Is your profit low because you are doing too much?

Phil runs a medium-sized business. Although top line revenue was good, profitability was poor. Phil decided the business needed some new “growth initiatives” to boost profitability.

So Phil and his management team locked themselves away for a couple of days with a pen and a flipchart to brainstorm new things the business could do.

Phil was delighted. At the end of the two days the team had filled twenty sheets of flipchart paper with new ideas. They bounced back to the office filled with excitement and enthusiasm for the year ahead.

The management team shared the very long list of growth initiatives between them – the eight-person team had a total of five projects each. They acknowledged they were going to be busy, but were game to give it a go.

A year later the team headed off for their two-day retreat in a sombre mood. They had worked harder than ever over the past 12 months but profitability was still low and not one of the new growth initiatives had flourished.

The story of Phil is very common. Broadly speaking, small and medium sized businesses suffer from having either no growth initiatives or way too many. It’s almost as though we do nothing of a strategic nature for ages and then rush to make up for lost time when the mood – or necessity – finally takes us.

The 20-page list of initiatives fails because all businesses have limited resources. It’s always better to focus those resources on just a few initiatives than to spread them across many.

Successful global companies know this they have just three strategic priorities to Phil’s 40 but smaller businesses like to run with many.

Although you may feel that you are hedging your bets by taking on a number of initiatives at the same time (on the basis that if one doesn’t work at least you have a stack of other ones that might) you are actually setting them all up to fail.

It sometimes helps to think of this like a fairground game.

At the fairground you keep adding weight to a set of scales and at some point the weight will reach the secret amount, which is just enough to trigger a water spray and soak an unsuspecting passer-by.

Each growth initiative is like one of these games. You keep adding resources until you reach the magic point when it triggers results.

The trouble is that you don’t know when the magic point is; and when you are filling lots of different scales at the same time with limited resources, you never have enough in any single one of the scales to get results.

Think about your business. How many strategic priorities are you working on? Cut it down to three. No ifs and buts. Just do it!

Julia Bickerstaff’s expertise is in helping businesses grow profitably. She runs two businesses: Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses. Julia is the author of How to Bake a Business and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University).

 

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