Doug DavidoffIn my last post, I described the idea of a Money Making Machine. This “Machine” is the core deliverable for which you get paid. Whenever a your focus isn’t directly connected to reinforcing your Machine, the probability of a successful endeavor falls considerably. Why? Because, resources that should be focused on the core business (or money making engine) instead get diverted to less vital areas.
While I am talking primarily about small and mid-sized enterprises (SME), the same is true in larger companies. In many ways, this idea is the basis of Jim Collin’s best selling book Good to Great – stop “wasting” resources on those things you are “good” at and redirect them to areas where you can be “great.”
In my previous post, I shared some examples of Money Making Machines. Let’s use one as an example for how that understanding guides strategic decisions. In this case, I’ll use the personal training company.
Our fictional company’s promise is to make you “look better naked.” Their Money Making Machine is the hour in which they train clients. A good innovation is one that reinforces their machine in any of four (or more by combination) ways:
- Increases the number of people who “use hours” (more clients),
- Increases the number of hours people use (increases revenue per client),
- Increases the amount people will pay for an hour (increases the yield), or
- Increases the length of time someone will continue to pay for hours (increases the average lifetime per client).
As our personal training company grows, there are several opportunities that present themselves, that on the surface all look to be good ideas. Let’s look at one of these ideas – the creation of products such as books, CD’s and DVD’s to sell. Should they do it, and if so, how should they do it.
Here’s how I’d make the analysis: While this is an interesting idea, it’s probably not worth the investment, as it isn’t a direct driver of the four key issues above. A products business is a very different Money Making Machine. One “machine” is a high-value/high-margin personal business; the other is a low-margin/high volume business. The critical success factors for a products business are quite different from a personal services business.
A better way to build a products business is to focus first on reinforcing the current Money Making Machine. This may mean reselling existing products rather than creating them, and/or to develop small products with lower production value that can be used to support what’s going on in client’s workouts and to begin to spread the message. As demand begins to build (and it begins to earn money, thus becoming a “Mini Money Making Machine), a separate business could be developed.
Here’s the moral of the story: Your greatest chance for success comes when you constantly reinforce your existing Money Making Machine, instead of trying to build a “newer, better” Machine.