We overestimate what we can achieve in 1 year and underestimate what we can achieve in 5 years (this could be a great “true or false – why” post on linked in, asking people to weigh in with examples, and pointing them to this blog post)
Or do we? Many business leaders set backwards-looking goals for profitability that inevitably have them setting a single-digit increase as a goal for the year.
Amongst the clients I work with, that’s underestimating what is possible! However, many businesses fail to reach even a single-digit goal because they take a conventional approach to increasing revenues and cutting costs. Although that looks like the right strategy on the surface, it often fails to deliver meaningful impact. Why?
Well, look at any “Top100” list based on revenue, and you’ll inevitably find that about 40% of the companies that INCREASE their revenues actually DECREASE their profits. Not all business is good business, but we’ve all been trained to fall into the Revenue Trap – assuming that top-line growth turns into bottom-line growth. Counterintuitively, often companies who decrease their revenues increase their profits ($, not %) by eliminating revenue that’s costing more than its worth. Which would you rather have? More profit, or more revenue? When was the last time you thought outside the box at what it might mean to your business not to simply chase more revenue until you determine what good revenue looks like?
Let’s take a quick look at the conventional cost-cutting approach to profitability. Typically, we cut, training, travel, and perks, and put new investments and hiring on hold. Hmmm… those actually aren’t COSTS, those are investments in the future success of our business. Not only does that approach fail to achieve any significant cost savings, but whatever savings are achieved are not sustainable. With the best of intentions, we hold our business back instead of moving it forward. What if you could actually cut costs that simply shouldn’t be there in the first place? Over time, sludge costs creep into the system, particularly in the area of customer service. Busy customer service lines is a key indicator that you’ve got sludge in your business that’s driving unnecessary costs to serve. Once again, counterintuitively, when you eliminate the sludge, you’ll actually improve the service levels experienced by your customers.
My new book, Profit in Plain Sight, will be hot off the press at the end of January 2014. If you need a plan to profit with integrity, this book lays out a 5-step roadmap that addresses the issues of top- and bottom-line growth, eliminating unnecessary costs to serve, and more. You’ll find an interesting story on page 26 about the costs of looking backwards to set your goals, rather than forward. Pre-order your copy at www.ProfitInPlainSight.com/Preorder for just $29.99 per copy, and find out how you can set 1-year goals well beyond what you may be thinking of today, AND actually achieve them!
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