to make in order to start, grow and succeed in your venture. Being a Business Owner is an exciting calling, but it takes a lot of planning, knowledge, experience, resources, and personal commitment, in addition to a great deal of time, money, and manpower. Starting and operating a business is a Team Sport headed by an entrepreneur who can work well with others and has the ability to envision, organize, build, and adapt. The best advice I can give an entrepreneur who is planning to start their own business is to not do it alone. A wise person seeks counsel. Sometimes, a lot of it.
The business growth phase usually starts after the first full year of operation and should continue until the owner makes a decision to close, sell, or transfer the business. In our final article in this series, we will cover a very important topic that many business owners have not thought about or dealt with. It’s The Exit Strategy. See you next month.
Congratulations on completing your first year in your own business. For more information on growing your business as it relates to a Dive Industry Professional Business, contact Gene Muchanski, Executive Director, Dive Industry Association. Phone 321-914-3778. Email: email@example.com
Count Down to Launch