Growth by Reduction

One of the most overlooked ways to make your business bigger is by making your business smaller.

The usual reaction to that is no, I don’t think so, not for my business. 

And I get it – the natural reaction of the small business owner is to take everything that comes in and then afterwards figure out how to make it work. 

The problem is, it’s very hard to get big doing a lot of random one off projects. 

Each new project or service or product you have to figure out from scratch and each new customer is a new set of procedures, processes, headaches, etc. 

Getting big means figuring out which areas you’re really good and are the most profitable and focusing your energy there while cropping out the areas where you are less profitable, marketing is less targeted and the results are less consistent. 

Getting really good at a small number of things you can do over and over very efficiently is the say you to go- and grow- a lot faster. 

In other words, growing by reduction. 

Keep reading to find out how to work though making this actually happen so in the end sales, and even more importantly profits, keep growing. 

How to keep growing…

Just about every business owner I know spends time thinking about how to grow their business.

That’s pretty natural because a business that isn’t growing tends to be going in the opposite direction. If you’re flat it’s only because you’re trying to grow and whatever you’re trying to do isn’t working or working as well as you’d like. Or, you’re flat because actually you’d be shrinking if not for everything you’re trying to do to get it to grow.

Either way, except for business owners who are completely burned out and have given up, almost everyone else is thinking about how to grow and make the business bigger and bring in more revenue and more customers.

The one thing I notice most business owners don’t do when they’re thinking about growth is think about how to shrink things down but as it turns out shrinking is often one of the best things you can do to encourage growth.

What do I mean by shrinking is the best thing you can do to encourage growth?

What often happens is when a business first starts out is the owners are anxious to continue getting work in the door and as a result they will take all kinds of jobs even though some of those jobs may not be a good fit for their skill set or what they originally started the business to do or even be particularly profitable.

Nevertheless, in the early days it always seems better to have some money coming in the door than not and things like fit and mission and profitability all take a back seat. This is fine and understandable and something I’ve done myself in the early days and I certainly don’t mean to disparage it as part of a general getting started growth strategy.

It’s even the case that sometimes jobs you take that you didn’t think were a particular fit at the start end up becoming something you specialize in to the exclusion of other things down the road. In truth, you’ve only discovered this because in the early days you were willing to take on almost anything you thought you could without the customer complaining too loudly.

With the natural evolution of a business however what worked in the early days as a way to get jobs going and keep the business afloat frequently becomes a handicap and a hindrance in the later stages of the business. By taking on jobs that aren’t a good fit you end up using resources that you could have been using on more profitable work and by doing a lot of one offs you’re spending time and energy to complete jobs that won’t build any institutional knowledge for whatever it is you’re trying to get really good at doing.

So what ends up happening is by taking on things you probably shouldn’t take on you end up restricting the growth of the business because you only have so many resources and they’re tied up on jobs that aren’t going to lead to anything for the future and worse if those jobs are only marginally profitable or even unprofitable they’re further impacting your ability to grow by not providing enough of a return on the time spent.

The antidote to this problem is to take a look at the business as a whole and the type of work it’s doing and categorize it into the work that is both the best fit for the skills and resources of the business and the most profitable and sort it from top to bottom. If you know your business well and have a good handle on your numbers this process may only take a few minutes.

On the other hand if you have no idea where to start with this and also no idea how to tell which jobs are the ones that are making you the most money and which jobs you may not be making any money with then that is a separate but equally big problem you’re going to need to address.

For the time being though let’s assume that you are able to distinguish between the profitable jobs and the unprofitable jobs as well as the ones that are a fit for your business and the ones that are outside of your comfort zone or at least more want more of a one off than the ones you can complete with ease and fit well into your system.

Next take a look at what percent those jobs represent compared to the whole of the business and see how much room there is to fill the entire business with nothing but jobs that are of the kind that are the best fit for you. For example, suppose that 60% of the jobs you’re doing currently are the ones that are both a good fit and highly profitable for your firm but 40% of the jobs may be less of a good fit and less profitable for the firm.

Now that you have a handle on this breakdown the goal is simply to try and fill the entirety of your business with those types of jobs that are the best fit and the most profitable for your business. This exercise should also help you concentrate your marketing and sales efforts on specifically driving those types of jobs that you most want to your business and specifically avoiding marketing to or attracting the types of jobs that are less valuable and that you don’t particularly want to continue to take.

This may be a small change to your current marketing or it may be a significant change to your current marketing. You may also be concerned about alienating some of your good paying customers who happen to not fit in the mold of what you want to provide.

What it may actually do is help you get your marketing much more focused and in fact produce a higher ROI on your marketing efforts. You’ll be able to target your ideal customer much more narrowly and avoid having to do more widespread marketing or brand building marketing when you may have many different kinds of customers in mind for your specific offering.

The easiest way to remedy this is to simply increase your prices for those types of jobs and customers to the point where either those customers will decide they will go somewhere else or if they do continue to work with you then they will become as profitable or more profitable than the group you’ve already currently identified as your best fit.

In talking about this I realize it sounds like I’m mostly referring to service businesses but in fact the same thing happens with product businesses. The product entrepreneurs may have a few successful products in the beginning but then in the process of expansion they add product lines that are either only marginally profitable or even unprofitable but they fail to cull them.

They just continue adding more and more products to their catalog without really stopping to evaluate what they should be selling and how well each one is doing for the business on its own merits. It’s the same answer in this case which is to simply evaluate each product individually and if it’s not pulling its weight Either change the math by adjusting the cost or price or stop selling it altogether.

Either way you’ll be in a better position than you are now.

This is not an exercise to simply do once but it is one to regularly revisit and make sure that your business is always working to spend all or the majority of its time on its best and most profitable customers or service or product or whatever metric you were looking at and to avoid adding things that don’t fit or are not at least equal to or better than your current top offerings.

As the business grows and matures the temptation is always to expand but expansion by itself should not be the goal and is not intrinsically valuable. Expansion of only your most profitable and valuable portions of the business is the real goal you should focus on.

In other words growth by reducing all the parts of the business except those that are most focused on the best fit and highest profit producing activities is a better growth strategy then simply growing for the sake of growth or growing the revenue without regard for maintaining or growing the profit margin.

And again, if at the end of this you think to yourself “but I’m not sure what my profit margin is, overall or by product or service” then we should probably talk! 😊

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