Small Business Success (From a Stock Market Analyst)

Great Investments and Successful Small Businesses Have Certain Factors in Common

Small Business Owners in Front
Small Business Owners Standing Out Front. Maskot/Getty Images

One of the most striking revelations that you can gain from stock market analysis is that the factors which make a huge company successful are the same as those which make a small business great.

After all, when you buy a share of a stock, you are purchasing a very tiny slice of that underlying company.  The factors which make mom-and-pop small businesses profitable are typically the same as those which we look for in our stock market analysis process.

For example, branding matters every bit as much for the local venture as it does for the multi-billion dollar global corporations. Likewise, tactics like psychological pricing and setting perceived value will balloon the revenues of any company, no matter what type of business, and no matter the size.

Putting a little extra care across all the touchpoints of your small business will help you every bit as much as it would with a multinational conglomerate.  It doesn't matter whether you run a retail store, restaurant, dance studio, technology business, marriage counselor, or chiropractor: you can enhance your profits significantly by doing the following things right.

Brands Beat Generic Businesses Every Time

You've seen them - the generic businesses with their generic profits (or lack thereof). GLB Corporation, Southern Standard, Quality Services, Inc., A1 Towing, Pizza Shop...  the list can be endless, and you probably could look out the window and see a few generic businesses right now.

The curse of the generic doesn't end there.  It even bleeds into the "mottos" and logos of small businesses, which is why you've probably seen a few of these yourself:

  • "Often Imitated, Never Duplicated"
  • "You've Tried the Rest, Now Try the Best!"
  • Typical animal logos (hawk, lion, bear, shark...)
  • "Quality Service, Great Prices"

    In terms of mottos, if you have one then you've already lost.  Every small business should have a positioning statement instead, which is the seven-word-or-less boring, blunt explanation of what you sell.  

    None of these names or mottos mentioned above are unique, creative, easy to remember, or compelling.  With a motto or logo like these, you can assume that their product or service is pretty much standard - which is especially true if their company name is something like Quality Standard or American International!

    Instead, be a brand which represents something to consumers, and use a positioning statement.  For example, something more like these will really engender initial sales, word of mouth referrals, and repeat business:

    • Hammer Fist, The World's Most Durable Surf Boards
    • The Sally Stephens Spa, We Bring Our Spa Treatments to You
    • EnviroWash, Environmentally Friendly Car Wash
    • Alpha Kids Group, Pay By the Hour On-Demand Daycare

    These are just a few quick examples, but any business which takes these proven tactics into account will outsell some small business like the often imitated, but never duplicated, "National Electric."  Use these revelations in your own venture, or apply them when you are doing research into stock market investments.

    Your Category

    This is about more than "standing out in the crowd."  When done properly, the category in which you operate should instantly accomplish two things:

    • communicate what is unique about your business
    • lodge your venture into the minds of the prospects

    Picture 10 pizza shops in a town - they all will struggle endlessly, and some will go bankrupt.  However, if one claims their own category, such as becoming "all organic pizza" for example, they instantly capture 100% of people looking for the healthiest option.

    They also will get a boost from other people who want to try something new and different.  Plus still more people will try it since they assume that higher quality ingredients are being used.  

    When it comes time to order pizza, most people will know that 9 of the places are all the same...

    and they will remember that one is different.  Rather than battling nine other shops in town, you become unique and then are competing with no one else for your specific category (Organic Pizza).

    This is just a quick and simplified example, to demonstrate the advantage of moving into a unique category, which only your venture owns.  This approach works for companies trading on the stock market, just as it does with small businesses.

    If there were already a few "all organic" pizza shops in town, choose something else for your category; free toys with each pizza; 20% of sales donated to local charity; pizzas cooked by military veterans; every 3rd order free, etc...

    Pizza is just an example, but any small business needs to stand out, become memorable, and enhance sales by operating in their own unique category.  For example, picture a:

    • Coffee shop where you learn the first name of every patron
    • Clothing store where all the inventory is made locally
    • Marriage counselor who only gets paid if you stay married
    • Masseuse who comes to you upon 2 hours notice
    • Plumber who makes instant service calls 24 hours per day

    With a slight tweak, a business can suddenly communicate their "unique" factor, while sticking themselves into the mind of the prospects. Any business, whether a multi-billion dollar corporation or a mom-and-pop consignment store, can instantly improve their profits by mastering their category.

    Touchpoints

    Every interaction a customer or prospect has with your brand is an opportunity.  Your business should be converting prospects and reinforcing customer loyalty at every single touchpoint, whether through client service interactions, the messaging on the brochure, the website positioning statement, or even the colors of paint on the store walls.

    "Wait a minute - how would the paint color help anything," you may ask. It absolutely would. If your establishment is supposed to be a family-friendly, fun restaurant - pink and yellow might work, or other bright and playful shades. Or maybe you are targeting an older, wealthy crowd, in which case darker green might further the desired atmosphere.

    The point is that even the weight of the letterhead matters. All touchpoints should reinforce what you want your brand to represent, thus putting your target market clients at ease.

    For example, if you are trying to be a high-priced lawyer, your business cards should be glossier and thicker than "Dan's Raccoon and Pest Control." Take this incredibly over-simplified example one step further and consider what it might seem like if Dan handed you a card that looked like a million bucks... just before climbing through the mud underneath your house! You may assume he is charging too much, and might be a bit egotistical.

    Whatever interaction your brand has with the masses, it should agree with the expectations they have in their mind. If a Maserati salesman hands you a black and white business card printed at the local Staples store, he might (and maybe should) lose the sale.

    Whether talking about the best stock market investments, or the local small business, touchpoints matter.  In fact, touchpoints are all that makes up any business or brand.  

    Fulfill Customer Desire

    What do your customers really want? Spoiler Alert:  It is not what you think.

    A restaurant owner might assume that "people just want something to eat."  An ice cream vendor could think that their patrons are looking for a cool, delicious treat.

    The reality can often be very different.  Maybe the customer is at your restaurant because he believes the fancy establishment will help him impress his date.  

    As for the ice cream vendor, many of the patrons are there to make their kids happy, and to feel like they are being a fun and loving parent.  When a mom or dad comes into an ice cream parlor with their kids, they often could care less about the treat and only focus on the experience, and the looks in their children's eyes.

    By having a better understanding of people's true motivations, you can adjust your marketing to tap into the prospects more effectively. You want to foster the "impress my date" crowd? Provide every man or woman a rose to give their date.  Minimal costs, in exchange for an enhanced customer experience, word of mouth referrals, and an increased feeling of class and romance for your establishment.

    The ice cream parlor could take family photos of all their patrons - the children will go home and force their parents to put the picture on the fridge. The family will be reminded of the great time they had every time they enter the kitchen. Guests to their house will ask, "where was this photo taken?"

    Costs? Minimal. Result? Word of mouth, enhanced customer experience, patron loyalty, and repeat business.

    All of these inexpensive, yet effective, business adjustments relate to one thing:  revenues. You will enjoy an eventual spike in sales and profits when you recognize, and tap into, the true desires of your customers.

    Perceived Value

    Usually, your prospects will have no idea what your product or service is worth. Their first understanding of value is the moment they see your prices.

    Picture a car for sale with a $99,999 sticker in the window. Even if you don't think it is worth quite that much, you will still assume that it is pretty well made, especially in comparison to the $12,500 vehicle for sale right beside it.  

    Upon seeing the price, your mind makes all sorts of subconscious assumptions; how responsive the engine is; the caliber of the interior; and the sound quality of the radio. Even without driving either car, you probably believe that the less expensive one will have more mechanical problems. (Whether or not such beliefs turn out to be accurate is beside the point).

    The best way to demonstrate this effect is to give your friends a super-expensive glass of wine. As you pour, explain how that this costly bottle is very hard to find.

    Then follow-up with another glass, poured out of a bag or box. Ask them which they liked better.

    In the end, reveal that both were the same price!  For an even better effect, try to use the exact same wine.  Usually, people will experience whatever their mind tells them to perceive, and those perceptions can be controlled by the subtle messages surrounding their interaction with the product.

    Many websites do a great job of setting perceived value. Often, they will display three or more options to purchase a product or service, but one of them is there merely to make the others look like a great value.

    Picture three almost identical products, costing $20, $25, or $99. Most prospects will perceive that the wares are pretty good quality - after all, the best one goes for a hundred bucks!  

    Yet, they see the similar $25 as a better value and relax their concerns. They gladly "get the deal" by buying the $25 product, which is almost the same as the much more costly one. They are more likely to buy and be pleased with their choice.

    This approach has been so effective, that in many cases just offering the $25 on its own results in far fewer sales than if all three options are presented. Said another way, by presenting the three choices, they actually sell more of the $25 item than if they only offered the $25 on its own.

    Some of the most profitable companies on the stock market are masters of setting perceived value.  Look at Maserati cars, Dolce & Gabbana jeans, Armani suits, Rolex watches, and Ruth's Chris steak houses

    All of these brands make sure to reinforce their quality at every touchpoint so that they continually lift your perception of their "worth" in your mind.  Even the exact wording in the advertisements, and the attitude of the sales people matters, as does every interaction a prospect or customer may have with their product.

    Threshold Pricing

    Have you ever wondered why prices always seem to end in "99?" Why not just say, "$10" or "$1,000" instead of "$9.99" or "$999?"

    The reason is psychological.  In our minds, most people actually feel like 9 is a lot less expensive than 10.  After all, when you say 99 cents, we're talking about pennies - but when you say a whole buck, we're dealing with dollars.  That is how our subconscious minds work.

    Agree with the premise or not, the fact is that sales increase when products or services are sold keeping threshold pricing in mind.  Usually, any menu or parts list or product options using round-number pricing will see a bump in their sales (and by extension their profits) by switching to levels just a penny lower.

    There is an exception to this rule, which comes into play for "luxury" items. For example, an extremely expensive restaurant may list their menu items in dollars, because their clientele have plenty of money, and it also reinforces the brand (high-priced restaurant). In such a case, you might see the shrimp cocktail listed simply as 29, and the Caesar salad for 18 (rather than $29.45 and $17.99, for example).

    Bonus Point:  There are also some theories (and case studies which show impressive results) that removing the "$" or dollar sign will result in higher sales. This should be considered by some businesses, as long as it does not generate confusion - such as prospects not realizing that number was a price.

    Surprising Profits

    The massive corporations that understand important aspects of their business (like branding, category, touchpoints, and customer desire) make for the best stock market investments. These companies tend to enjoy significant profit growth, driven by repeat business and plenty of word of mouth referrals. Their share prices typically increase pretty significantly.

    At the same time, the tactics and truths revealed above also apply to small businesses. You want your establishment or idea to really connect? Stop looking at your competitors, and focus on yourself. Get the branding and category right, then tighten up your touchpoints and fulfillment of customer desire. The resulting increases in profits will probably surprise you.

    As significant as the concepts above may be, for both stock market analysis and your own small business, they are just a part of the big picture. Any small business can take the next steps, by learning about market-driven price points, split testing, fostering presences and reputation, and more.

    Keep what you learn in mind for your own venture, or just when you are looking for the next winning stock market investment. The two (massive corporations and small businesses) are one in the same when it comes to being wildly successful.