Have you ever baked a pineapple upside down cake? It was one of my favorite desserts as a kid. You start the recipe with laying pineapple rings and cherries on a brown sugared baking pan base. You then pour the batter over this sweet foundation before placing it into an oven to bake. When you turned the baked cake over on a plate the pineapple is displayed on top.
Most small businesses seem to build their businesses like a pineapple upside down cake. They start with the items that are most visible in a business, like sales, the inventory, and purchase orders, and ignore the biggest part of a business like the processes, structure, and culture. Then they turn the business upside down expecting it to operate efficiently and toincrease profits. However, the foundation of the business (the batter) falters. This may cause problems and decrease the bottom line.
I tell small business owners that the best way to increase your bottom line is to increase their top line. Not cut, cut, cut your payroll and operating costs. Oh, surethey should operate a business as efficiently as possible, but no business ever shrunk itself to greatness.
For example, let’s say a small business owner is not making as much money as she wants. So, to increase her bottom line, she “lays off” a couple of employees and shifts the excess work to the remaining employees.The benefit is that she may have a more efficient company earning 10% more net profit. The negative impact might be as follows:
- Culture: Working employees harder unnecessarily might disrupt employee morale. The change also may lead to employee carelessness, quality-control issues, and theft.
- Processes: If the company originally operated efficiently, a reduction in the workforce could disrupt that process. Quality control issues, again, may be affected, but not only because of a decrease of moral, but because of a process that requires “more hands.”
- Structure: Employees need to knowtheir responsibilities. A good structure (like an organizational chart), helps lay out responsibilities and accountabilities in a visual format. When you reduce your workforce unnecessarily, you may disrupt the known chain of command, thereby creating little vacuum pockets where nobody is responsible for certain steps in the overall process.
So what is a small business owner to do to increase the bottom line?
- Act while business is booming: Don’t wait until there is an economic downturn before taking action to increase your business size or increase profits.
- Think Strategically: The example above demonstrates the pitfalls of tacticallythinking, as opposed to strategicallythinking. Strategic thinking is what to do, tactical thinking is how to do it. A business should design and implement a strategic plan that projects to ten or twenty years.
- Build from the unseen:As shown above, the underlying processes, structure, and culture were ignored when the business owner decided to increase her net profit. Start with what is not seen in a business and make that solid before moving onto more obvious tactics. Strategically set tactical pieces in motion.
With a growing business, you can have your cake and eat it, too, but you have to make sure you bake it properly.
