Is Your Business Having a Heart Attack?
Welcome back to Dr. BrockO’s blog. Just kidding. I realize you were beginning to think this was a medical blog, but we are back to business now. First, let us paint a word picture so you remember the importance of this topic.
What are the typical events that lead to a human heart attack? First, a tiny plaque ruptures in one of your arteries. Imagine this plaque as a “festering sore” or “inflamed pimple” filled with fat, cholesterol, and white blood cells. When a plaque ruptures, “products of injury” are released. The response to injury that follows causes the blood flowing inside the artery to suddenly clot. Just as a clot forms around the injury when you cut your finger. The blood clot completely plugs your artery suffocating the heart muscle it once supplied. As the muscle dies your heart becomes an ineffective pump and you die. Your lifeblood was the oxygen and nutrients carried to your heart by your blood.
For those that need a visual, see the following video:
What are the typical events that lead to a business heart attack? According to the US Census, 62.8% of all businesses have a fatal heart attack (fail) within 6 years. Business failure is often a result of declining gross margin (or profit) and/or expenses rising as a percentage of sales. If either of these occur while sales volume is increasing, your business is in serious trouble.
So, what is the lifeblood of your business? The answer is margin. Margin is the most important thing you will ever consider in your business and is absolutely critical to high growth businesses. Business is not about how much you sell, it’s about how much you keep. Margin is the price minus the cost of goods/services sold. Margin is what is left over after all of your direct costs to fulfill whatever it was you sold.
How do successful businesses differ? They tend to have high gross margins and excess margins are invested in market and product development. If sales volume rises with the above, a raging success is the result.
All things being equal, the company with the strongest margins wins because they have the deepest pockets. This means they can outspend, out-market, and crush the competition. Everyone else is left scrambling to keep from being boxed out of the market by the company with the strongest margins. This is who you want to be and it is possible even if you are not this company right now.
Ironically, margin is also the most important thing you will ever consider in your personal life and is absolutely critical to happiness. Your commitments including time, money, energy, etc…all require margin. So, the next time someone asks you the secret of life, you can tell them margin.
Image Credit: gandhiji40
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