Advertising Costs – A Vital Investment

In 2008 in Australia, the 45 biggest spending businesses collectively spent roughly $2.4 to $2.6 billion in advertising costs. Every year around the world, businesses are prepared to spend billions of dollars on advertising. Big business are committed to spending such enormous amounts on advertising because they know a simple truth: advertising is an investment. Big business know that for every million dollars they invest, they’ll see returns that make their initial investment worthwhile. But if you’re a small business owner, you need not be scared away by these figures, because it’s all relative. Even a small amount now can pay substantial dividends later. In this article, I’ll discuss why advertising is one of the most vital investments a business can make, and I’ll discuss what it is exactly that you’re investing in, and why it is so critical.Investments can take many shapes and sizes but they usually involve spending money on something now that can make you more money in the future. The more money you put in, the more money you can get back. Advertising is exactly the same. But all too often advertising is treated as an expense rather than an investment. Let’s take a look at this concept in more detail, and consider what exactly it is that you’re investing in.As with all investments, there’s a certain level of risk involved, and the returns can vary. Some investments perform better than others, and some leave you wondering where your money went. Advertising is no exception. Some advertising campaigns can produce exceptional results and drive business growth, while other campaigns may have little impact or in some cases, even a negative impact on business. If you think of advertising as an investment, then you should approach it the same way you would approach any other investment, such as a house, or stock market shares. The first step is research.Research as much as you can about that investment, and all the factors that affect its value, in order to evaluate the risk and potential profits. The ideal combination that most people look for is an investment that minimizes risk and maximizes profits, but some people are prepared to accept higher levels of risk for potentially higher profits. Similarly, before you spend money on advertising, it’s important to do the necessary research in order to minimize the risk and maximize the profits, to get the most out of your investment.If you’re looking to buy a house, for example, what you’re investing in is clear – a tangible object, but with advertising it isn’t so clear. If advertising is an investment, what is it that we’re actually investing in? To answer that question, first let’s look at what advertising is, in essence. Advertising can be defined as a form of communication, where the aim is to persuade someone to do business with you. That someone could be a potential new customer, a previous customer, an existing customer, or someone who isn’t a potential customer but knows someone else who is. Advertising is a way of communicating with customers, either indirectly or directly, impersonally or personally. So this means that an investment in advertising, is really an investment in communication with customers. Why is it so important to invest in communication?Communication is the backbone of all our relationships. You can’t build a new relationship with someone if you don’t communicate with them, in some way. In our personal lives, communication allows us to form new relationships with other people, whether it’s a friend, an acquaintance or a doctor. Communication is also what maintains our relationships. Just think if you stopped talking to a friend altogether, how would that affect your relationship with them? So if advertising is a form of communication, and communication is how we build and maintain relationships, then you could say that advertising is ultimately an investment in the relationships with your customers. Advertising is a way of fostering new customer relationships, and strengthening existing ones. Stop and think for a second about how important customers are to your business.I suspect you’d agree that your business could not exist without your customers/clients/consumers (whatever you prefer to call them). Whatever your business is, whatever shape your customers take – your business needs them. Customers are the life-blood of any business. It therefore makes a great deal of sense to invest (both money and time) in the relationships that customers have with your business, by communicating with them regularly through advertising. Whether it’s communicating for the first time about your business, or reminding a past customer about your services, advertising forms a key part of growing vital client relationships. And that’s where any advertising strategy needs to start – by focusing on your customers. How well do you know your customers?In conclusion, advertising plays a vital role in maintaining relationships with your customers, through regular communication. Advertising is a way to tell customers about your business and services, and leave them with a positive impression. Advertising is also a way of ‘keeping in touch’ with past customers. In the world of business, you could say that customers make the world go round. Without them, where would your business be? So don’t be deterred by advertising costs now – think of it as an investment today in your customer relationships, that will ensure your business’ success well into the future.

Are You an Entrepreneur or a Small Business Owner?

Do you want to be an Entrepreneur or a Small Business Owner? Is there a difference, and does it matter?There is a difference, and it’s easy to confuse the two or use the two terms interchangeably. A Small Business Owner owns their own business, but also actively participates in that business. Often the Small Business Owner is critical to the ongoing success of the company. Without him or her, the business either does not exist (i.e. medical, legal, accounting, consulting, freelancing) or would suffer greatly in the owner’s absence for any period of time.We often use the term “Solopreneur” to refer to the individual practitioner who is their own boss but must personally deliver a service or create a product for their business to generate revenue. While this may certainly be better than working for someone else, it’s still about trading time for money – and time is our most limited resource.Whether you are a Solopreneur or a Small Business Owner, you likely own a business that depends primarily on you. Perhaps the business is run by you and a couple of other founders. The point is, only a few people know and can execute on the secret recipe at the foundation of your business. And those key people must be present for the business to operate.An Entrepreneur instead builds a business and supporting systems that are independent from the founder. The founder may well be an integral (or exclusive) part of the businesses initially, but the goal is always to grow the business to the point where the owner does not have to be involved in day-to-day operations. When you build a business that continues to generate revenues in your absence, then you have created a truly leveraged model and can call yourself an Entrepreneur.Many of us start as Small Business Owners, enjoy success, and grow our companies. We may then move on to creating a larger business that does not require us to be present, and we graduate to the level of Entrepreneurship. If we repeat this multiple times, then we may call ourselves Serial Entrepreneurs.”Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.”
Howard Stevenson, Harvard Business School Professor.
You may not be clear at the start as to which one you want to grow up to be, an Entrepreneur or a Small Business Owner. But by asking yourself a series of hard questions, and honestly assessing your true desires, you are more likely to start a business that suits you best. And it’s certainly acceptable if you want to be Small Business Owner… we are not saying that’s a bad thing. But it’s important for you to begin understanding the difference between the two as it may impact the type of business you build and how you plan to develop it.It’s also important to avoid creating another low-paying harder-working “job”, like the one you may already have! Michael Gerber explains this situation best in his seminal book “The E-Myth”. This book is a must read for small business owners, with one of its major themes being the difference between working “in” your business (you make the pies) versus working “on” your business (others make the pies following your recipe and systems).As you prepare to become your own boss, or if you have already started a small business, it’s important to keep your long-term vision in mind. Doing so will help you determine the type of business you start and build, helping ensure that you achieve your definition of success.Do you want to be an Entrepreneur or a Small Business Owner? Here are some questions to ask to help you determine want you really want:

Do you want to own just one or two locations (i.e. one or two franchise units, or your own practice) or do you want to create something bigger with multiple locations and perhaps grow internationally (i.e. offer franchises and hire others to run the business)?

Do you want to work in the business (i.e. make the donuts) or do you want to have someone else manage the day-to-day operations (i.e. someone else makes the donuts following your instructions)?

Are you looking for a job or are you looking to create a self-managing company (a business that does not rely on your day-to-day presence for success)?

Do you prefer to create or do you enjoy executing?

Do you envision creating multiple different businesses across multiple industries?

Are you able to let go of all of the details, or are you a micro-manager?

Are you the only person who can deliver your service or product, or can you teach others how to do it?

Is your goal to work hard until a certain age and then retire, or continue creating and leading your businesses until you are no longer mentally capable?

Can you sell your business as it currently operates and without you having to continue being part of it?

Is Your Business Idea Any Good?

As a small business consultant, I am often approached by people who have an idea for a business and want my thoughts on if it is a good idea or not. I find that I give those people the same advice almost regardless of what their idea is or who they are. In a nutshell I tell them “I’m sure your idea is fine. The questions you should be asking yourself is how will you make your business successful and are you the person to do it?”So, let’s break down that bit of advice into its component parts. There are three: Your idea, your strategy, and you.Your IdeaIn a world seemingly busting at the seams with both good and bad ideas, how does yours rate? Many first time entrepreneurs feel that finding the right idea is similar to a quest for the Holy Grail. It is not. My favorite example of this comes from the movie “Office Space” where the idea of the Pet Rock is discussed, “Sure it was [a good idea]. The guy made a million dollars.” Funny, perhaps, but probably not far from the truth. Gary Dahl, the inventor of Pet Rocks, did make money selling Pet Rocks and even sold the rights to Pet Rocks as recently as 2009. Arguably an awful idea, Pet Rocks actually had a lot of quirky charm as the marketing around them was filled with puns and play on words. And, it was this, not the sale of rocks at incredible markups, which netted Dahl his profits.The point is, ideas, in and of themselves, rarely have much value one way or another. It is nearly impossible to say one is good while another is bad. We all have that friend who shouts from their couch at commercials that the product is stupid, or that they thought of it years ago. What is the difference between them and the person who is making all that money selling those products and/or services? Effort.So, when considering a business idea, simply ask yourself if you are a reasonable and intelligent person who is capable of coming up with a sound business idea. If the answer is “yes” then you have what may be a successful business idea, regardless if it is a good or bad one.Your StrategyNext is your strategy. Strategy is a funny word in the context of business because it essentially gets boiled down to having a sound approach. A lot of meaningless terms get used and misused in the world of business strategy. My personal favorite example is “first mover advantage.” In reality, “the first mover advantage” is often the “first mover disadvantage” as you’ll hit every roadblock along the way and others get to learn from your mistakes. Don’t let little truisms and phrases be the building blocks of your strategy.Ask yourself, now that you have an idea, how are you going to really make it a business? The most common misconception here is that strategies that you have seen deployed at an existing business will have any bearing upon your new business idea. There is a huge difference between what is commonly referred to as Corporate Strategy (which is what most any business that has been around for more than 2-3 years use) and New Venture Strategy (which is what you and your new business idea will have to use to get started).The new venture strategy you use is paramount to the success of your idea. Far more than the idea itself. But, don’t expect most people to know how to play the new venture strategy game. It is unique and subtle, but can be mastered by really thinking deeply about how you are going to get your idea in front of the people who might buy it. “Market Acquisition” (admittedly, another overused and often misused strategy word) will be the most crucial aspect of what you do to make your idea a successful business. As of day one, nobody knows who you are or what you do. How do you plan to change that, in such a dramatic way that you can actually make a business out of it?Make sure to run your ideas by lots of people and gain as much feedback as you possibly can. If you know a successful entrepreneur, definitely get their thoughts as they will be invaluable. This is also a wonderful time to learn one of the most important rules of running any business, regardless of size, which is to ensure you are not just asking people who confirm whatever you say just to make you happy. Critique and refining of your plan are the keys to doing this part right.YouLast, but most important, is you. There are countless examples of entrepreneurs with seemingly great ideas and wonderful strategies whose businesses never see the light of day because they simply are not the ones to bring their idea to the world. Do some honest reflection. Not just about who you are, but who you are within the context of your business idea. Are you really the person that can make this idea a successful business? Do you know the industry or at least have relevant contacts? Probably most important, do you have the time, effort, and dedication to really see this through?One thing a lot of people get stuck on at this stage is money. I have met dozens of people who tell me they have a great idea and strategy but they would need some amount of money, which they inevitably do not have, to make a real go at it. This, more often than not, is simply a convenient excuse to rationalize wimping out and not following through on what might otherwise be a great business. Money is always out there. There are friends and family who might be willing to support your business idea. If not, there are angel investors and plenty of people who would love to fund interesting and exciting ideas. Want to know what these people look for, first and foremost, when you approach them looking to have them invest? When you are pitching your idea, they are analyzing your strategy, and even more closely, you. If you present a convincing strategy, that’s great. But, if you can show that you have the requisite skills to make that plan successful, few investors will care what your idea is – a winner is a winner.So, don’t sweat your idea. There are a million businesses out there for which the underlying business ideas sound borderline ridiculous. But, behind most of those ridiculous ideas is a person who is very happy running their own company and often making quite a bit more money than they were before they started. The key to their success was not having a moment of brilliance and simply cashing in on it – it took a solid strategy and then a lot of effort to execute on it. So, take your ideas, examine them deeply, devise winning strategies and then, finally and most importantly, analyze yourself in the context of those strategies. It is certainly more effort than just coming up with the idea itself. But, it is also far more likely to turn your idea into a business and, more importantly, turn you from just another person with an interesting idea into a successful entrepreneur.