Generate Higher Profit, Fast

Is there any endeavor more exciting than a business turnaround? Who are these all-powerful business types who can walk into a joint and whip it into shape in a few months? And why don’t these people stick around and keep the darn thing profitable? Where do they go when the job is done? Across the street to clean up a mess made by another mere mortal?

One of these turnaround pros is Gary Sutton, who wrote a book called The Six Month Fix. I read the book and am convinced that it offers lessons every business owner can use. Here are a few things you should know:

Identify What You Do Best. What meaningful customer benefit do you provide better than anyone else? Your ability to do so is the only way you can keep customers, earn a profit and stay in business. If you don’t do anything better than the rest, you’re on borrowed time. Not sure what you do best? You better find out quick.

To begin, ask your customers why they do business with you and what you do better than anyone else. Write it down. Share it with others. Hone it and revise it until you get it right. Don’t worry if there isn’t conclusive evidence that you do it “better than anyone else,” just get it down. More important than what it says about you today is that it should become the vision for your company and the heart of your mission statement. It should be achievable and sustainable. It will be how and why you compete effectively in the future, keep existing customers, gain new clients and succeed.

Focus. Once you determine what you do best, stick to it. Don’t create confusion among your customers and employees by offering products or services not in your core area of expertise. Fuzzy direction kills more businesses than competition and dying markets. Specialize and be best at something that’s of value to your customers.

Domino’s Pizza is a great example. They deliver fast. They don’t sell quality or price but “delivery in 30 minutes or less.” Home Depot is another great example. They could sell anything in their huge, well-located warehouses. But they sell only home and garden supplies. When you need home and garden supplies, you know exactly where to go, don’t you? On the other hand, Sears tries to be everything to everybody, an approach that simply does not work today when consumers are demanding excellence. Stake your claim on a niche, stick to it and focus on getting better at it every day.

Know What Your Customers Really Want. Get close to your customers. Really close. If you have closer relationships with your vendors than your customers, you have a problem. To get feedback, organize periodic gatherings with your customers. Find out why they buy, what they really want and what your competitors offer. Get below the surface and down to the emotional level.

Make What Sells. Don’t Sell What You Make. When you get close to your customers and learn what they really want and need, give it to them. Your entire organization should serve the wants and needs of your customers – not all customers, but a select group of customers who have certain wants or needs you are more capable of fulfilling than anyone else. If you make products and then try hard to find someone to buy them, you have it backward. Start by asking yourself which customers you are uniquely suited to serve with your products and/or services, then fill those wants and needs.

Find the Profit. Identify products and services that make money and stop doing the rest. Reinforce profitable business and forget money-losing and breakeven products. If a product or service is losing money, try to make it profitable by raising prices. If that does not work, lower prices and see if volume picks up to achieve profitability. If neither works, discontinue the product altogether. Resist the temptation to add products or services that are not competitive or profitable.

Build Your Brand. Once you identify what you do best and commit yourself to total focus, tell the world. Turn your focus into your mantra. Be specific. Instead of using generic words such as “fast” or “quality,” say “in 30 minutes or it’s free” or “only NASA-certified parts.” Put your identifying mantra on everything you distribute. Educate your employees, vendors and customers so that they can spot ideal customers for you. This is called branding – creating an identity. Great companies are great marketers that do a tremendous job of branding their image, such as Microsoft, Intuit and AOL.

Cut Costs. Above all, the customer wants lower prices. The lower the better. The company that can afford to offer it the cheapest will win. Who can offer it the cheapest? The company with the lowest operating costs. In a competitive environment and during difficult economic times, the most important competitive dimension may be operating costs. The company with the lower cost structure can charge market prices and gain financially compared to the competition, or it can use its cost advantage to undercut prices offered by the competitor and gain market share.

Don’t buy anything that does not enhance the customer relationship in a meaningful way. Don’t buy anything new unless it is more productive per dollar spent than the used alternative. Moreover, don’t make any product or service in-house that can be purchased elsewhere for less. Beware of any urge to spend money on nonessentials. Take a lesson from The Millionaire Next Door: “The bottom line is the only place to flaunt your wealth.”

Pay for Performance. Hire proven winners. Within your company, track performance and make the results open to all. Make continued employment contingent on production. Pay commissions based on customer satisfaction survey results as well as sales. Track results from every marketing and advertising effort, product, employee, vendor and business unit. Incentivize everyone, including your lawyer, accountant, and ad agency. Hold family members to the same standards as non-family members.

Remove Politics, Fighting, Secrets, Lies, Sex, Alcohol, Drugs and Gambling from the Workplace. Demand integrity and make swift examples out of those who do not follow your lead. Encourage straight talk, questions, ideas and constructive criticism. Discourage adulation and yea-sayers. Get real people with the guts to express their real opinions, even when they disagree with yours. Treat people fairly. Do what is right and demand the same of others.

Don’t Bet on the Breakthrough Order. Serve your core customers profitably and add more just like them. When you have the luxury to spend some time and money on new products or markets, do so. But don’t bet your business on breakthrough products or customers. Too often, they never come through. Close is not good enough.

Keep It Simple. Track the key results. Manage from one piece of paper, literally. Track customers won and lost, shipments, back orders, cancellations, returns, payroll expenses, advertising responses, number of inbound calls, product development status, cash balance, cash flow and asset balances. Highlight deviations and take swift action when trends are in the wrong direction.

Reassess Your Do-Good Attitude. When their businesses are struggling, too many owners spend time giving speeches, volunteering at the Chamber of Commerce, cutting ribbons and sitting on nonprofit boards. You, as the owner of a tax-paying business, are a rare commodity. By being successful and earning a profit, you employ others, provide for families and pay taxes that fund schools, roads, police, politicians and social services. The most important thing you can do for your community is to keep your business running.

If your bottom line isn’t above the industry average and growing, eliminate all nonessential activities that take up your time.

Cash Is King. What you want is cash flow and cash in the bank. Nothing else can buy groceries. Don’t look at anything but cash and things that lead to cash. Balance sheet assets are evil. They take up cash, so be relentless in lowering their values. Increasing non-cash assets spells trouble unless your cash flow is growing along with it.

Sell Harder. Sales calls lead to sales. Get your sales force cracking and personally show them the way. As the owner, you should be selling more than anyone else. Track the number of calls, letters, emails, meetings and results.

Focus on Getting Better, Not Bigger. Bigger will come when you get better. Raise quality and two great things will happen: Your costs will fall with lower waste, fewer returns and cancelled orders. And revenues will rise through lower customer attrition and more customer referrals.

Stop Flattering Yourself. You are only as good as the satisfaction of the last customer served. Your customers and your bottom line don’t care how long you have been in business or what your grandfather went through to get you where you are today.

I guess these turnaround experts have to be pretty tough. But each lesson above seems to ring true to me. For more, pick up a copy of Gary Sutton’s The Six Month Fix.