My Biggest Mistake: Not Closely Examining the NumbersAn entrepreneur discusses how he fell into the trap of equating revenue with profit.
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Editor's Note:The following is the third in the series"My Biggest Mistake"in which entrepreneur and marketing expert Mike Templeman chats with fellow founders about their missteps, the lessons they learned and advice they can offer to others.
Gaydon Leavitt is the owner of two successful marketing firms:Innovation Simplehelps businesses establish online presences andMethodprovides a SaaS product that allows businesses to take their marketing in-house.
While his businesses employ dozens of employees and do business with some well-known brands, this didn't preclude him or his companies from making some pretty egregious errors along the way. But even as mistakes occurred he was able to overcome this obstacles and be stronger entrepreneur because of them. His companies now employ more than 40 employees and he has seen double digit percentile growth for the past six years.
Here is the one that sticks out in his mind and as he puts it, "changed the way he did business."
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His biggest mistake.You see, Innovation Simple was started as a web design firm. It then grew into a full-service marketing firm due to client requests for increased services. And as the company continued to add services and products to their offering, it became profitable (Method was also). With all this good news, it could be excused that Leavitt wasn't watching the bottom line as closely as he could have been -- he wasn't keeping track of where their profits were coming from.
Leavitt had made assumptions as to why his company was growing. He looked at general revenue figures and came to conclusions as to which of their services and products were the most popular. But after really examining the numbers, he realized popularity and revenues didn't equate to profits. Indeed, his company was spending more time and more money on products and services that barely made them any profits at all. Furthermore, the most profitable services they offered weren't even the focus of their sales force.
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He had mistakenly assumed that revenues were leading to profits and was putting resources towards services that were breaking even, or worse, losing money.
What he learned.Leavitt was stunned at the simplicity of the problem and berated himself for not realizing the problem with his products and profits sooner.
Innovation Simple changed the way they sold their services. They focused heavily on their more profitable products and began phasing out some of their less profitable offerings. And this resulted in increased revenue.
He now knows that revenues don't equate to profits. And that for a company to succeed, they must focus on their profit centers. He blames a lot of the problem on his assumptions and now makes sure that his intuition is backed up by facts and figures. He now understands that running a company on intuition can lead to disaster.
Advice to entrepreneurs.Know your profit centers. Don't assume anything in business. Assumptions can cause your company to make some terrible errors.
When things are going well for your company, double down on the efforts and the analysis and ensure that you don't lose momentum. The last thing you want to have happen is to be caught flat footed because you became complacent with success.
