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Don’t get run over by Profits

January 16, 2008 by Mainak Biswas under Management424 views
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Last day, I spoke about some considerations that you must take into account while starting your business. While I am not too much a fan of grand vision and mission statements, I strongly detest the idea of being too verbose about profitability.

As a young business you should not be driven by profits but you should understand what drives your profitability. First let’s attempt to understand what profit means. According to Michael Porter profits are no more than the sum of the difference between the price that customers pay for an activity and the cost of that activity. Thus, if customer is not paying for an activity then it’s non-revenue generating overhead. As a startup, you must minimize this overhead. The best way to do this is ask – “why am I doing this?”, before you add any process or demand a new report. Don’t put the cart before the horse, profitability within the business depends on certain fundamentals and you need to:

1. Drop the image of a lone warrior and focus on building a team. You’ll need to hire and retain the best people you can find. If you don’t have good talent then you will never be able to do things as effectively and efficiently. On the other side, the cost of replacement of your best people is incalculable. If you have good people then you will navigate through anything.

2. Minimize overhead. You need to ensure that maximum efforts are put in revenue generating activities. If your best people are not spending their time productively then you are not growing as fast as you should be.

3. Be crazy about customer success. You need leave a breadcrumb of successful projects and clients. If you focus on this well then, you marketing and sales will almost be on an auto-pilot for lifetime.

4. Stop competing on price. It’s not wrong to enter a matured industry without having something special (read different) to offer to the market. But, you should never differentiate yourself on price. The reasons for this demand a separate article but I would like to hint that a differentiator should not be easily copied by competitor and price could be easily cut further by an ignorant competition.

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