Mathemagics: How to Grow Your Business Through Subtraction
The old adage, “You don’t get bigger by getting smaller,” does not always apply in the modern business world. In order to thrive in today’s fast-paced, global marketplace you must think differently about what is essential to growth, and where and how to invest your limited resources.
Subpar Subtraction: Where Businesses Miss Growth
Big corporations have gotten it wrong for decades. To “pump up” stock prices and appease shareholders and the board of directors, they have historically downsized and reorganized during the fourth quarter to artificially improve short-term financials. However, if you don’t make fundamental changes to improve operational performance in parallel, this is a ‘slow-bleed death’ strategy that ultimately leads to failure.
Most short-term actions taken by a struggling company tend to move it farther away from its growth objectives, while also negatively impacting people, morale, services, etc. Don’t fall into this trap when your business hits a bump in the road. There are other ways to lower expenses and improve performance that do not involve staff cuts, or a “knee-jerk” reduction of services vital to long-term, sustainable growth.
“When you remove just the right things in just the right way, something very good happens.”—Matthew E. May
Superlative Subtraction: Grow Your Business With Smart Cuts
However, it will require more forethought and work on your part to accomplish. Below is my list of both the short- and long-term actions to consider if you want to accelerate growth, whether your business is thriving or facing a downturn.
Eliminate the “clutter”. To ensure proper alignment of resources, take an in-depth look at the business from the inside out. Cut the expenses and dispose of anything that does not improve revenues and profits, customer satisfaction, operational effectiveness or employee productivity.
Outsource services. Outsourcing can help to improve operational performance, reduce costs, gain entry to new markets, provide access to skilled labor and expertise, and free up internal resources to focus on the core business requirements.
Invest in your people. People and intellectual capital are the two greatest assets for any business. By investing in your employees you are expanding the knowledge, skills and expertise required to improve productivity, fuel innovation and growth, all while improving employee morale and retention.
Retain high-value/high-potential customers. These two categories represent 50 percent of the customer base for most businesses, and 90 to 95 percent of the profits. A 5 percent improvement in retention can yield as much as a 25 to 50 percent increase in profits.
Drop unprofitable customers. Are you concerned about short-term revenues or profits? If profitability is your primary concern, then take a close look at your existing customer base, your gross margin targets and get rid of any loss leader accounts.
Put more emphasis on marketing. One of the quickest ways to recover from a business downturn or to accelerate growth is by emphasizing marketing, not scaling it back. Shift budget to areas that have historically yielded the greatest ROI, and away from under-performing programs and initiatives.
Raise prices. Increasing prices is an effective way to improve both top- and bottom-line results. Why? Because increasing prices requires minimal resources to implement and the “net” profit returns are immediate. However, be careful any price action taken doesn’t result in the loss of profitable customers.
Subtraction Should Lead to Action
Not all of the actions highlighted above represent direct subtractions. However, they all can have a favorable impact on business performance and growth, when effectively implemented.
Growth by subtraction should be applied to all areas of the business to ensure consistency and optimization of budgets and resources. Subtracting those things that distract from your overall business and financial goals will put you in the best position to achieve long-term success.