Imagine that you were an investor in your business. You agreed to invest with the caveat that you wanted to dictate where your cash went.
What would you need to know to make that investment productive?
A key data point that you’d probably want to know is what produced and what cost.
There’s an 80/20 analysis you can do where you reduce your business to line items and estimate the contribution to production. It’s 80/20 because you’re looking for spikes in productivity and spikes in losses.
For example, I run an agency. I might assess:
- Our team’s utilization to see who is most productive
- Our clients to see who spends the most money with us
- Our projects to see which products are most profitable and which are not
- Our fixed costs, to see what produces the most drag
With your investor hat on, where do you deploy cash?
- What, if you put more money in, would grow that spike in productivity even further?
- Conversely, what parts are cannibalizing resources?
Your business is not a collection of parts. It’s a whole system.
That means that there are interdependencies with components that may seem like they’re costs, but they’re actually vital. E.g. a holiday party may seem like a frivolous waste, but in practice it builds cohesion and keeps your productive team members aligned and connected.
With this caveat, this exercise can still illuminate opportunity within your business for growth- just don’t cut any parties. 😉
Featured image is Scrooge and Bob Cratchit celebrating Christmas in an illustration from stave five of the original edition, Christmas Carol, 1843. By John Leech and used under public domain.