4 Profitability Killers
Through many conversations with private equity firms and years of working with mid-market manufacturing and distribution companies like yours, we have noticed a troubling pattern of symptoms that when left unaddressed, eventually lead to stunted growth, dramatically reduced valuations upon selling, and even total business shut down.
When reading the list below, take an honest look within your company and see if any apply. If any do resonate, schedule some time on your calendar in the next week to start working on some solutions.
Reduce the amount of wasted time and misdirected effort of your team:
None of us would ever allow our equipment to spit out a bunch of defects without stopping work and fixing the problem, yet we do this every day with our people.
- Don’t address issues with and among our team (defective parts)
- Unclear and inconsistent communication around what we are trying to accomplish as a business and how we are going to do it (specification inputs)
- Hours are wasted doing work manually that technology could do effortlessly (fully manual factory)
- Not being intentional about transferring knowledge and expertise from tenured to newer employees (not budgeting or saving for impending capital expenditures)
When you get more efficient and effective results with alignment of the right people doing the right things right, you will make your employees, bottom line, and yourself much happier.
go!-Tip: create a simple instructional video for your team with your smartphone and start generating some repeatable efficiencies.
Prevent from being cut out of the sales and distribution chain:
It is likely your product’s path from creation-to-use is some variation of this:
••• Manufacturer >> Distributor >> Rep >> Customer •••
It is also likely that the 20-30 year relationships you’ve had within this model are eroding as the your long-time stalwarts in the industry are starting to head for retirement. These industry veterans are typically replaced with younger, more tech-savvy counterparts who are trying to make their mark by focusing more on results than relationships.
With this industry sea-change also comes an invasion of speed and technology. There will be winners, and there will be losers. The winners are finding ways to own the key relationships in the sales and distribution chain. The ones holding on to “the way we’ve always done it” will unfortunately be on the wrong side of history.
go!-Tip: start sharing the story of how you make the lives of your end-user customer better/easier on your marketing materials and website.
Cut down on non-profitable, “line-filler” work:
We get the importance of keeping the line moving and your people busy, but it’s just as important for you not to lose money on the work they are doing. Otherwise, you are essentially paying to pay them…not a recipe for success.
When someone asks you what makes you different from your competition, what do you tell them? Do you give some technical specification difference? Do you say you have better service? For goodness sake, please don’t tell me you say you are cheaper.
When you know what you do differently/better, and you know which subsection of your customers it matters to, you will elevate yourself above your commoditized competitors, dramatically reducing pricing pressures in the sales process.
go!-Tip: call the last 5 customers who bought from you and ask why they chose you over the other guys.
Reduce risk of layoffs or shutdown:
It is really tempting to keep the wagon hitched to one or two big companies and just grow with them, but being one bad phone call from a customer away from having to make serious HR decisions is a scary place to be.
Creating healthy customer diversification where no single customer accounts for more than 20% of your revenue takes time and focused effort. Growing non-primary customer(s) revenue is absolutely crucial for the long-term sustainability of your life’s work.
go!-Tip: rank your customers by revenue (or even better, gross profit). Identify the “next” top 5 customers and contact them on a consistent basis (monthly or quarterly) with extra value above and beyond your services: a relevant article, introduction, etc.
Once again, if you are facing any of these pitfalls in your company, you owe it to yourself, your employees, and all the families you support to carve out time on your calendar to address them.