The New Profit Model: Profit Design
Ever been asked if you had a Business Plan for your
business? Most of us would answer yes and some of us would answer
no. But the question gets asked.
Have you ever been asked if you have a Profit Design
for your business? Pretty sure the majority of us would answer no.
One critical aspect of The New Profit Model starts with developing
your company's Profit Design.
What's the difference between a Business Plan and
a Profit Design? A Business Plan is a static description, a snapshot
in time in the current market conditions, the opportunities at hand
and how you plan to move the business forward.
A Profit Design is the operative DNA of the venture,
the interconnected guts of the enterprise. A Profit Design is a
clear view of the core business, the adjacent business and the edge
business of your company.
It's the Customer Intelligence, the Pricing, the Volume
and Costing formula, the precise analysis of how you make and keep
money, the recurring revenue, the weighting and impact of critical
alliances and much more.
When you are intentional about the design and redesign
of the guts of your company it has a profound effect on the success
or failure of the business plan. Is your profit design a cougar
being asked to fly or an elephant being asked to swim? Is your profit
design a horse, a dolphin or an eagle?
Over 90 percent of the entrepreneurs I encounter never
consciously created the guts of their business. And a more sobering
statistic - only 13 percent of all companies are consistently profitable.
Listed below are the 12 components of a Profit Design
and a brief description.
These 12 components are powerful business concepts.
Any one of them has the capacity to fundamentally change how you
make and keep money. Combined, intentionally considered and treated
as the profit architecture of your company, these components hold
the secret to creating a profitable enterprise.
Let's talk about a couple of these components and
why they are critical for your business.
Value Exchange: Your firm effectively
organizes around its unique competencies rather than around a specific
customer or key product group.
The company I ran for 14 years was a marketing communications
firm. From our inception, we organized our thinking and our structure
around our clients and/or a service area. Only late in the company's
life, did it dawn on us that one of our unique competencies was
Project Management. At any one time, we had over 180 projects being
run daily. Those projects were thought of as client groups, not
Revenue Groups and certainly not as core competencies. Why? Because
we didn't know what we didn't know. This is a critical mistake in
any business owner's life. Assuming you know.
By truly understanding your core competencies, you
are less likely to try and be all things to all people. Certainly
when a company is just starting up, there is a tendency to grab
any opportunity that comes along. I can remember our clients asking
if we could provide video for their large industry conferences.
Now producing video was not one of our core competencies but we
were a small enough company that we could adapt, learn and then
turn that new service into a core competency.
In the mid to late 90s, the Internet boom was beginning
to impact business. Many traditional brick and mortar companies
thought they could simply hang a dotcom next to their name and take
hold of the golden ring - becoming an online whatever. This forced
them to move away from their core competencies and try and reinvent
themselves in order to capture the on-line market. In many cases,
this decision didn't pan out and a lot of money was spent badly
from companies attempting to fly in the face of their core competencies.
Business Development: The fusion
of targeting, capturing and caring for the customer.
In business plans, the sales aspect of your business
gets a lot of ink. You try and guess how many widgets you will sell
at what price in order to provide a financial outlook for the future.
As a component of a Profit Design, this takes on a much more internal
focus on your most valuable asset: your customer.
When a business owner takes the time and begins a
dialogue around how they are going to care for their customers,
you can smell success a mile away. Too often as business owners
we are all about the 'capture' of that ever allusive customer. Our
budgets, our sales team incentives and even our processes are all
designed around targeting and capturing the perfect customer.
Getting extremely focused about what you are going
to do about a customer once you land them is how companies fund
extreme growth and stay profitable.
Gary Erickson is the founder of Clif Bars. Not only
does Gary have an incredible approach to running a successful business,
the customer loyalty Clif Bars generates is legendary. In his book,
"Raising the Bar: Integrity and Passion in Life and Business", Gary
tells the story of building his company which included walking away
from an offer of $120 million because he loved his company, his
products, his customers and his employees. One customer wrote: "I
actually drove an hour when I heard that a store in Orange County
had some (Clif Bars). I bought every bar they had left! Keep up
the great job. Your customer for life."
Aspiring to have customer's for life don't get written
up in business plans. In business plans, customers are simply numbers
on paper. By actually thinking about how you will care for your
customers, how you will create a marketing system, a sales system
and a customer service system that helps you keep 'customers for
life' you will build a successful company.
The 12 Components of a Profit Design allow a business
owner to set up a foundation for their business that will support
the company through the good times and the bad.
12 Components of Profit Design
1. Value Exchange
The profitable organization and exchange of value for money.
- Unique competencies
- Revenue groups
- Gross profit
2. Customer Intelligence
The informed awareness of who the customer is and what they want.
- Customer's priorities
- Customer profile
- Customer contact points
The range of product and services to be offered.
- Wide or narrow product/service focus
- Vertical or horizontal product/service focus
- Influence in your market
4. Business Development
The fusion of targeting, capturing and caring for the customer.
- Marketing for each customer profile
- Sales system and process
- Customer service system
5. Strategic Control
The unique power of your offerings.
- Magnetic elements
- Barrier of entry
- Lifetime value of your customer
6. Strategic Alliances
The specific external partners engaged to expand sales.
- Piggyback - alliances that give you referrals
- Symbiotic - alliances that equally partner on customers
- Pass through - alliances that use your products/services
with their customers
7. Knowledge Management
The manner in which you leverage your company's unique knowledge.
- Collaborate around knowledge
- Organized and store knowledge
- Easy access to knowledge
The landscape and focus of the human workplace community.
- Cultural focus
- Invisible culture
9. Organizational Structure
The organizing of people to successfully complete tasks.
- Accessing talent
10. Operating Systems
The support structure for critical enterprise processes.
- 6-12 months in advance
- User feedback
- Implementing systems
11. Research & Development
The continual discovery of solutions to your customer's needs.
- Access with sales and marketing in loop
- Laser focus on products/services
12. Capital Intensity
The measurement of required financial resources.
- Investment funds for 12-18 months
- Over engineered financial systems
- Operating capital — 4 months of gross revenue
FlashPoint!'s Profit Design program will also help
you, as the business owner, identify which of these 12 components
are the most critical for your current stages of growth. You don't
have to work on all 12 of these components today. Utilize the research
of the 7 Stages of Growth to help you get focused on the right profit
design components at the right time. If you are looking for information
on how you can work with FlashPoint! to develop your own Profit
Design, click here.