When profits are low and cash flow is weak, we typically attempt to turbo-charge our sales by doing the same thing, only louder. While putting your sales and marketing activities on steroids is always exciting, a wise business leader has many additional levers to amp profits and cash flow.
Sometimes the problem requires a more radical approach: questioning and overhauling the business model. We rarely revisit or reconsider business model issues when thinking about growth and profitability issues, yet the business model is often the saboteur.
A business model asks five questions:
- How many resources (time-effort-money) have to be invested?
- Over what period?
- To produce what volume of revenue?
- Is that revenue adequate to cover the costs of creating and servicing that revenue stream with enough left over to justify the effort and risk?
- Are the investors (who allocated the resources in #1 above) provided with a superior return on their investment in the desired time frame?
In other words, the problem could be that you don’t have enough customers. Or,
Maybe you have enough customers, but you are not charging enough. Or,
You are charging enough, but the costs of marketing, servicing, and fulfilment on the revenue are excessive. Or,
The costs are in line for this delivery channel, but there are more efficient channels available. Or,
the cost of production is excessive, which is screwing up your economics.
So many reasons why the model might be broken have nothing to do with amplifying our sales and marketing tactics.
I suspect you are like me and most other business leaders I know who have decided to grow our businesses to become more successful. And, like me, you have occasionally experienced less profitability and cash flow because of that flurry of activity.
Outgrowing your business model is usually visible when your machine starts to rattle or inefficiencies pop up, resulting in smaller bottom line profits and more drama. That is a sure sign you have a business model problem, not a marketing challenge.
Thinking Time
- Where am I incurring legacy costs associated with how things used to work versus how things are working today?
- Why isn’t my business more profitable on the amount of sales I am currently producing?
- How do I get my machine to breakeven with the current revenue volume?
- Considering today’s drastically different economic environment, how do I get to cash flow neutral on a monthly basis?
- Where are we incurring costs that do not support either keeping the customers we’ve got or getting new ones?
- Where is the investment I am making excessive for the returns I am achieving?
- What must happen to reduce the investment and simultaneously increase the returns?
- Is it possible I need to tweak my business model by redesigning the machine?
- Knowing what I now know, if I could start with a blank piece of paper, what machine would I design and how would I run this business?
- If my Board of Directors fired me and brought in a new CEO, what changes would she make?
Thinking Time!
You can thank me later.
Baskar Sundaram
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