Tactic can drive strategy – you must be aware of the little things – but don’t let personal culture ruin it31.08.2022
I can tell you this story as it occurred a long time ago but is as relevant today as when it occurred 20 years ago.
I had by then in our accounting and consultancy business developed a matrix plan (we still use) for businesses that allows us to find new profits and strategies by looking at the facts and evidence of a business along with the stakeholders’ goals or wishes. Something brilliant if I may so myself.
It allows us to ask “odd” questions, get behind detailed and simple things that are part of the business, always looking for opportunities or that moment when we see something – usually the “bleeding obvious” that makes a dramatic change in our client’s business.
So, we had a furniture manufacturer who was making couches for furniture stores. They had been screwed on price as so much cheap stuff was coming in from overseas.
The payment terms were awful, lucky to have a store pay in 3 months after the couch was delivered and the store well paid by their client.
They could produce $1 million dollars’ worth of couches a year. That was dictated to by the capacity they could reach in their factory.
Couch manufacturing is a “pain in the preverbal thing”. The retailer needs to have the same swatches (cloth material) as the manufacturer, so that the right material can be purchased for the end client. You can imagine the kind of delays, costs, and drama that occurs to finally get to payment.
I also felt for this client. In visiting the factory, I saw they were very fussy about the quality of the raw materials they purchased along with the manufacturing.
We started with the matrix, a grid that is on a board and we work through a series of squares that bring up interesting topics and knowing that I must be aware of anything said I was listening intently to everything.
When we dropped into the asset section I was looking for utilization of assets for the process that I know as laborious and the owners son who worked in the business said that he was selling off odd bits of equipment that they didn’t need, and he was doing this by leaving things like the compressor out the factory doors with a price on it, but the problem was that people were interrupting them because they kept coming in and wanted to buy a couch direct from us.
What? Stop right there and repeat please.
“Selling a secondhand compressor was hard, we had to leave the factory doors open so they would see no one would steel the compressor but people kept coming in and wanted to buy a couch or make inquiries”.
I am going to assume dear reader that at this point you know where the rest of the conversation went.
We changed the business to dealing directly with the public.
We left the factory doors opened, and a shingle hung out, they put out a big A Board and some ads in the local paper (social media hadn’t started ohh! What wonderful days).
This is what happened
- For the same number of couches the business made sales between $1.2 and $1.3 million up from the $1 million they did on extended account with the furniture resellers. For the buyer they were still inexpensive for the quality, and for our client they increased sales by 20 to 30%.
- The cash flow issue changed. Our client asked for a deposit that covered material and the bulk of manufacturing costs and received delivery fees something the furniture shops never paid.
I was really chuffed at what we had achieved.
Here was a client that change markets because of the difficulties of selling a small compressor showed up an opportunity in the business. We found a great profit and changed the dynamics of the cash flow of the business.
Think this has a happy ending – It doesn’t.
I should have seen this coming.
The owner called me about 6 months later. He said that he had had a lot of calls from his old clients pleading to make then couches again. I said, “why would you do that you are making great profit; you have great cash flow, the small advertising campaign is driving business into you”.
He replied, “but they are my friends, they have been doing business for me for years”.
My response was, they are not your friends, they have been ripping you off why would you ever think of working for them, and why are you taking their phone calls.
No matter what the business went back to selling to the furniture retailers, profits slumped, cashflow died in the ditch and the business folded in under 18 months.
Over the years I have seen the self-destructive nature of SME’s.
So, what can I tell you. I can still work the matrix on your business, and I can achieve amazing results without you finding more resources (that need cash) AND I will also give you permission to be successful and make money.
There are hidden gems in every business if the stakeholders want them.
Serviced by related company Fresh Number Pty Ltd