How Do I Get Past Breakeven and Grow Profits?

It’s a question I hear fairly often and a frustrating place to be, especially when you’re working 10-12 hours a day and not making much progress. I know because I’ve been there myself.

Back in the late nineties, in fact, I was facing that exact situation as a newly promoted President of an office furniture manufacturer. It was an established business with a solid product line and long-term customers. The problem was that some months we made a little money, some months we didn’t.

Needless to say, my first priority was finding a way to, at least, consistently break even. Frankly, it was pretty simple: Cut your costs and figure out how to live within your means. It didn’t take us long to get there.

What was much more difficult, however, was generating profitability and a sales trajectory that was appropriate for our business. Because even though we had figured out how to not lose money, we seemed to be stuck, hovering each month just above breakeven.

When one of our best clients took me aside and said, “You guys are working way too hard for the results you’re getting,” it affirmed what I already knew.

Something had to change.

Take stock of what you’ve got

For the entire history of our company, we had manufactured traditional office furniture: file cabinets, storage cabinets, metal desks, etc.

In short, we were a regional manufacturer offering more or less the same product as everybody else. When the industry shifted to panel systems and ergonomic seating, we didn’t have the capital or the capability to compete with the huge manufacturers.

So we took stock of our core competencies: We had a 50-year legacy, a strong dealer network and financial stability at a time when many other companies were going under.

Combining this with a sense of where the market was going and an objective look at the economics of our operation, we decided to focus all of our efforts on shelving, an area that, while quite profitable for us, had been just a small part of our business.

It was risky.

We had to change our marketing, our inventory, our sales approach and our dealer relationships … nearly everything. We were even selling against ourselves because we came up with a marketing plan that showed why our shelving was a better value than our vertical files!

But we did it. Over time we successfully transitioned to shelving as our main focus and started to see the kind of growth and profitability we needed to sustain our business.

Get out of your comfort zone

It would have been easy for us to just putt-putt along for the next couple of years – to settle in and be satisfied with a small return – like lots of business owners. But the problem with that approach is that business is a game; if you get too comfortable, your competitors will take advantage.

If your profitability is also lagging, here’s how you can take a similar approach in your business:

  • Acknowledge there’s a problem. Many company leaders are reluctant to admit that business is faltering. Second and third generation family business leaders, in particular, often burdened by the family legacy and success that has come before them, have a tendency to stay the course, far beyond the point where it makes financial sense. It’s easy to comfortably fall back on, “We’re doing everything we can.” But as described above, this often equates to comfortably losing.
  • Identify your “islands of profitability.” Even a business that is losing money will have areas of high profitability – product lines or services for which the margins are quite high even if the sales volume isn’t. And while these offerings may have been dismissed or overlooked in the past, they often represent a next path. So take the time to dig in and figure out where your greatest margins lie.
  • Look for the market opportunity. In the case of our shelving business, once we realized how high the margins were, we asked ourselves a simple question: “If this were the only product line we sold, how would we sell more of it?” We then took steps to leverage our existing salesforce, reputation and dealer network. You’ve got similar strengths, history and relationships in place. How can you leverage them to boost sales in your most profitable areas?
  • Shift your business. This last step is undoubtedly the hardest because now you need to take action. Now comes the time to go full steam ahead after your new focus, a shift that will likely require changes in marketing, internal processes, dealer education, point of sale materials, etc.

Does this mean that you drop your entire old business overnight?

No. There’s no value in just picking up and moving away from all your long-term relationships, products, services and contracts. That said, a company that goes bankrupt doesn’t help anybody. You need to push hard in the new direction, something that most companies undergoing a change don’t do deliberately enough or quickly enough. As I like to say, “Be aggressive, but not reckless.”

If you do find yourself in a hunt for significant improvements in profitability, here’s one thing I can promise: You’re going to lose sleep over this. None of the solutions needed are easy or obvious (if they were, you would have already done them).

But, given the choice between a slow, inevitable death from meager profits and lost market share vs. a little bit of calculated risk, I’ll take the latter every time.

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Brian Oken has helped dozens of business owners and CEOs become better leaders, build more effective teams and grow bottom-line profits.

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