Develop a Profit Paradigm, Pillar Two: Make a Profit
- Published: 06/15/2012
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Peter Richman stated it succinctly in his book, The Insider’s Guide to Growing a Small Business when he said: “Profit is the only objective measure of your company’s performance.” If this is a fact, and it is, then your business’s Profit & Loss Statement is its scorecard – showing whether you are winning or losing the game of business.
No one starts a business intending to lose. Still, most business owner’s scorecards show just that - most are losing at the game of business. Why do half of all new businesses close within the first three years? Lack of profit. Even those who beat these odds by surviving are not achieving their business potential. Far from it - the average business “survivor” will earn 18% less than they would performing the same job for someone else. Why? Lack of profit.
If you want to win at the game of business, and win BIG, you must MAKE A PROFIT. You must embrace your business “scorecard” and develop what I call a “Profit Paradigm.” This article will explain what it means to develop this “Profit Paradigm.” It will also share some items that will prepare you for your climb up the Second Pillar of Business Success: Making a Profit.
The Profit Paradigm: Having a Profit Paradigm means that you embrace two key facts about your business:
First, you are the owner. You create the culture, define what is important, and develop the systems (steps and procedures) to ensure current customers are happy and new customers are obtained. You are also the leader who guides your business to success or failure. There is no way around it. You are responsible - the buck stops with you.
Second, the only effective way to manage your business’s performance is to measure how profitably it makes current customers happy and gathers new customers. Embrace, internalize, and live these two business-facts and you are on your way to developing Profit Paradigm. You are ready climb the Second Pillar of Business Success: Make a Profit.
Before we begin our ascent, however, please take a few moments to consider these three important facts:
- Profit is a Reward for Making Lives Better: To succeed as a business owner you must overcome the following overly-common myth: While it is perfectly 100% OK to earn a six-figure salary working for someone else, it is somehow “wrong” to earn more than a subsistence profit in business. This myth is completely absurd, yet it is one of the largest hindrances to business success.
If somewhere deep down in your psyche you subscribe to this myth, please replace it with the truth: Our ability to choose is the cornerstone of our freedom. We are free to choose how to spend our money - what car you drive, where you buy groceries, what mechanic you use, which papers to read, the size and model of the our TV.
Why do we choose the way we do? Because the value we place on these purchases (experiences) exceeds the value we place on the dollars we trade for them. If they weren’t worth it, we wouldn’t buy them or we’d buy them from someone else.
FACT: Your customers repeatedly choose your business because they value the experience of purchasing from you more that the price you charge. You are making lives better! Congratulations! Now smile, blush, give thanks, and make more people happy!
- Financial Statements are Reality: Accounting forms the bedrock beneath any solid, growing business. Your financial statements tell the story of your business decisions; good and bad. They shine an irrefutable light of reality on how things may “seem” or “feel.” You cannot grow what you cannot manage, and you cannot manage what you do not measure. Your “numbers” are important!
- It’s More Than Just Growth: According to a 2010 survey conducted by Careerbuilder.com and Harris Interactive, 77% of Americans live paycheck-to-paycheck. Unfortunately, the vast majority of small businesses operate exactly the same way – from customer-to-customer, from job-to-job. Small businesses, however, do not share the same luxury as larger businesses whose sheer mass enables them to survive months, even years, when business turns south. In short, making a profit isn’t just a prerequisite of growth – it’s a requirement of survival.
This article has helped prepare you for the Second Pillar of Business Growth, Make a Profit by sharing the importance of developing a Profit Paradigm. Learn more about Growth Strategies and the Five Pillars of Business Success.