I often wonder how a business could get better if it didn’t know what being the best meant. How could a small business entrepreneur determine he was indeed performing at or above the industry standard if there was no information available to say what was the best, average or poor? There isn’t any real performance standard, that is financial standards, for any particular small business operation. For the publicly traded organizations, there is publicized information to indicate performance; but not too many folks publicly discuss their small business performance. There are some options you could pursue, the IRS posts some information, and your CPA should have knowledge about your industry. But the best way to really compare yourself with similar sized operations is with a FOCUS GROUP.
What is a focus group? How does it provide the information? How can it help me?
A focus group is nothing more than a group of business owners performing the same type of business with a similar demographic customer base and similar volume of sales. If your small business is processing or selling near $1 million per year in sales, is involved in retail sales to the medical community, and the product line is dental instruments, then you would want to get together with similar businesses.
In principle, a facilitator gets the members to agree to get together quarterly to discuss operations and financial performance. The members submit their information to a central data collection point and the information is process. Financial performance is evaluated and tiered. Then when the group gets together, those that are performing well in certain areas explain how and why they can perform at that level. They reveal their secrets. The other members learn and implement these secrets and all of sudden the group begins to develop into a pretty cohesive and similar performance operation. Now you don’t want direct competition, usually members are from around the country in similar markets as yours. Let’s say you operate in Massachusetts, well you would want folks from the South, Midwest, and the West that were similar to you to be in your group.
After a few years, the group gets competitive with each other and it gets to be fun to see how some of the members get to the number one position in the ranking. Most groups have about 20 members, some will mature out of the group and the group allows new members in to keep it going. Twenty members are typical because of the cost of compiling information and the logistics involved in getting together. Every quarter a different member hosts the group. While there, the group evaluates the host for facilities, employee qualifications, customer relations etc. This gives the host an opportunity to have someone really let him know what he is doing right and where he is going wrong. This acts as a feedback loop allowing that host to make improvements over a couple of years before he re-hosts the event again.
One of my clients is in the RV industry. He is a member of a focus group but always came in 2nd or 3rd place in one of the financial performance categories. He wanted first place in that category badly. He sent me on an exploration to number one member’s facility. I traveled for a day, got there, was welcomed in by the owner and I began to learn about his operation. Well, to my surprise, the reason this member performed so well in this category was not the product, it was not the level of service, it was how he delivered that service. He had a really charismatic employee that could up-sell in this category. I was impressed with her skills and she was well liked by everyone. My client’s guy in this category was unpleasant, didn’t really want to be there and it showed in the way the service was delivered. Customers were more interested in getting done and getting out the door so they would not have to stay with him as long. Well my client found a reason to fire him (performance based reason) and hired a more outgoing staff member to deliver the service. Sales increased, and it did not take too long before my client took over first place in that category. the Focus Group concept worked well for him and it can do the same for you. Act on Knowledge.
Do you want to learn how to get returns like this?
Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
There are four key principles used with value investing. Each is required. They are:
- Risk Reduction – Buy only high quality stocks;
- Intrinsic Value – The underlying assets and operations are of good quality and performance;
- Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
- Patience – Allow time to work for the investor.
If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above.
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:
- Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
- Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
- Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.
Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:
- Lessons about value investing and the principles involved;
- Free webinars from the author following up the lessons;
- Charts, graphs, tutorials, templates and resources to use when you create your own pool;
- Access to existing pools and their respective data models along with buy/sell triggers;
- Follow along with the investment fund and its weekly updates;
- White papers addressing financial principles and proper interpretation methods; AND
- Some simple good advice.