Profit is the lifeblood of business. Without it your business won't last very long.
I learned the hard way that profits don’t equal cash. When I first started in the vending business I was all of 24 years old. The first few years were great. We added a ton of business and our profits were strong.
I thought I had figured it all out. Then, as often happens when you own a business, the Universe thought it had a better idea for me. I learned that profits and cash are two very different things.
I’ve written a bunch of blog posts about why profits are more important than growth. It’s funny how the people who respond negatively to these posts are advisors or people who used to be in business. Business owners who have successful companies seem to get this principle.
If you own a business you’ve been down this road.
I just finished reading an interesting book on innovation called The Innovators Solution. In the book there is an interesting question posed, “Do you need profits or growth first?” Interestingly enough, the answer is it depends. It depends on the culture and the needs of the investors.
Understand the needs of your investors.
If you don’t, you need to. This is not a soft squishy metric, this is a hard one. It’s not based on how much business a customer does. It’s based on how much profit a customer produces. It’s not about having a prestigious customer (there aren’t any), it’s about cash in your pocket.
Somewhere around 30 years ago I put an account profit and loss system in our vending company. For the first time I was able to evaluate how much profit we made on each and every account we had. Boy, was I surprised. I thought I knew my business and I was sure I knew which accounts made us money and which ones didn’t. I was wrong and wrong.
We’re in the process of bringing a new evaluation tool on board. This tool helps us evaluate and monitor 18 areas of wealth creation within a business. While talking with the CEO of the company he mentioned to me that he doesn’t think that profits and creating value are the same thing.
I often talk about strategic marketing. When I first start the conversation many people will ask what the relevance is for their company and themselves. This is a good question and one worth taking a few minutes to talk about.