Have We Forgotten Profit?

Traditionally when someone started a business they struggled. If they were lucky (and good) they achieved enough results to stay in business for awhile and eventually to prosper. For those companies that reached this stage they then commenced upon the tried and true strategy to acquire wealth for themselves and for their children who were being groomed to succeed them. They made sure that they made an adequate profit; that they maintained strong, positive cash flow; and they plowed those funds back into the business–for expansion of inventory, purchase of long-term assets or merely into additional retained cash. This made complete sense because their objective was to build something that would survive beyond themselves. The result of this focus was the development of thousands of strong, small businesses—the backbone of the economy.

Fast forward to the new century. We had just completed an economic boom that was unprecedented in the history of our company. Fortunes were made but those fortunes were concentrated in the financial sector of the economy. The new mantra for the entrepreneur (they are no longer small business owners) is let’s get our idea to market first; let’s create a marketing plan; and let’s sell (or do an IPO) as soon as possible so we can get rich quick. This was fueled by thousands of persons who were able to do just that—but they weren’t plumbers. Such opportunities for wealth are either inherited or emerge from changing technology. Unless you are in a position to benefit from changing technology (or an obscenely rich relative dies) this plan won’t work. Most of today’s young small-business owners are trying to shove a square peg through a round hole.

Our advice to anyone starting a company is to forget the idea of selling out and getting rich—statistically it is almost impossible. You would be just as well off buying lottery tickets and we all know the expression, “if you business plan includes winning the lottery you need a new business plan.” Unfortunately the get rich quick mantra has created a generation of owners who do not really know how to make a profit! Amazon didn’t have to, why do we? Because you aren’t Amazon!

How sad it is that of the last 100 small businesses I have been in fewer than five had a functional budget designed to produce a desired pre-determined profit. How sad it is that most of them didn’t even have a budget! How sad it is that I am yet (in over 4,000 small business analysis) to come across a company with a rational, excess-profit based incentive program for employees. How sad it is that these same owners have no clue as to how they can even hold their people accountable! The Fremont Group examines these and other basic business concepts in our Minding My Own Business Workshops. If you can’t attend—buy the book. And then refocus our efforts in the next year to acquiring wealth by earning a profit rather than from winning the lottery.