Lesson #359: How to Cut Dead Weight Out of Your Business

 

In business, you need to be running as efficiently as possible.  But, I have seen many businesses carrying a lot of “dead weight”, which is holding them back.  Some of that dead weight are smaller things, like being overstaffed or spending too much for services.  Or, poorly investing their sales and marketing dollars.  And, some of that dead weight is pretty material, like operating too many divisions or focusing on channels that don’t have a material payback.  This post will help you learn how to identify the various types of dead weight, so you can assess your business and see if there is any pruning to be done.

Strategic Dead Weight

Strategic dead weight is building a strategy plan that has you focusing in areas that the business really shouldn’t be focused on, investing resources in a way that is either not driving an ROI or it has become a distraction to more profitable areas of the business.  This could be things like supporting too many brands or divisions, or too many products, or too many sales channels, collectively taking focus away from the real core competency or most profitable product line of the business.

Operating Dead Weight

Operating dead weight is basically running the business inefficiently.  That could be having a staff that is too large in relation to the true business needs, or renting an office that is larger than you truly need, or paying more for services than is truly market rate, or worse, paying for services you really aren’t using at all.  Every penny matters in early-stage businesses, and ineffectively investing your precious cash resources means you are flushing dollars down the toilet that couldn’t have been better invested in other higher ROI activities.

Sales and Marketing Dead Weight

Sales and marketing dead weight, is investing your payroll dollars into salespeople that are not driving enough sales to hit their goals (or at least cover their costs) or investing your advertising dollars into campaigns that are not driving a profitable return on ad spend (ROAS). You need to be religiously studying your sales team’s performance and your advertising team/agency’s performance to ensure they are hitting their goals.  And, not only in the aggregate, but line-by-line for each specific campaign, to optimize and prune accordingly.  You always need to be cutting your “losers” and re-investing those dollars to “double down” on your “winners”.

A Strategic Case Study

As a strategic example, when we acquired my current business, it was operating two brands, Restaurant Furniture Plus, targeting commercial buyers, and Your Bar Stool Store, targeting residential consumers.  When running two of anything, that meant double the effort.  We needed to build and maintain two different websites and two-different marketing campaigns, as an example.  When we studied the financials by brand, we learned that Your Bar Stool Store was driving around 20% of the revenues, but only 5% of the gross profits, as its average order size was only $2,000 compared to $6,000 at Restaurant Furniture Plus.  And, there were material operating inefficiencies with serving the consumer market, which often resulted in a lot more phone calls to answer and a lot more claims and returns, which created a lot of extra work.  At the end of the day, Your Bar Stool Store was break even at best.

We decided to shut down Your Bar Stool Store, the original brand of the company, to help us cut our “dead weight”.  It helped us increase our strategic focus on more profitable commercial buyers, it helped materially improve operating efficiencies, and most importantly, it helped us re-invest those marketing dollars into the higher performing commercial business to materially accelerate our revenues and profits.  The “sacred cow” of the founders was sacrificed, to help propel the “better business” to newer heights.

Closing Thoughts

Small businesses cannot afford to be carrying any dead weight. They need to be nimble for maximum speed, and laser focused on what will drive the most profits.   Any things that get in the way of that goal, need to be sacrificed for the greater good, no matter how much you like that “sacred cow”.  It may result in some short term pain, but trust me, the long term gains in focus, efficiencies and profits will quickly mend those wounds.  So, what are you waiting for?  It is time to take out your magnifying glasses and start scouring for any dead weight in your business.  And then, take out your hatchets for larger inefficiencies, or scalpels for smaller inefficiencies, and start cutting away.  Your bottom line profits will thank you!!

For future posts, please follow me on Twitter: @georgedeeb.

Lesson #358: Revenues Lost is More Important to Measure Than Revenues Won

Revenues, and resulting profits therefrom, is often the primary metric that businesses use to measure their success.  I would argue there is an even better metric to measure, which is “lost revenues”.  What revenues did you lose during the course of the year, and what were the specific reasons you lost those customers?  Why do I say this; because you typically close 20% of your leads and lose 80% of your leads?  If you can figure out how to reduce that 80%, you can materially grow and accelerate the 20%.  And, increasing your conversion rate by 10 percentage points, is the equivalent of increasing your revenues by 50%!!  This post will help you figure out how to best define and measure your potential reasons for lost revenues, to help you get your arms around how to best lower that amount.

What Are the Typical Reasons for Lost Revenues

There is a wide range of reasons for losing revenues.  Some are related to your company, including your product, pricing, sales and marketing efforts.  Some are related to your buyer’s company, including having management approval and budgets in place.  Some are related to individuals involved in a transaction, including your salesperson, the buyer at your customer’s company or some other middlemen that may be involved.  And, some are related to other outside factors, including competition and economic conditions.  The key is figuring out which of these is the exact reason you lost each sale, documenting those reasons in such in a way you can build reports to learn from, and putting action plans in place to address each of these hurdles, to remove those constraints from your future sales efforts.

Issues Related to Your Company

Remember the four P’s of marketing you learned in business school—product, price, promotion and place?  Each one of those are variables in whether or not someone will buy from you, or they will look for solutions elsewhere.  So, you need to do lots of research here?  Ask your customers what they do and don’t like about your product.  Lean into the positives in your marketing messaging and fix the negatives and try again.  Test the elasticity of demand by changing your pricing and seeing at what price the most revenues are created.  Test different marketing messages, to see what offers resonate the most in terms of driving conversions.  And, make sure your products can be discovered at any and all places a customer may be looking for them.

Issues Related to the Buyer’s Company

The largest issues at the buyer’s company are whether or not they have the management approval to proceed, with an established pre-approved budget in place.  No matter how much a junior level staff member wants to purchase something, if their bosses won’t let them or they do not have enough funds in place to purchase your product, they won’t and can’t.  So, as you are going through the sale process, make sure you ask these very important questions—who are the key decision makers involved here, and have budgets been approved?  Then, you can work the decision makers to get them sold on the idea, and know you won’t be wasting your time on projects that don’t have a cash budget in place to afford the purchase.

Issues Related to Individuals Involved

Like the band Depeche Mode said, “People Are People”.  You may not get the sale because of the specific people involved.  Maybe your salesperson is not very good, and needs training?  Maybe your client has personality conflicts with your salesperson, and doesn’t want to work with them?  Maybe you are working with a middleman, like a design agency, and the designer is just using you for ideas and doesn’t really have a contract in place with the client yet.  It could be a myriad of reasons like this.  So, make sure you have a firm handle on the “people issues” of the persons involved in the transaction, and maybe try selling into other people at the same target company that are more open to a transaction with your business.

Issues Related to External Factors

Sometimes you are not getting the sale because of external factors that are out of your control?  Maybe your big competitor just dropped their prices, and you didn’t react quickly enough.  Or, maybe the economy is soft, and buyers are just nervous about making a big discretionary purchase right now.  Maybe your product is seasonal or cyclical, and people just aren’t going to buy snow shovels in July, or voting booths in non-election years.  Or, maybe government regulations are getting in the way (e.g., they won’t purchase your product because it is made in China with high tariffs incurred)?  So do whatever you need to do, to track these external drivers, and have a message that best resonates with your customers despite whatever hurdles are presented in the market.

What Needs to Be Measured Here?

You pretty much need to be measuring every single thing that was discussed above in this post.  Are you tracking the success of your marketing campaigns, A/B testing with different offers and creatives?  Are you measuring the success of your various salespeople, and cross fertilizing best practices and weeding out underperformers?  Are your tracking your competitors’ moves?  Are you asking the right questions of your customers that didn’t purchase from you, as to the specific reasons they didn’t purchase from you?  You will be amazed how much intelligence can be gleaned from your customers by simply asking them the question.  And like with anything else in business, you can’t manage what you are not measuring, so make sure you have reports that measure all of the above “lost revenue” drivers, so you can see “no” turning to “yes” more frequently through higher conversion rates over time.

Closing Thoughts

Hopefully, you now have a better understanding on why it is so important to focus on the reasons behind the 80% of sales you lost, instead of celebrating the 20% of sales you won.  If you focus on the 80% of lost revenues, you may be able to increase your win rate from 20% to 40% and double your sales in the process.  Good luck!!

For future posts, please follow me on Twitter at: @georgedeeb.