Profit principles

10 Profit Principles That Separate Want-trepreneurs from Entrepreneurs

Why do some entrepreneurs succeed, while others fail or never start at all? Let’s take a leap of faith and assume they have a strong support system, a powerful work ethic and a willingness to sacrifice like no other. Then, our thoughts center on the obvious:

  • Do they have a good business idea that serves a large and growing market?
  • Are customers enthused and ready to place pre-orders?
  • Do they have a clear understanding of how they will make a profit?
  • Do they understand how much funding it would take to reach breakeven?
  • Do they have strong business partners to work with in the trenches?

Of course, successful entrepreneurs need solid answers to these questions to fortify their launch, but what really separates the want-treprenuers from the entrepreneurs? In our experience, we know that truly successful entrepreneurs have a special, intangible characteristic. They have an innate ability to exert their will to implement these 10 profit principles.

Related: The Purpose is Profit [Book & Audio Excerpt]

  1. Build a business based on your distinctive competence
    • Distinctive competence is an exceptional skill or talent, specialized knowledge, and a record of achievement that you have acquired through your unique experience
    • You can minimize the risks by utilizing your knowledge of customer needs, industry trends, operational requirements, financial models, relevant technologies and potential competitors
    • Distinctive competence trumps passion as the driver for starting and building a profitable business. Of course, if your distinctive competence aligns with your passion, you have the ultimate combination
  1. Develop and deliver a superior value proposition
    • The most efficient path to profit is a value proposition that clearly delineates what your customer will get
    • A value proposition with a crystal clear quantification of benefits is easiest to sell and the most compelling to buy
  1. Don’t start up until…
    • You know how you’re going to generate revenue
    • You know how much it will cost to run your business
    • You know how you’re going to make a profit
    • You have preorders to validate your business model and liftoff plans
    • You have lined up the funding you need to reach breakeven
    • You understand the impact of startup funding on cost and control
  1. Take charge of the money and control it
    • I knew where every dollar of revenue came from and where every dollar was spent
    • I reviewed financial reports every single night and made judgements about budgets every day
    • I was very cautious about extending trust when it came to the money
  1. Create a profit-based reward structure
    • Rewarding performance with a percentage of profits is a sure-fire way to turn your management team and your sales force into profit and loss managers, ensuring they become intimate with the financial model behind the business
    • Besides optimizing profits, this kind of incentive system motivates producers to keep a lid on overhead
  1. Recognize and hire “lightning in a bottle”
    • Recognizing the need for strategic leadership and acting decisively to bring it on board can revolutionize your business model, transform your organizational structure, and engineer the strategy to scale the business
    • Even though this type of hiring decision may involve an aggressive compensation package, including a share of equity and control, it can be well worth the price to achieve your strategic vision
  1. Create profit centers to scale your business
    • Determining how you will scale your business will be one of your biggest challenges
    • Expansion based on the profit motive can be the key to your continued success
    • By establishing geographic and line-of-business profit centers, you can drive growth by distributing profit and loss responsibility across the organization
  1. Augment profits with proprietary applications
    • Application software tools can generate new revenues and form the basis for a stand-alone profit center
    • Besides streamlining work processes and improving service delivery, software applications can enable your customers to manage workflows, eliminate process steps, and gain access to critical information
    • Proprietary applications can be so powerful that they can form a mutually dependent relationship between you and your customer
  1. Build a financial war chest for strategic advantage
    • Once your business starts to generate consistent profits, you should retain your earnings to strengthen your balance sheet for strategic advantage
    • Like most sacrifices, employing financial disciplines early and building a financial war chest can shift the balance of power and pay substantial dividends in the future
    • Imagine what you can achieve if you have such significant cash reserves that you are not reliant on third-party sources to grow your business
  2. Behave ethically and profits will follow
    • Ethical behavior influences every aspect of your business, from fulfilling every promise in every contract to paying every employee and vendor in full and on time
    • Profits do not come at the expense of ethical behavior. Quite the contrary, profits come as a result of ethical behavior
    • Quite simply, you can do the right thing, feel very good about it, and make plenty of money

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According to McLaughlin and Lydecker, the truly successful entrepreneurs understand that building a business based on these profit principles increases the probability of long-term success and improves the returns along the way.

These profit principles are discussed in detail in Chapter 9 of their book, “The Purpose Is Profit,” The Ten Commandments of Startup Profit.

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