Building A Thriving Business (What's at the VERY CORE) Pt 12

In my last post, I ended with the note that business is all about, understanding leverage and optimisation. So let's start by defining leverage, in the context of a business.

What Is Leverage?

Leverage is measuring the performance of an asset, and if it's under-performing, trying to figure out ways to improve it through conservative market testing. Any asset in a business can be measured in terms of cost reduction or sales increase; that means, their effect on the bottom line. That's why you hear of businesses leasing capital assets, like machines, in order to reduce their operating cost. It's based on the understanding of leverage. But, the effect on the bottom line, is small compared to leveraging intangible assets. Moreover, except you're a business with multiple capital assets or an equivalent, you can't apply optimisation, which leads to wasted potential back-end profit.

Case In Point

Every notable business success applied leverage. Consider, Bill Gates in the 90's. He's major breakthrough in business, happened because of leverage. He approached IBM, then with MS-DOS, as a solution to their software problem, which he bought for $50k, off a merchant in Seattle. He leveraged IBM's need for a software to run their computers. And instead of selling it to IBM, he applied optimisation by licensing it; explaining logically that, they weren't in the business of software, and shouldn't worry about the need of having to upgrade the software periodically.

Where The Windfall Cash In A Business Is Stored

Licensing tangibles might seem gravy, but the effect of leverage is IMMENSELY felt with intangible assets. Every advertiser is aware of the power of leverage. They influence the emotions of the buyer, by tapping into their need for validation, control and self-worth, to name a few. But as discussed in the previous post, that's you being tactical; thinking short term. And as a business leader, you need to be thinking long term; you need to be strategic. A long term plan, could be to focus on the headline of the ad; revealing to the buyer, how self-serving/beneficial to them, your service or product is, more than anyone else in the market. This is more conservative, than having to redo the entire ad, if it's under-performing. Then you apply optimisation, by testing different headlines, for different sects of the market. This will generate more sales, and at a lower cost.

Stay Tuned

I will be back in my next post, taking a deeper foray into optimisation.


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