15 Jul Business Building Lessons from The Profit.
I am not afraid to admit it. There is a reality show I enjoy watching. You may have caught a few episodes as well.
I’m talking about The Profit on CNBC, featuring Marcus Lemonis, who in addition to running Camping World, has a $2 million dollar fund that he invests in small to midsize businesses in trouble. In each episode he “goes on the hunt for struggling businesses that are desperate for cash and ripe for a deal. He offers cash for a piece of the business, and a percentage of the profits. Once inside these companies he’ll do almost anything to save the business, and make himself a profit”.
While to date none of the companies have been professional services firms the problems he encounters and the solutions he offers cut across all types of small to midsize businesses. We see the same mistakes, and offer many of the same remedies to the small to midsize IT services firms with which we deal. I haven’t seen all the shows but there seems to be common threads among the companies as they either try to recover from poor performance, or take their business to the next level. The lessons are there for IT services firms as well, chief among them and right out of our playbook are:
- Focus on your core competency. So many of the companies he portrays have wandered far astray from the products and services that got them to where they are. The companies have lost focus, spent too much time, money and resources on less profitable lines of business, and weakened/confused their brand in the market. He gets them, or tries to get them, back to their core competencies.
- It’s about profit, stupid. Many of the companies are so focused on revenue they have lost perspective on the reason you go into business in the first place, profit. So many of these companies, with respectable revenue, are losing money and often lots of it. You can’t spend revenue, well I guess you can, which is why they are in trouble.
- Know the numbers. It is flabbergasting to see how many smart people are so clueless about the basic metrics of running their business; things like sales per employee, the cost of goods, the cost of bringing in new customers, margins on service lines, products, etc., hence number 2. Marcus can be quite prickly when the owners and managers don’t know the numbers.
- Working capital and cash flow. This goes hand-in-hand with the above, but many companies are stretched to the limit with available cash to run the business, and are often leveraged to the hilt.
- Check your ego and your emotions at the door. Because so many entrepreneurs have poured their heart and soul into the business, it is easy to not see the forest through the trees. They become blinded to their ideas and their ways of doing business. This may be the right posture at the initial stages of the business, but at some point you’re going to have to give up some of the control to the people you’ve entrusted to help you run the business. This brings us to the next item.
- Right people for the right job. Of the companies profiled, most had truly excellent employees. Many were in the right job, doing the right thing. Others, well, less so. They were given responsibilities far beyond their abilities, often family members, or favorites, or in some cases even business partners. Marcus has proven to be very objective and very tough when it comes to doling out responsibilities to those that earned it, and demoting those that haven’t. It’s not personal, it’s just business.
- Sales and Marketing. Entrepreneurs bless their heart, often have this “build it and they will come” mentality, believing quite naively that their better mousetrap will drive the world to their door. They underestimate just how difficult it is to generate new customers and underestimate it over time. Just because you know your product or service, and believe in its virtues doesn’t mean your prospects will have the same convictions.
For those who haven’t seen the show, check it out. For anybody thinking about starting a business, this is as good a course in basic business management you’ll find.