How much is that one additional unit worth?

Most college econ courses teach marginal economics.  So, not to scare those who didn’t take econ, here is a simple explanation.

Let’s use breakeven as our test

Let’s say that your company is exactly at breakeven. Here’s the importance of that event and how it affects every productive move you make after that moment. There is amazing leverage in high gross profit margins once a company is past breakeven.  Every dollar of gross profit falls to the bottom line, increasing net profit faster with each transaction.

An example to make this clear

A ten percent increase in revenues for a company with 50% gross margin and 5% net profit before the increase would double net profit for the period with that ten percent increase in revenue.  That’s impressive sales leverage.  Just to be fair, a 5% cut in costs would also double net profit.

The point is that once your company is stable at or above the breakeven point, one incremental unit generates robust increases in net profit.

How does this work with online-based companies?

[Email readers, continue here…]  In an Internet-based business, power comes not just from high gross margins, but also from an increase in the percent of conversions.  Visit to purchase, click to close, or other terms are used in various industries to describe the measure of conversion rate from initial landing on a page displaying purchase information about a product or service.  No good Internet-based business fails to measure conversion rate carefully and experiment with photo placement, ad words, key descriptions, product positioning – all to increase conversion.

Still comfortable with direct mail?

Well, let’s start with direct mail is slow, costly, hard to measure, and impossible to change once the mailer has gone out.

And that’s why the major focus that used to be in the direct mail business to drive sales is now focused upon email marketing campaigns, social networking marketing, influencer marketing, and location-based sales using tools to recognize shoppers at the point of sale.

Back to the incremental unit

All these new tools are used to drive sales of the incremental unit, sales that would have been lost if not for the ability to recognize specific qualified buyers from within the general public.  Cheaper marketing cost – more targeted to a ready-to-buy audience, all toward driving incremental sales, has been made possible by the use of the Internet to seamlessly gather information and present offers at the right time to the right potential purchasers.

The purpose is to see that incremental unit

Which brings us back to our start.  Getting to breakeven, allows us to at least double our net profit with the next unit sold.  And that’s power!

Perhaps you should reach out and touch someone

If you are still worrying over what tools you need to reach your potential customer, perhaps this is the time to reach out to the new class of marketing professionals who understand how to capture and utilize targeted data and present products and services to a pre-qualified audience at the right time for increasing purchase decisions.

Posted in General, Growth! | 1 Comment

Should you cast your net where the big fish swim?

This is one of those “My dad used to say” homilies.  You’ve probably heard the accompanying “It takes just as much effort to sell a small deal as a big one,” over the years.

It is not that simple in the business world

The truth of this is more nuanced.  Some businesses will prosper in the shadow of larger competitors by specializing in those smaller accounts that are just not attractive to those with higher overheads and larger aspirations.

Aim high for that major account

But for most, the true sign of success and potential for even more is in the landing of a major account, one that validates the pricing, quality and competitive advantages of a company’s offering.  For this reason alone, it makes sense for most of us to aim high once we have worked the kinks out of our offering with smaller customers.

But readiness is the major test

On the other hand, the worst thing you can do is land a big fish when not prepared to reel it in.  It is hard to recover from any failure to perform, but doubly so when the customer is highly visible in the industry.  So, it is worth building the business’s capabilities through stages of customer size if the goal is to serve the biggest and outdistance the competition at that level.

How large a fish can you handle?

[Email readers, continue here…]   I have been on the board of a services company that specializes in the middle of the market, knowing that very large competitors throw lots of resources at the largest accounts – resources that our company just does not have. Rather than being constantly beaten in this arena, the company has chosen to compete in an area of the market it can defend with superior service, which the larger competitors – with their higher cost structure – could not reproduce in smaller accounts without large losses.  Further, scaling the enterprise and its infrastructure to go after the few very large accounts would be at the cost of development for the midrange of the market and perhaps subsequent loss of that share to others.

A personal story about dealing with too large a company

And I am reminded of a cousin of mine who years ago sold custom window blind product to Sears, by far his largest customer, scaling his plant to produce more and more for Sears as orders flowed.  One day a sixteen-wheeler full of returned product drove into his loading area.  Sears, which granted a no-questions-asked return policy to its customers (even for customer errors in measuring their window blind orders) just dumped the product back on the supplier without explanation, nearly bankrupting the small company.

Even though there are many advantages to casting your net to attract the big fish, you should be well aware of the risks involved and have resources available to manage those risks.

Posted in Growth!, Positioning, Protecting the business | 2 Comments

Let’s talk about whistle-blowers

Assuming that a corporate whistle-blower is not tooting about you individually, such a class of people have been granted protections under the law and serve a function that needs to be acknowledged.

Motive of the whistle-blower

First, the assumption is that such a person is not making his or her gesture for personal profit, but to give proper notice that there is something illegal going on within the company that the person cannot accept and must tell someone about.  Note that I use the word “illegal” to differentiate the tell-tale from the legitimate whistle-blower. A tell-tale almost always has a motive based upon political or personal gain, with the exception of when there is a perception or the reality of any form of sexual interference or bullying being reported.  That’s a subject for a separate discussion, and there are civil penalties as recourse for such proven behavior.

Are whistle-blower brave or are they tattle-tales?

Whistle-blowers, on the other hand, if not motivated by a personal reward, are often brave beyond need, risking job and reputation to call attention to an illegal act or acts.  If the person comes to you with evidence of such acts, you must act immediately to address the issue, often including reporting the incident to the authorities along with the whistle-blower.

That’s particularly tough if the consequence is going to be severe against the company itself.  But, if we have learned anything at all from the last several decades of such incidents reported from within highly visible companies, covering up the problem results in amplifying it beyond anyone’s wildest imagination.  Quickly dealing with it and the consequences always is the lesser of numerous alternatives.

Legal protections for the whistle-blower

[Email readers, continue here…]   And of course, the whistle-blower is protected by law and cannot be punished in any way for the deed of reporting a wrongdoing that breaks the law, whether later proved true or false.

Personal motivation? Government agency rewards?

Some agencies offer cash rewards for whistle-blowers that are in proportion to the amount recaptured by a taxing authority or penalties assessed.  Such rewards blur the heroic act into one where personal gain can easily be assumed to be more of a motive for a good deed than brave action. And there are raging arguments from company offices to the halls of Congress about whether a whistle-blower should or must first approach senior management within the company before reporting to authorities. But, no matter what the outcome or how high the reward, that does not change the protection the whistle-blower has under the law.

Posted in Protecting the business | 1 Comment

Which is more important? Workplace safety or profits?

Its a new world out there

Some businesses never sent people to work from home, told they were “essential businesses.”  Soon more will reopen as weeks and months go by.  That’s a relief for most of us from the combination of boredom and lack of social interaction.  Even if we were safer at home as we became experts sharing screens in Zoom.

We have new worries and responsibilities to protect those who return to the office.

With this new environment of the invisible virus lurking somewhere on a surface or in a throat nearby, we will assign super cleaning responsibilities and certainly enforce social distancing rules, hand washing and temperature checks.   But it is easy to envision some entrepreneurs and senior management wondering whether we go overboard for safety as a balance of cost and labor efficiency. Or does a leader just order a return to the normal we knew only six weeks or so before but with a little extra care for cleanliness?

Common sense or possible protection of life?

Much of workplace safety is just common sense.  But there is a natural tension between economy of operation and provision for safety for employees in this age of the invisible killer, and we in management must weigh the resulting risk to the enterprise more carefully than ever before.

How your board of directors should be involved

[Email readers, continue here…]   Good boards of directors have a committee of the board to deal with “audit” issues, which should include analysis and recommendations to management about workplace safety as a part of a broader issue of risk management.  After all, the board and management together are responsible for keeping the company alive and employees safe, protecting the corporate asset on behalf of all stakeholders – including shareholders, employees, and customers.

Safety in a product manufacturing environment

Especially in a manufacturing environment, there are laws created by OSHA and other agencies, and even by those who have experienced the result of earlier accidents that impose upon all companies the hard-earned lessons from the past.

Too many rules and laws?

Many of us groan when reading or hearing of these detailed, burdensome rules and laws.  Yet workplace accidents are harmful to health and safety for all, to morale, and they ultimately cause financial hardships upon the company, whether in the form of lost productivity, increased insurance cost, or debilitating lawsuits that inevitably follow.   And now we add the invisible killer to the mix and worry even more.

How about the tiny startup?

No company, even the smallest, is immune to safety issues.  In this computer keyboard-driven office world, programmers, accounting and office personnel, and many others are exposed to carpel tunnel, back, and leg and neck problems, just by sitting in place.  A single cough into a keyboard or worse yet in the kitchen can be deadly in this new environment. And nowadays the risk of injury, worker compensation insurance claim, lost productivity, and lawsuit are only slightly less in the office than on the factory floor.

Some of us will still travel, adding new risks

And how do you protect your employees who return to travel by air or by car? Are you and they aware of the procedures for extra care around unknown people and new places as they travel? And are your travelers aware of how to inform insurance companies, use their credit card companies and local resources in the event of an accident or sickness while traveling?   How about the extra risk when traveling out of the country? To whom do they turn when in unsafe environments, let alone after an accident or sickness, when isolated from their local infrastructure?

Too many questions, probably never previously addressed

None of us likes to think of these issues which detract from the focus upon growth and customer service.  But these very issues can derail the best of organizations at the worst of times.  At the very least, management and its board should discuss the exposures to safety risks and how they might be mitigated in advance.

And then there is our newest salutation: “Stay safe out there.”  As if we shouldn’t have worried about this before the world turned upside down.

Posted in Depending upon others, Protecting the business | 2 Comments

Have you experienced your disaster recovery event yet?

Have you ever lost all your data on your smartphone, laptop, company server or desktop PC?  If not, it is probably only a matter of time until you do.  Those of us who have experienced this heart-stopping event now regularly back up our data and many of us create daily images of our entire hard drives often, ready this time to address an effective recovery.

The initial shock of data loss

But what about the shock of a fire, a major natural disaster, or even the loss of an important company top executive?  Are you or your board prepared to immediately jump into a pre-planned recovery?  From experience on more than forty boards over the years, I can state that few have even considered the possibilities.  All of us have a phone listing of our employees and associates. But very few have a phone tree for simultaneous contact of larger numbers of people to marshal a recovery from any type of disaster.

Duties of your board of directors

Boards of directors for companies of all sizes should have a person or better yet a committee dedicated to considering the preparations for disaster recovery.  Often, we consolidate this task into the audit committee of a board; and often we expand the subject to ‘risk management’ which includes examination of all forms of risk, from insurance coverage to OSHA compliance and more.

The management and board’s risk register

[Email readers, continue here…]  It is good practice to create a “risk register” listing all the risks to the company you can imagine, who should be contacted first, and recovery steps that are best practices.

The larger the organization, the more the risk

When a company is very small and the company’s assets reasonably replaceable with existing or easily borrowed funds, the event is less likely to threaten the existence of the organization.  As a company grows in size and complexity, more stakeholders depend upon the wisdom of the CEO and the board to think in advance of these unpleasant things, and to attempt to insulate the company’s dependents from a disaster.

Backing up yourself

How about yourself?  Have you been open in sharing your knowledge and talent with a backup, or even a potential successor?  It is prudent and certainly a sign that you take this responsibility personally as a leader among your peers and subordinates.

My past examples of frightening risk events

I have three unfortunate examples in my past of founder-CEOs dying suddenly at their prime.  The shock to each organization was a threat to the very core in all three instances.  Yet as we will discuss in detail in a future insight, in one, the board stepped in immediately to reassure the stakeholders, elect a new CEO from within the board, and reach out to the community with a plan for succession that allowed the business to continue with minimal interruption.  In another, the creditors threatened to close the company, and the board was completely unprepared to respond.  The contrast was quite a lesson to me – one that I would never want to repeat as a board member or senior manager.

How to start the planning process

What if?  How about dedicating at least a half hour of your next executive or board meeting to the subject, and creating a checklist and assignments for covering at least the greatest three risks identified?  It is yet another sign of your growth and growing wisdom as a leader.

Posted in Protecting the business | 2 Comments

Have you lost (some) enthusiasm for the job?

So, you’ve been at this for years through thick and thin, great days and days in which you’ve had better times.  Much of your job has become routine.  But it feels good to see your “baby” grow and others buy into your vision.

That daily routine

It is human nature for you and every entrepreneur to fall into a routine of taking care of day to day issues, meetings, communicating with customers and shareholders.  But you remember the thrilling days when everything was newer, each decision an event, each milestone something to be celebrated.  If you think about it, you also remember that you spent much more of your time on strategic issues and thinking about the business and its growth, as opposed to thinking within the business about its process issues.

Your value to the company

Your value as a CEO or executive is inherent in creating the vision, providing the drive, and forcing focus upon successful implementation of the vision that you bring to the enterprise.  It is where the fun is.

[Email readers, continue here…]   So, how do you regain that enthusiasm for what is best for you and for the company?  There are a number of things you can and should do, and soon.

Things you can do to regain your enthusiasm

Take a day – a full day – off to walk, sit, and think of where you want this company and your role in it to be in the future.  Don’t let interruptions from emails, phone calls and people at the door interfere with this focused effort.

Call for a strategic planning session

Then call a strategic planning session, off site, for you, your board, your advisors, and direct reports.  If needed, hire a facilitator. And provide for someone to take notes.  Lay out your vision to those present as a starting point.  Ask for comments, challenges, and additions. Then spend the rest of the day developing strategies and tactics to get you there.  Finish the process by refining the resulting document, passing it through the same group for comments.

The all-company meeting: Get everyone excited about change

Then call an all-company meeting to focus everyone on the vision, goal, strategies and tactics.  Stand back and watch for the reaction. Most everyone wants direction and to buy into a vision that makes their jobs have meaning.

Monitor progress and become strategic again

Starting the very next day, begin monitoring progress toward the goal or goals, raising your job to one of strategic implementation and guidance, not of day-to-day process.

Your value will increase in the minds of your board, and you will feel much more enthusiastic about your contributions to the success of your enterprise.

It’s your move.

Posted in General, Protecting the business, Surrounding yourself with talent | 4 Comments

Especially now: Play nice!

To survive this nasty Covid 19 surge facing businesses of all types, leaders must make decisions that hurt but are necessary.  Keep the employees for the SBA PPP requirements regarding loan forgiveness, or furlough or let good employees go, so they can file unemployment claims?  And what about termination decisions you make affecting just the few you wanted to eliminate anyway?

I am reminded of the term, “Play Nice!” when thinking about and planning for this possible reduction in staff for survival.

What did Mom say when we were kids?

When you were a kid, surely at one time or another, Mom reminded you to “play nice” when you got a bit rambunctious with your friends.   I was reminded about this by Mark Wayman, a friend and reader, who applied this statement to his recruiting environment. He called out those people who focus upon executives who burned bridges with threats and lawsuits, instead of just picking up their toys and moving on after a bad business breakup.

My reminder to departing employees

Over the years, I have reminded departing employees in their exit interview that we should always, always both take the high ground and speak well of each other, since we never know when we will meet again under entirely different circumstances.  And indeed, former employees (not necessarily disaffected or threatening in their departure) have shown up regularly as suppliers and customers in various companies in subsequent months and years.

There is no immediate gain in threats to an employee or by an employee. 

[Email readers, continue here…]   But there certainly is an immediate loss of respect and the start of a series of events that sometimes cannot be stopped.  A threat of a lawsuit results in that person being immediately isolated and sometimes removed – if the employer believes there is enough evidence of misconduct or poor performance in the file to justify immediate termination.

Placing blame after the fact

Short of threats, bad-mouthing a former employer or employee is the worst possible behavior when considering the effect upon the corporate culture if the offender is the employer, and upon the person making the claim if by a former employee.  The point is that no one wins in this kind of word war.  And if it ever gets to a lawsuit, both parties lose a second time as the lawyers take control and costs escalate out of control.

Remember Mom’s advice

Mom’s advice is almost always right – for business as well as for personal relationships.  Never strike out at anyone before first cooling off and thinking about the relative worth of the effort against the long-term gain or loss.  The resulting effort will be surely muted and couched in a way that you’ll avoid retribution.

Posted in Protecting the business, Surrounding yourself with talent | 3 Comments

Three questions to answer about your COVID response

Most of us are affected by this current crisis. Many businesses threatened with closure forever.  Small businesses are the most vulnerable, even though most have furloughed employees. Rent and other fixed costs continue, even when revenues have dried up – a fatal combination.

So, here are three urgent questions for you

FINANCIAL:  Do you have twelve to eighteen months of cash to cover your “burn rate” now and as you recover?  Raising money during this crisis will be almost impossible, even from friends and family shocked by the stock market declines.

Everything will recover. Stocks will climb again. COVID will become a word used in the past tense.  But that good news will not help you if you run out of money during the time it takes for these to happen.

The financial effect of acting early

Plan for reductions in fixed overhead, salaries, and other costs now. Every day you wait is at least a day lost in the future when you could be growing again.  Apply to the SBA for an Emergency Loan or through your bank for the new “PPP” loan program.   Both are easier to get than conventional loans, and the PPP can be forgiven in some circumstances.  There is lots of literature published by the SBA, attorneys and accounting firms about both.

What are you doing today to modify behavior during this crisis?

[Email readers, continue here…  ]  DURING THIS CRISIS:  Having no plan is like having a bad plan.  Have you squeezed every dime of cost that is non-core related from your business?  Do you still need marketing costs when there is no-one out there buying new product?  Are your salespeople making few if any sales because your prospective customers are distracted by their own problems?

Act boldly to address painful layoffs, reductions in salaries, cuts in trade shows already contracted (even if cancelled or reset to the fall months.)  Rethink the value of these to your bottom line even after you’re open for business again.

What is the plan for after it’s all over?

AFTER THE CRISIS:   Here’s one most small and medium business managers forget in the midst of the panic to survive.  How about a marketing and sales blitz at just the right time to overwhelm your surviving competitors, look larger than life to your largest competition, and restart sales faster and perhaps at a greater clip than ever?  Your competitors will most likely be conservative at just that moment and be timid in their approach to spending lots for marketing and sales.

Consider that some of your cuts made during the crisis should be make permanent.  

Take advantage of shedding the overhead. Test whether those expenses are contributing to profits after the recovery.  It is easier to keep them off the books than increase overhead again, especially after earlier payroll lay-offs.

Be smart!  Plan now for financial and operational changes during and after this crisis.  You’ll be “miles” ahead of your competitors if you do.

Posted in General, Protecting the business | 5 Comments

Cash control during these strange times

And these are indeed strange times, especially if you haven’t lived through 2000-2002 and 2007-2008 recessions and difficulty in finding money from banks and investors.

The simple economic truth

Here is a simple economic truth.  Fixed overhead continues to eat into your cash month after month.  It doesn’t differentiate facile, efficient businesses from slow, disorganized, quality-challenged ones.

A shocking example of operations affecting cash control

If it takes eighteen months to get a new product out the door and into the market, and if a product’s gross margin is ten dollars but the corporate overhead is a million a month, it will take the sale of 67,000 more units to break even than if it were to take only six months to market.  If the total annual potential is 100,000 units, the slower cycle to market just cost the company two thirds of a year in the product’s profits.  With today’s rapid obsolescence, that could be the entire life cycle of the product itself, lost because of being slow to market.

The effect of being slow to market even in tough times

And profits from the sale of the product create cash for development of the next product.  If the time to market is slowed by inefficient development, the risk of a competitive product overtaking yours increases dramatically.

It’s all about fixed overhead and efficiency

[ Email readers, continue here… ]   So, the truth of the statement is self-evident. Because fixed overhead burns cash, extended development cycles burn more cash, preventing earlier sale of product, to create even more cash.  Efficiency in development pays off in less cost and earlier competitive products, often producing greater market share in the process.

A critical question for you

Have you considered how to make your operation more efficient as an important way to increase cash flow?  Most of us are quick to worry over cutting costs.  Some of us worry over how to greatly increase revenues.  Few of us worry over how to squeeze more efficiency out of the development cycle or from the organization itself.

There’s your homework assignment

Consider how, and then work on efficiency as a primary tool to reduce cost per unit of output.  You can also worry over how to make more gross revenue and how to cut costs.  But you’ll do well to address your company’s efficiency first.  Time to find a dark room where you can think without distraction.

Posted in Growth!, Protecting the business | 1 Comment

Have you fallen into the buggy whip trap?

Surely, you’ve heard the buggy whip analogy.  A business making those necessary items ignored the signs of progress and found itself without a market.  Perhaps that happened to sword smiths upon the invention of the rifle, and certainly to the makers of cassette tapes upon the dawn of the CD.  And CD’s with the advent of streaming.

My stories of unexpected change

I found myself in the middle of such a slow-rolling change twice in my career.  First, in the

Source: Wikipedia Common license

late 1960’s (yes, I know, a long time ago), there were 31 phonograph record manufacturing plants in Southern California alone.  By 1975, there were only two.  That is sudden change, brought about by the fast acceptance of the cassette, which in turn gave way to the next technology, CDs, after a rather short lifecycle.  Record plants were noisy, dirty places, using chemicals I can only imagine now rest somewhere in the ocean, to electroplate the “stampers” and press the records.  Cassettes, in contrast, could be manufactured in small rooms with much less expensive equipment and no damage to the environment.

A more modern example

The second time I learned the buggy whip lesson was at the dawn of the personal computer age, and this time we guided our firm without a hitch from minicomputers to networked PCs, even growing the business as we gave up the lucrative $100,000 hardware sales in return for service fees to network our customers’ systems, install our database, and migrate to customer-purchased desktop and servers.

Today the speed of obsolescence is even faster

[Email readers, continue here…]   Here it is, not so many years later, and the signs are more subtle yet, but the speed of obsolescence is much faster.  Take for example, the public’s quick acceptance of Facebook, Instagram, Twitted and other social networking portals, leaving early leader MySpace wondering what happened to their comfortable lead and large fan base.  With rapid sharing of information and recommendations, a fickle public can change its mass preferences seemingly in an instant.

The big question: How to spot the real thing?

Source: Geoff Sinbraldu,

How do you spot the buggy whip trap and differentiate it from a simple business cycle slump?  The answer is simple, but somehow out of reach for most senior executives and entrepreneurs.  Micro trends may seem to be a whisper, as mini-trends follow with leading adopters making a bit of noise.  It is those leading adopter founders and managers that take the chance on new technologies, new companies, new styles, and new idioms.  That is why so many larger companies pay specialty marketing firms to find, court, and listen to those individuals who lead the pack in taste and action.

No expensive consultants? Consider this alternative

For those of us who don’t have the resources to hire these expensive market trend-watching firms, there are simpler yet effective opportunities.  Usually, technology and style trends begin with those aged between 15 and 23.  And which of us doesn’t have at least one close relative or child at or near these ages?  Have you ever asked for an hour of such a relative’s time to discuss what’s “cool” or “coming” or “must have” in their lives?

Resist your “resistance to change”

It is human nature to protect your investment of money, time and brand in your enterprise.  That leads naturally to a resistance to change and inability to willingly move to replace your own product with something new that will kill its revenues.

But we all know that if we do not do it when offered the evidence of product or even industry obsolescence, someone else will jump in to fill the void.   Think carefully for a moment: are you investing in your own form of buggy whip product or service today?

Posted in General, Protecting the business | 1 Comment