My Son Says, "Don't Be Gross: Be Net"
MY 10-YEAR-OLD SON, JACOB, HAS THE BUG.
Having owned several businesses at one time, Andrew Fuld of EO Dallas loves a challenge. Most recently, he founded 4 Color Press, a franchise organization that has focused on the profitable aspects of the print for pay market. Andrew also founded HydraMate, a company that produces an assistive drinking device for mobility challenged people.
I think I gave it to him inadvertently
(probably… no, definitely on purpose). He has, in the past three years, made necklaces from old chandelier glass and sold them door to door and bundled rosemary from our front yard and sold it door to door. His latest business: selling soda from his backpack at school, which he even sells to the teachers.
With each new venture, we add a little to the process. With the necklaces, he was thrilled to get the revenue; with the rosemary, he incurred a little labor with the help of his first employee; and now with the soda, he has taken on inventory with an associated cost and cash flow ramifications.
Early on in the process, Jacob would take orders for the following day and then have me take him to the store to fill them. Though he was selling almost US$5 per day in soda, it was costing him almost US$6. At first, he was perplexed and then became a little annoyed. He wanted to know how this was happening. I thought it was time to start a P/L with him so he could see exactly what his efforts were generating.
So, we set up the P/L and listed the various brands he was selling as revenue and the costs associated (like transportation to the store— $US1 each way. I have to make money, too). Guess what he found? Though his sales were consistent and strong, he was losing money. We talked about his revenues, and the truth came out that he was comping products to a few girls who also seemed to understand sales very well! He also soon realized that he was spending way too much per unit by buying products as needed and could save a significant amount by buying in bulk (12 packs).
Jacob made the transition from sales to profits. He now understands direct, indirect, variable and fixed costs. He is nicknamed “Margin Man, Jr” and still comps the girls for the referrals they bring. He is netting almost US$5 bucks! Not bad for a 5th grader.
It occurred to me at one of our monthly EO learning events how many of our members may think the same way Jacob initially did. It is funny how, as entrepreneurs, many of us keep scores on our progress by chasing that revenue goal. “I am successful because I built a US$10 million company,” we think to ourselves. Big numbers make us feel good. Of course, the stress of making payroll or looking for a cash injection may take the edge off that buzz pretty quickly.
Jacob would now argue that putting numbers on the board is a false metric when utilized as the sole bellwether to measure success. This is an obvious statement, but most likely ignored too often. I was mentored early on in my business development by a husband and wife team who put it very simply: “It is not what you sell as much as it is what you keep.” I have embraced that little gem for a long time.
Certainly, everyone must find the balance that works at the particular phase in their business development. One can’t be such a miser that one destabilizes their ability to provide the service or quality level that differentiates them in the marketplace. Our business is all about the penny. We make them one at a time, and it seems we spend them by the handful if we are not careful. So we watch costs carefully. We get discounts by asking where our competition’s costs are being increased. We keep our eye on the ball and do it right the first time. We care, our employees care and our customers and bottom line benefit.
Jacob built a desk out of a cinderblock and a notepad in the closet in my office. It is pretty Spartan in there, and he seems to be working on something. It concerns me that, one day soon, he may come out of his office after finishing his homework with a hostile takeover bid. I’ll be waiting.