Revenue vs Profit

I worked in the legal industry for 15 years.  It’s an industry going through a transition because the producers are having to better understand the difference between the two. I’m over simplifying but a common perception was “I brought in $50 million so we made money”.  Uh maybe.  Understanding revenue vs profit is very important in small businesses… ok big too.  It’s critical when setting strategies & processes.  While it seems so “well duh” it’s really misunderstood a lot.  A couple examples…

  1. All revenue isn’t good revenue – Wait what?!  I have rent to pay!  Yes and adding a new service, marketing towards a new client type or upgrading a product may increase sales but in the end decrease profitability.  It can also reduce service for your current clients or simply take focus off your core competencies.  Steve Jobs once said, “I’m sometimes more proud of when I said no than yes”.  Think about the probably impactful, world changing and just downright cool ideas he said wasn’t right for Apple. Growth is critical to your success.  However, all revenue isn’t good revenue.  Just because it’s hot doesn’t mean it’s right for your business.
  2. Control costs – Well, first you must understand your costs. (Hint, hint – my post on dashboards).  Taking care of clients, selling, making money & building teams are why you started your business.  Just remember at the end of the day though… it’s a business with two sides of the ledger.
  3. Keep it simple – Again, stay focused on your core competencies.  Your business should be building blocks stacked on the foundation of what you do well.  Everything should fit nice and snug. If not, one piece can… well, you get it.

If it ain’t broke…

… break it anyway & make it better.  Sears, Kodak, Tower Records.  Stagnation kills.  Ok, Tower was killed by many things but I loved the store on Sunset Blvd.  Anyway, off my tangent.  Especially as an entrepreneur you need to adapt.  If you came up with a great product, process or even bought into a popular brand people are chasing you.  To use a racing analogy “they’re in your draft” and because of that they may actually be more efficient than you.  So your job is to stay ahead of them.  These are some areas you should always be figuring out how you can get better…

  1. Customer service – Technology is giving us opportunities all the time.
  2. Pay plans – Should drive performance and identify team ineffectiveness.
  3. Product delivery – Two words = Amazon & Prime.
  4. Marketing – Technology has changed marketing so much.  While each customer touch point can be much cheaper than before it is for everybody else as well.  How can you get through all the noise?
  5. Team culture – Anytime you help your team improve culture you will help customer service.  Treutt Cathy made one of the great companies with this being a primary focus
  6. Expenses – There are two sides of the ledger.  Controlling the expense side provides the opportunity to improve in #1-5.

Have a candid conversation with your team and see where something may not seem broke… but it would be really good if it was fixed.

Are you a data geek?

I wonder how many entrepreneurs are data geeks?  I think I am.  I love illustrating the status of my business.  I’m sure most entrepreneurs who are deeply involved in the operations feel confident they know the pulse of their business.  Do you really though?  For my business, I’m not directly involved in operations.  I have multiple locations and I need to be able to create benchmarks to understand trends.  Whether you’re actually making the donuts or not it’s important to be able to rise above the fun and understand your business quantitatively.  Having tools that are manageable but are results oriented (very important!) is critical.  There are basically 3 types of management tools or dashboards:

  1. Operational – Monitor for efficiencies and inefficiencies.  What are your benchmarks and how are you performing against them?
  2. Strategic – An example is marketing data that illustrates which campaigns are providing the best ROI.  Also, what products sell during different times of the year so you can keep your inventory turns healthy.
  3. Analytical – How can you get better?  Does raising commission actually increase performance?  These can be financial goal based as well.

All this is good only if your system fits your style & workflow.  Create a couple simple ones and see how they work.   They can be spreadsheets, Domo or I use Tableau.  Admittedly I use about 2% of Tableau functionality but it’s a great tool with a ton of online support to learn from as well as user groups that are helpful.

Your first evaluation point should be was the time you spent entering the data worth the amount of insight you gained?  Because if your a data geek you’ll start to create dashboards just to create them.  Not good.  So try a couple simple ones out and see what you learn!

So here I am…

I’ve been gone a while.  Not gone but in a different direction.  As entrepreneurs it’s really easy to go in too many directions.  Let me restate that.  It’s easy to go in a wrong direction.  That’s ok.  That’s who we are.  Sometimes it’s a big sign, sometimes it’s a subtle sign but we always get to the right answer of the right vs wrong direction.  So what did I learn when I was going in that different direction?

  1. I saw first hand why many smart, product focused entrepreneurs with great industry insight don’t become successful. As Bill Gates said, “I built Windows but I could have never built Microsoft”.  Paul Allen built a company of people, processes and product management.  Most entrepreneur’s don’t have the skillset to build an effective organization.  That’s ok.  Everybody brings a certain value.  However, it’s important to understand what you do well and find partnerships to fill in what you don’t.
  2. Similarly, as Steve Jobs said, “It doesn’t make sense to hire smart people and then tell them what to do; we hire smart people so they can tell us what to do.”  Just because you may be the smartest guy in the room doesn’t mean you’re the most effective at getting the job done.  Embrace & encourage other opinions… trust me you’ll learn something that will help you.  It’s your company & your vision.  Excecution is a cross functional team sport though.
  3. Don’t swim upstream.  Whether it’s in a Fortune 500 or a 100 employee company you have office politics.  It’s actually productive if leadership understands how to harness the positive energy in it.  However, if you allow a few to hijack the company for personal gains… well, you’ll realize sooner or later their priority was never the company anyway.
  4. Respect your team.  It’s so simple but your organization is as good as what your team thinks of you.  It really comes down to that.  Don’t believe me?  Ask Travis Kalanick.  Leadership starts with you.

So keep going in the direction your heart takes you. Your heart will also let you know where not to go


I think this is a great post by Jack Welch.  By the way if you haven’t read his book Winning stop reading this and go get it.  It’s that good.

Ok, back to micromanaging.  It’s tough.  As probably a former employee from another company you don’t want to be micromanaged so you don’t want to micromanage.  Remember though… everything and anything that happens in your business is your responsibility.  When you run a small business that is critical.  You may not want to micromanage but remember as Welch advises, “Your help matters when you bring unique expertise to a situation”.  Most likely you will bring that more than not.

Why I Love Micromanaging and You Should Too