Wednesday, March 6, 2024

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

Posted By: George Deeb - 3/06/2024


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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.

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