By Matthew Cottrill
Are your business financials out of balance?
The Deceptive Busyness Trap is a debilitating business problem eroding cash flow and stifling growth.It’s a common issue facing many business owners who, over time, unknowingly become subject to its influence.
The Deceptive Busyness Trap occurs when a company spends significant amounts of time working with small customers and/or on small transactions. The impact on a business owner trying to grow a profitable business is analogous to trying to walk through quick sand. The more you struggle with it, the deeper you sink.
Many businesses fall under the 80/20 rule, which suggests that 80% of their revenues and cash flow come from 20% of their customers. In many cases this ratio is closer to 90/10. In the latter case, if a business has 300 customers, it means 270 (90% x 300) of those customers contribute only 10% of the total company revenue. It’s a significant problem facing small business owners.
How do business owners find themselves in this Deceptive Busyness Trap? Over time, and without realizing it, companies inadvertently can build a base of small customers through marketing efforts or word of mouth. Turning away an order or pushing back on minimum order amounts seems contrary to growth goals. Orders come in and are processed; it’s a natural progression.
The end result is that operations are running full, sales and customer service are buzzing, and the administrative staff is tapped out, yet growth is stagnant and cash flow is declining. Worse yet, competitors will recognize the problem in their own businesses and make changes in strategy. This redirects many of their small unprofitable customers with their minimal upside potential to your company.
The negative impact of falling into the Deceptive Busyness Trap on growth and
cash flow is significant. Over time it will threaten the existence of the most profitable businesses. The business risk is even higher in cases where a small number of large customers account for the majority of the sales. This situation makes it even harder to diversify the customer base and grow a profitable business.
The Deceptive Busyness Trap has the effect of strangling the entire business. Sales, customer service, and technical service resources are occupied with servicing small customers, which diverts their attention away from spending time identifying and growing target accounts. Operations become inefficient with all the logistical requirements associated with processing a high number of orders. Such inefficiency is commonly the major cause of high cost overtime. Lastly, administrative staffs from order entry to invoicing and collections are consumed fully by the large volume of transactions. With the exception of the actual time it takes to produce an order, the cost of setting up and processing a small order through the entire system is not significantly different than a large order. Custom design orders make this problem worse.
Keys to overcoming The Deceptive Busyness Trap
The key to escaping The Deceptive Busyness Trap is to develop a process that not only works out of the current problem but prevents the business from falling back into the trap. This doesn’t mean that you never accept a small order, but that you should do it based a set of criteria you develop, which are focused on the future growth and profit potential for that customer.
The key to setting up a process to get out of The Deceptive Busyness Trap is that it be efficient, comprehensive, and repeatable. Below are some of the elements that should be included in such a process:
- A methodology to systematically analyze the customer base
- A process that grows selected accounts profitably, or eliminates them
- A sales funnel management tool that tracks progress, and facilitates business owner or management review
- An analysis of margins, minimum order/margin thresholds, and pricing
- A lead qualification/screening tool that helps the business understand new customers and one which predicates the acceptance of future orders on profitability and growth potential.
The benefits derived from going through this process will flow across the entire organization. In addition to realizing immediate profit improvements, existing resources can be refocused on growth. Capacity increases and operational efficiency gains soon will be realized.
