Every business seeks growth, especially small business, where a few new customers can cover the overhead and transform loss into profit. The owner tries a new marketing message, or goes after a new market, even if it means new products. He or she is not afraid to customize to get one new customer, or may even come up with a new brand for a second identity.
Finding the Profitable Parts
Experts in turning around businesses take a different approach. Before expanding, they seek understanding.
Turnaround experts ask “what works today, and what does not?” They look at the margins of products or product lines, customer groups, geographies served, and production processes. Usually owners have never analyzed these segments of their business, and the results can be astounding!
Armed with this segmented margin analysis, turnaround experts work with the owner to decide on one more input: what margin do you need to meet your goal of saving or expanding the business? Knowing that, they can see which segments meet the target. You want to do more of those! Find more customers like those customers; make more products with that process; sell more into the best geography or find similar areas.
“Segment margin analysis” usually leads to figuring out how to fix the laggards. That’s natural, but typically results in minor gains, if any. It is often more effective to push the laggards aside for the moment, and focus instead on doing more of what works. Celebrate these successes, and find ways to do more of them! Spend your time and money on success, not rehab.
Focus Resources on the Winners
The segments with margins below target call for improvement or cancellation. If you work on improving them, as you probably have already been doing, your attention and resources are devoted to them rather than to growing the successful segments.
On the other hand, if you decide to close them down, the time and money you spent there can be re-invested to grow the successful segments. If there is a quick fix with major results, great! Otherwise, you must decide when doing more of the same and hoping for different results is a triumph of heart over head. You already know what works well! Concentrate resources where your company has the best chance of winning.
The following is from Growth through Focus: A Blueprint for Driving Profitable Expansion, by Khosla and Sawhney in Strategy and Business, Autumn 2010: “…growth often comes from fewer but stronger arrows aimed at fewer targets. The engines of growth are focus (fewer brands, fewer categories, fewer markets) and simplicity (simple vision, simplified execution, and simpler organizational design)…complexity is an avoidable enemy of growth.”
Fewer arrows at fewer targets implies a different vision for your business. For guidance on re-developing your vision, see the five blog posts under this heading: Vision Development | Thomas H. Gray.
Next week’s article will address some techniques for growing your business through focus.
Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com
Tags: engines of growth, segment profitability analysis, success not rehab, turnaround experts ask what works today, “Growth through Focus”: Prune Your Business
