Category: Fundamentals

Old Trapeze Artists painting

Cost Versus Growth Hiring

September 9, 2021 /

When I hired my first employee it was because I felt like I didn’t have any options to do otherwise.  I didn’t have 6 months of retained earnings sitting around and I wasn’t doing highly profitable work.  But I felt like it was better to risk failing than it was to keep going as I had been.  

The common advice would have been to figure out a way to earn more profit, save some money, and then hire with that safety net beneath me.  This is cost based hiring.

I didn’t end up going out of business with my new hire and I actually made more money.  Unintentionally, I had executed a different hiring strategy: growth based hiring.

Entrepreneurs gravitate towards cost based hiring because it’s clear and safe.  But it can drastically limit your potential and carries hidden risk beneath its conservative demeanor.

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Michelangelos David

Optimizing for Profit

February 26, 2021 /

In the book “Built to Sell” John Warrillow explains how approaching your business as if you’re going to sell it will help you to maximize the value of it- regardless of whether you actually intend to sell the business.

Pretend for a moment that you were going to try and sell your business within the next quarter.  What would you change?

It’s like getting divorced- all of a sudden you’re on a diet, in the gym, and doing all sorts of stuff that would have kept you from getting divorced.

Pretty funny.

If you were going to sell, it’s a safe bet that you would clean house:

  • Updating systems
  • Updating SOPs
  • Reevaluating your employees, costs, customers
  • And seeing what changes you could make to improve your value

All of this in an effort to appear more valuable… really to be more valuable to a buyer.

The thing is:

The opportunity to be more valuable was always there.

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Alice Through the Looking Glass

The Profit Window

December 31, 2020 /

Growth.

Most business owners are obsessed with it.  

Early stage entrepreneurs focus on top line revenue.  As they gain experience some of them shift priority to profit.  As they gain more experience, some veterans shift back to revenue (or back and forth.)

Many entrepreneurs focus on vanity metrics like headcount.

For the past five years, I’ve managed a small team and been stuck under the $300,000 revenue ceiling.  The entire time I’ve worked diligently to grow the company and have continually invested in sales and marketing.

Superficially, it doesn’t seem like much has changed.  We certainly haven’t grown from the perspective of revenue or number of employees.

But we’re actually much more profitable than we were five years ago. 

We’re more productive at creating value.

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Salvatora Rosa Fortuna

Profit Isn’t the Bottom Line

December 10, 2020 /

Profit isn’t the difference between revenue and costs.  It’s not a line item on an income statement that is black or red.

Profit is the capture of excess productivity in value creation.

There’s a functional difference between the ideas.

The first is a measurement which can be gamed.  The second speaks to the underlying forces that drive a business.  

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