If you’ve ever wondered how to make smarter business decisions, this post is for you. When you make better decisions, you provide more value to your clients and prospects. The trick is realizing which decisions impact your clients, and which play into vanity metrics that don’t help clients or improve your business’s bottom line.
In The Personal MBA, author Josh Kaufman distills every business into 5 key parts. When you’re faced with a decision big or small, just ask yourself whether the outcome supports one of these key components. This strategy works whether you’re thinking of selling a new product, rebuilding your website, hiring an assistant, or paying to attend a seminar.
If you’ve never heard of the Personal MBA, you can check out the book’s website here. You’ll find tips and questions to help you evaluate everything from dealing with controversy to improving your business’s systems. In this post, we’ll go over the 5 key parts of a business according to Kaufman, then look at how you can use them to evaluate your own business decisions.
Value Creation
The value you create can take on one of several different forms, but the purpose is always the same: to make someone else’s life a little bit better.
The first step in creating a successful business is to find out what people need or want, and offer it to them. How can you make your client’s life better? That’s the value you’re creating, and the commodity you have to trade. As an insurance agent, that might be by serving a niche that otherwise has trouble finding the information and products they need. You’re saving them time, money, and effort by doing the legwork and becoming their insurance advocate. If you're not sure how to define (let alone create) your value, Kaufman describes a whopping twelve different forms of value you can bring to your clients in his book. You can read about all of them on the book's website.
Marketing
Once you’ve got something of value to offer, you have to let people know about it. Keep in mind that marketing and selling are two different things in Kaufman’s vocabulary. Marketing is what you do to find prospects. Once that prospect is interested in what you have to offer, you can focus on selling. But how can you compete for a prospect’s attention in today’s crowded marketplace? Kaufman believes it’s a matter of being more interesting or useful than the competition. It all comes down to how you frame your offering. There’s no time to go over all the selling points of you as an agent, or of a particular insurance product. Instead, choose the most critical details and wait until a prospect is interested to do a deep dive into the particulars.
Sales
It is not necessary to do extraordinary things to get extraordinary results.
The essence of sales is helping a prospect understand why your service is worth paying for. There are two main ways to accomplish this:
- Value-Based Selling. Here, you’re making a sale based on the value of what you provide, not what it costs. This is a key point for us, since the competition can offer the same policies at the same price. Two skills you need to succeed in value-based selling are listening and asking good questions. Once you understand a prospect’s needs, you can present the best solution. If you present a solution before finding out what they really need, you’re not selling based on value.
- Education-Based Selling. Here, you’re investing time and energy into a prospect to make them a smarter consumer, and more likely to buy from you. Of course, this means you need to put your money where your mouth is. If your prospect asks you a question, you should be able to answer it. This approach can take more time than value-based selling, especially with a complicated subject like insurance.
Value Delivery
Being on par in terms of price and quality only gets you into the game. Service wins the game.
Once you create a valuable product, find the right prospects, and convince them to buy, you have to deliver what you promised. This means paying attention to every part of the process, including policy delivery. In other words, your job isn’t done once your prospect hands over their first premium payment. You have to follow through and answer any remaining questions they have, and make sure they get what they paid for. If you can do these things, you’re more likely to get good word of mouth from your new client.
The best way to ensure this happens every time is to systematize your business. This ensures every client receives the same level of service. Best of all, if you’re successful enough to hire help, it means they can follow the same steps you do to provide the value that interested your prospect in the first place. Even though it seems like extra work, systematizing will save time and effort in the long run.
Finance
Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.
For Kaufman, finance is more than balancing a checkbook. It’s about using numbers to decide whether you’re running your business the right way. What’s the “right way?” A business needs to bring in enough money to justify the time and expense of keeping it up and running. If your business does that, congratulations! If your business isn’t there yet, Kaufman says there are four ways to increase your revenue:
- Get more customers.
- Increase each customer’s average transaction size.
- Increase the number of transactions per customer.
- Raise prices.
Since we don’t control pricing on a carrier’s policies, we can’t use method #4. The other three options are all do-able, though – especially with a standardized, systematized method of prospecting and marketing.
Putting It All Together
If you read through all five parts, you may be thinking, “That’s great…but what do I do with this information now? I’ve already built my business.” That’s true, but you’re eventually going to be faced with decisions big and small. Refer back to these 5 key components when you have an important decision to make. If you’re thinking about changing something about your business, ask yourself if that change supports one of these five key parts of a business. If it doesn’t, or you find yourself reaching to justify it, you should probably spend your time and money elsewhere.
This strategy works whether you’re thinking of moving offices, hiring staff, rebuilding your website, or going to a conference.
- Value Creation: Does this change help me discover what people need? Does it add value to what I do in the consumer’s eyes? Is that added value something they’ll be willing to pay for?
- Marketing: Does this change help me reach the people most likely to work with me? Will it build demand for what I’m offering?
- Sales: Does this change help me convince a prospect to become a client?
- Value Delivery: Does this change help me deliver a policy in a more appealing way? Does it make follow-up easier and more consistent?
- Finance: Does this change help my bottom line? Does it reduce my expenses? If not, does it offer enough potential benefit to offset the cost I have to pay right now?
A Real-World Example
It’s important to be honest with yourself about the answers to these questions.
For example, let’s say you saw another insurance agent’s website and it has more bells and whistles than yours. Now, you’re considering paying a designer to re-do your site so it looks just as good. Will this reduce your expenses? No. Will it help you convince a prospect to become a client? Maybe, but let’s be honest—probably not. If a prospect can be swayed by a flashy website, there are plenty of those out there. What are the odds yours will be the best? What happens in a few months, when a new design trend sweeps the web?
Let’s say you still want to re-do your site.
Now it’s time to ask yourself whether this decision has a hidden opportunity cost. Do you have the time to interview web designers? Will there be downtime while your site is under construction? If so, how does that affect the number of leads you usually get per day from your online quoter? What are you saying "no" to in order to accomplish this change? What else could you do with that money? Do these alternatives better support one of the 5 key components discussed above? In this example, based on the answers to those questions, your money might be better spent hiring someone to produce informational eBooks for your prospects. Or in hiring someone to start running Facebook ads for you.
As a general rule, ask yourself if any proposed change helps demonstrate your value to clients and prospects. If not, you may be acting for the wrong reasons. If so, you’re on your way to increasing your value – and your profit.
That’s our quick look at how to make smarter business decisions!
How do you make important business decisions? Do you follow your instincts or are you more analytical? Tell us in the comments!
