What kind of economic engine does your small business have? Is it a powerful V8 or does it compare more to the engine on your push lawn mower that you have had since the mid 1980's? As a small business owner, do you even know what your economic engine is? Don't be alarmed if you don't. The vast majority of small business owners have no idea.
Your companies economic engine is the one key performance ratio that your small business can focus on that will have the most sustainable growth impact. The economic engine of a business varies from industry to industry and even from company to company within the same industry.
In his bestselling book, Good to Great, Jim Collins detailed how several of the Company's in his study used this concept to propel their businesses forward. Walgreen's dominating business strategy was convenience for their customers. They wanted to make it as convenient as possible for their customers to get to a Walgreen's and to shop there. Walgreen's switched its focus from profit per store to profit per customer visit. Because Walgreen's sometimes clustered their stores for customer convenience, using profit per store would not work. The easiest way to increase profit per store, is to have less stores within a geographic area. This would have been counterproductive to their customer convenience strategy. Profit per customer made much more sense because it was a true indicator of the overall customer experience. It was also much easier for Walgreen's to get store level employees to focus their efforts on the goal of profit per customer than profit per store. Each and every employee that comes into contact with a customer feels that they have the opportunity to influence this ratio.
As stated earlier, the best economic engine for your company may not be profit per customer - most likely, it is not. Some companies use a measure of employee productivity- such as profit per employee as their economic engine. Nucor uses profit per ton of finished steel. Kroger uses profit per local population and Southwest Airlines uses profit per place. Many restaurants use profit per square foot. The first step is to determine out what your key economic engine is and focus your efforts on it's continual improvement.
Chad Bordeaux is a Charlotte CPA who works with small business owners and individuals on a monthly basis to provide them with proactive guidance and advice on how to grow their business, minimize their tax liabilities and grow their bottom line. Contact Chad through his firm's website today so that they can help put your small business on track to meet its goals. Chad is also a primary contributor to the Beancounter Ramblings blog which focuses on issues important to small businesses.
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