If you have worked with me in one-on-one technical assistance sessions, in small group coaching, or heard me speak at trainings or events have heard me say this: “Every business regardless of size, regardless of industry, must focus on the three legs of the business stool.”
But what are those three legs? Why are they important to early childhood business success? And why are they fundamentals?
As a parent, I have spent springs and summers coaching sports teams. So, I’ll draw the analogy from youth sports to the fundamentals of business. In volleyball we coach kids how to bump before they spike. To teach them to bump, we show them how to hold their hands before showing how to direct the ball to a setter. In softball, we teach how to field ground balls by bending legs and holding free hands over glove hands. All that comes before we teach a crow hop or a secondary lead.
Business is no different. How could we possibly promote our business if we don’t know how our target market is different than the broader market or what inspires a purchasing decision?
Let’s define the three legs of the business stool…the business fundamentals…so we can understand the core frameworks of business before developing a marketing plan, creating new products or services to increase revenue, improving hiring practices, or understanding how to calculate our cost of operation per child per day.
The Three Legs of the Stool
Every business, regardless of size, regardless of industry must address its market-facing activities, manage its operation efficiently, and understand how market and operations decisions impact financials. There you go: Market, Operations, Financials. Those are the three legs of the business stool.
Your Market
Think of your “Market” as anything external to your business. This should include current or potential customers. These are the people who pay you for your service.
Competitors are categorized as direct, indirect, and future. Direct competitors are businesses and organizations doing exactly what you do: providing licensed early care and/or education services to children of the same age range. Indirect competitors might be doing something similar, but the delivery is different. This could include stay-at-home parents, grandparents, kin, babysitters, nannies, or unregulated programs.
Your community is the broader community in which you operate. This includes other employers and how the broader economy impacts your business.
Your industry can be looked at in a few ways, but I encourage providers to see themselves as educators in the education industry. Early educators serve birth to five, public and private Kindergarten through High schools serve ages five through 18, and adult education can include higher education and on-the-job training opportunities.
Your Operation
Think of your “Operation” as anything internal to your business. This includes your specific services, the facilities used to deliver them, the people we invest in to help us, and the policies, procedures, processes, and protocols guiding how we do it.
Effectiveness and efficiency in day-to-day activities keeps your business running smoothly, enabling your ability to generate revenue. Efficiency and attention to detail ensure your services are consistent and to a high standard.
Your Financials
Every single decision you make in your business has a financial impact. And yet, we often see this critical component of the three legs disregarded, avoided, or ignored. However, the primary objective of any business, regardless of legal structure (for-profit or non-profit), is to sell a product or service with the intention of making profit. Making money means making money, not losing it or breaking even. Therefore, the financial leg of the stool involves planning for money, managing money, and analyzing as it flows through the business.
Budgets are forward-looking projections based on how we will generate revenue and what money will be spent on in the form of expenses. Every early care and education business should budget comprehensively and ensure expenses are less than revenue. We want to project a profit.
Financial statements track how money actually came into and flowed out of the business. Programs like QuickBooks are bookkeeping tools to track this flow of money in the form of financial statements.
Comparing your budget to actual financial performance, preferably every month, creates the opportunity to analyze, make data-driven decisions, and manage wisely to ensure you’re keeping more than you’re spending.
Why is this important?
Understanding the fundamentals of business should inform how you, the owner or operator, spend your time every day.
As an owner or operator, your primary responsibility is to ensure your program is full, meeting the needs of your customers and community, is unique from its competition, operates effectively and efficiently, and is financially viable and sustainable (profitable short term and long term).
Conclusion
For early childhood education owners and operators, mastering the fundamentals of market, operations, and financials is critical because without all three there are blind spots. Blind spots create pain points and unintended omissions. Without all three, it’s likely your business will not be able to deliver the mission of providing high quality early care and education for your community because there is no money to enable the mission.
Early care and education providers are fundamental infrastructure to local economies providing the workforce behind the workforce ensuring every other business operates.
Skipping, ignoring, or disregarding any of these three fundamentals leads to errors on the playing field. When there are too many errors, we all lose the game.
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Jason Nitschke is Zero to Five Montana and Montana Child Care Business Connect’s Senior Child Care Business Advisor. He is a nationally recognized economic development professional and former business owner.
Montana Child Care Business Connect is funded under a contract with the Montana Department of Public Health and Human Services. The statements herein do not necessarily reflect the opinion of the department.
