The things we focus on determine the profitability of our companies. In my last post we saw what happens when our focus is on people. This time we’ll look at other things that can draw our eyes away from, or drive us toward, profitability. For example…
Process. Do you have an unbalanced focus on “process”? In other words, is your focus on HOW you do your work rather than on how PROFITABLY you do your work? Are your business decisions driven by the need to produce an unrealistic level of quality at the expense of profit? Think about it…
We all want to have deliriously happy customers who refer us to their friends. (Steve Toburen calls these folks “Cheerleaders” and so they are!) BUT if it costs us $200 to generate $150 in revenue your company won’t be around to take care of all the referrals you get! Please don’t misunderstand me. I’m all in favor of producing a high-quality product, but not at the expense of profit. The business landscape is littered with burned-out owners and dead companies that had really great products but simply weren’t making any money.
It isn’t just production or quality issues that owners obsess over. Some guys will hyper-focus on ads or direct-mail pieces in the hope of getting a 1% greater response to their solicitation. But, what if they’re spending 5% more on advertising and 50% more of their time to get this 1% increase in response? What’s the net return on that effort? Do the math!
Sometimes the increased response comes by providing services or gaining customers that are frankly unprofitable to begin with. So, if we actually succeed, we’re going to end up performing unprofitable services for customers we don’t even want! Give me a break! If you’re a multi-national corporation with billions of dollars in sales a one- or two-percent increase in response might make sense. But this low additional response usually doesn’t make sense for most small businesses…especially when it consumes the precious time of the owner. Here’s another “focus word”…
Profits. Do you have a proper focus on profits and cash flow? Some people have the misguided notion that focusing on these financial measures means you have to be cold-hearted to your people or offer inferior products. Well, go tell that to any of the companies Jim Collins profiles in his books Built to Last and Good to Great. (Or check with the clients I’m privileged to work with.) Nothing could be further from the truth.
In fact, focusing on the bottom line forces you to reward and develop competent staff because in today’s economy you can’t sustain profitable growth with cheap labor. The high cost of employee churn outweighs any short-term benefit “low-cost employees” may bring. And this profitability focus forces companies to offer higher quality products than their competitors because if they don’t- their customers will take their business elsewhere!
So, in a nutshell, place the focus in your business where it ought to be—on the bottom line! And let your business decisions be guided by the performance of your products, systems and people AND how they will impact your bottom line.
Chuck Violand (more about Chuck)
SFS Instructor
CEO Violand Management Associates