If you run a business, chances are you’ve heard of the Pareto Principle, also known as the “80/20 rule.” It states that, in nearly every situation, 80% of the outcome derives from 20% of the effort. The principle relates to many aspects of life and business—including the reality that as a company, the top 20% of your most profitable customers account for about 80% of your revenue.
Naturally, we want to use this principle to our advantage by gearing our business to acquire more customers like those in our top 20%. Let’s say you do an audit of your clients, and you notice significant differences between your top 20% and the rest of your client list. Perhaps they are in a particular age demographic or income level; perhaps they live in specific neighborhoods, or they buy a lot of one product in your line. Whatever the case, these differences tell you that you could consider retooling your business strategies, and even possibly your structure, to reach more of these people and make sure you’re delivering what they need.
Of course, anytime you make this kind of change or prepare for expansion, you need to consider the legal ramifications, not just the strategies themselves. Asking important legal questions now will save you time and money and avoid potential catastrophe. What legal considerations will you need to address as you implement these changes? Consider a few possibilities.
Segmenting the Business
One possible way to reach more of your prime target customers is to focus your business on one or more niche markets. You might opt to create subdivisions for certain product lines, or expand geographically into areas where more of your target customers live, work and play.
• How will these changes affect your legal entity as a business?
• Will your tax situation be positively or negatively impacted?
• What local laws must be considered?
• Will you need to negotiate leases for new locations?
Segmenting can be a highly effective strategy, but overlooking the possible legal consequences can lead to far-reaching complications down the line. Always involve your legal team in any kind of segmenting process to make sure your blind spots are covered.
Joint Venture Partnerships
Perhaps your new strategy will involve creating alliances with other businesses who share your target customer.
• How will you forge a mutually beneficial relationship while avoiding possible legal disputes?
• How will you draw healthy boundaries around your shared goals?
In many cases, a “handshake agreement” won’t be enough to protect your interests. A well-crafted contract or business agreement will help your new partnerships yield maximum benefit for all involved.
Renegotiating Current Agreements
As you retool your business strategy, take an inventory of your current vendor relationships, JV partnerships and contractual agreements.
• What impact will your new direction have with these individuals or companies?
• Do your current legal arrangements restrict you from certain activities?
Have your legal team evaluate your legal relationships to make sure your new direction won’t violate existing agreements. If you hit a wall, you might need to renegotiate or look for the exit clause. It’s better to address these details proactively than to expend time and valuable resources to put out fires later.
Expanding Your Team
Expansion usually involves hiring new staff.
• How is your current HR policy?
• Do you run background checks on prospective employees?
• Is your training program sufficient for your company’s needs?
• Are your NDAs and non-compete agreements adequately protecting your company’s intellectual property (IP)?
As you begin a new chapter of targeting your most profitable customers, evaluate these safeguards to ensure they are a good fit for your company’s goals – not just to guard against employee disputes down the road – and protect against unwarranted gaps in your policies.
To learn more about how InPrime Legal can help your company grow – from strategic thinking to contract analysis – call us today at 770-282-8967.