Business Growing Without Profit?
Over the last couple of weeks, I have spent a lot of time thinking about the growth of goBRANDgo! as we have seen exponential growth throughout the last few years. I’ve always heard that adversity doesn’t build character, it reveals it…well, the same can be said about growth. Experiencing fast-paced growth definitely does not gloss over weaknesses in your business model, but instead, exposes and exploits them instead like an over-zealous IRS agent.
For us, it seemed as if we were in an upward tail spin. We’d land some great clients, but we were at (and often above) max production capacity, so then we’d go hire another awesome stud or studette…but which means additional payroll to cover, so we’d have to go out and land more new business, then get re-overloaded…and so forth and so on.
All I kept thinking was, there’s got to be a better way. I know growing a business is extremely difficult, but this couldn’t be right; this was not a sustainable way to build a company. We were wasting soooo much time and energy spiraling back and forth, I could only imagine what would happen if it was channeled into building and improving the company…we may actually just be on to something. With the symptoms now clearly identified, we then turned our attention to trying to figure out what was causing them.
The disease that we discovered is something we dubbed The Value Gap, which was the chasm between what we were doing and what we were getting paid to do. The Value Gap was caused by a combination of several different factors:
1) Under Priced—not in the sense of giving more value than what customers pay, but rather we’re way under market prices for the quality of services we were providing.
2) Scope Creep—not clearly defining exactly what was and was not included in the project’s initial proposal, leading to many “hey, can you knock this, and that, and this out as well” without any additional charges.
3) Free Ideas—we were really great about brainstorming innovative new ideas and saying to the client, “you know what would be really cool?” resulting in offering a great idea, but executing it for free.
Once these challenges were identified, we were able to determine their true ramifications. We were essentially doing two to three times the amount of work that we were actually getting paid to do. To put that in perspective, theoretically we could pretty much do the same amount of work, and double our revenue without taking on any additional expenses. The obvious result of curing this illness would lead to a much better Profit-to-Energy Ratio, which would make the entire go!-Team, as well as the bottom line, much happier.
We launched into a full out assault on the Value Gap. go!-Mates from each department came together to identify ways we could prevent Under Pricing, Scope Creep, and Free Ideas from strangling our company. The end result was a list of 50+ best practices and projects, including a Found Value Competition. It has been really great hearing the conversation around the office changing and starting to hear things like “that isn’t in scope” or “we can definitely help you out with that, and it would be somewhere in the $xxx range”. I’m really proud of the way our team has responded to the challenge.
Imagine your profitability is reflected in the water depth of a river. If you look at the Value Gap Depth Finder on the infographic below (click on it to see a bigger version), you’ll see the effects the three things we identified in the Value Gap had on our business—a drought bringing the water depth down to 50% of where we want/needed to be. Now, this seems fairly harmless until you consider the ramifications of the waters being this low.
If you have ever seen a river or lake that is really low, the landscape changes pretty dramatically. Rocks, logs, and sometimes even abandoned cars, start popping their heads up through the surface. All of these had been in the water all along, but the low waters expose new obstructions that now have to be navigated if you are driving your boat.
When you are well below your profitability goal (A), problems seemingly are everywhere and the path is extremely treacherous. More time and energy is spent avoiding disaster than focusing on the real goals and destination. As profitability (and the water level) continue to rise (B), navigation becomes easier, allowing for more time to be spent making your business better and more efficient…which hopefully in time leads to an extremely streamlined and profitable company (C) with a well-treated staff, and a less-stressed, fulfilled, content, and proud entrepreneur.
As your business continues to grow, you’ll be driving an increasingly larger boat, which makes navigating around obstructions even more difficult. Therefore, it is extremely important that you are continually spending time working on your business and not just in it, as well as empowergizing your employees to look for, identify, and help fix inefficiencies in your business model.
1) What obstructions have you faced in your business that either slowed down your potential growth or at least made it much more difficult?
2) What did you do to overcome these challenges?
3) What efficiencies would help make your business more profitable?