3 Paths to Profitability: Thrive in a Depressed Market as a Small and Medium-Sized Business
The article emphasizes three key paths to profitability: increasing sales, improving productivity, and cutting expenses. It encourages building a culture where managers actively seek and share new ideas to ensure long-term business success.
Key Takeaways:
1. 3 Paths to Profitability
2. When is the Best Time to Improve Business Operations?
3. Building Innovation into Business Culture
Losing Focus on the Business
Various factors can impact the rise and fall of a business or even an entire industry. Recently, I spoke with a seasoned professional of the retail auto industry who shared with me his story of such a rise and fall.
During and post-COVID, consumers assumed car dealerships struggled due to the supply chain disruptions leading to a shortage in new car production. However, the reality was quite different. Dealerships were raking in record profits during this period because new cars were selling well over their sticker price, often pre-sold before they arrived on the lot. Used cars were in short supply and selling at a premium while service departments were fully booked because consumers were keeping their cars much longer.
As a marketer specializing in employee healthcare benefits, I encountered a surprising lack of interest from auto dealerships in reducing operating expenses or improving employee benefits during this period. Many of them were entrenched in their business, with their managers lacking incentives to explore alternatives.
Today, however, the auto industry presents a different landscape. Dealerships are overstocked with car inventory that’s not selling. Some manufacturers have well over a year’s supply of slower selling models sitting on dealer lots. Consumers are rejecting electric vehicles, and inflated vehicle prices are taking consumers out of the buyers market.
Grass Grows in the Valley, Not on the Mountaintop
This piece of wisdom has been around a long time but is still very powerful. Business owners are most innovative in a depressed market because they are focused on recovery. When operations are running smoothly and profits are good, it’s easy to get distracted by other business opportunities or a new vacation home, but top performers take advantage of the good times to continue innovation so the bad times become less impactful.
There is another saying, “There is nothing new under the sun”. Smart business owners don’t invent innovative practices out of nowhere, they embrace existing concepts that have the potential to improve their business. The challenge is to learn what these concepts are and where to find them, and that brings me to my primary point.
The Three Paths to Profitability
Business Operations 101 teaches us the three primary paths to business profitability are:
Increase sales
Increase productivity
Decrease expenses
The question immediately becomes, what sources do I use for new ideas that impact these three components? How do business owners optimize their exposure to new ideas?
Going back to the retail auto industry as an example, car dealers routinely meet with other similar sized, non-competitive dealers and discuss best practices. In other words, they learn from each other to the benefit of the entire industry. There are also trade associations, publications, and abundant media sources.
One practice I’ve observed working effectively is to task managers and supervisors to bring ideas to the owner. This is part of a culture that must be established in the business whereby each manager is expected to be perpetually observant and receptive to new concepts with the potential to improve the business, then share their discoveries with the management team at their periodic meetings. It doesn’t have to be an innovation the manager has committed to support, in fact, the concept may just be something novel the manager is uncertain about, but feels it’s worth consideration.
Department managers have separate sources of information from the owner, whether it be social media, industry organizations, vendors or outside salesmen, as a decision maker, they are the focal point of a cross section of new ideas. If the management team is programmed to be on the lookout for credible opportunities for improvement, it gives the business owner much more exposure to new ideas that could improve the business.
Everyone in the business should be regularly reminded what they do and how they manage their own actions in the business has an impact on the success of the business. A successful business benefits everyone who works for it, empowering key people in the organization to play an active role in creating a successful future for the business builds long term employees and thereby, stability.
