Sep 032009
 

The Bottom Line
One funny thing about business is that everything that your uncle told you from your early days is wrong– I was told by most adults as I grew up that the bottom line is what counts. It’s true… to a sense.

Strategy professionals take a different tactic: Profits and the bottom line is oxygen. You can’t live without it. A strategy that chases profits at the expense of all else, however, will likely not produce significant profits in the real world.

Think about it. You don’t walk around saying “Where can I find some oxygen?” You move around pursuing your own needs– taking care of the kids, getting to work, minimising time stuck on the Tube, getting the right diet and exercise, and the oxygen is there.

What happens
Companies that pursue profits kind of die. They are too focussed on the short term. They dilute their core service offering and don’t have a core competitive advantage. Imagine if you had a company that cared for lawns. Your strategy is to pursue profits at the expense of all else, but what you know is lawnmower care, maintenance, grass growing rates, fertiliser application, and the transport and logistics required to care for all of this.

Someone comes along and shows you slot machines. These have higher margins. Your strategy is to make the most money possible. You sell your mowers, fire your people, and buy a bunch of slot machines and try to go round and put them wherever appropriate. You don’t know the licensing, bar owners, etc. This isn’t your business. What do you think your profits will do?

Imagine, now, that you have a different strategy: To make the most beautiful lawns in the city. You do your business well. All of your employees take pride in their work. Customers flock to you.

SoCap09
What I’m hearing at SoCap is a lot of thought about impact along with investment– and most of the most interesting people are, broadly, making this point. Figure out what effects you want to see (beautiful lawns) over profit, and find the best entrepreneurs (or social entrepreneurs) that you can to build these businesses, whether they are for-, non-, or aren’t concerned about profits.

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