Recently I read a blog by Seth Godin titled "Infinity - they keep making more of it." Essentially Seth poses the question to why is everyone focused on getting bigger instead of better? I call this decision matrix the “Return on Effort.” It takes into account what is more important (profit or revenues). I always say profit. If I can make $2 million selling $4 million, or $10 million selling $100 million, I will pick the $4 million. Why? First it is really difficult to sell $100 million! No one really thinks about that. It takes tons of resources, effort, people, planning, logistics, etc. Secondly, at $100 million and $10 million I only make 10% margins. So that every additional customer I bring on, I make progressively LESS profit due to the fact that I most likely be capacity constrained in some matter and will have to expend progressively more effort to expand. On the on other hand, with “less” customers but more profit, I have the freedom to pick and choose which new “profitable” customers I can add at progressively higher margins. Profit margins give me freedom to add incrementally more customers at MY choosing. Being bigger is usually not being better (on a lot of dimensions). While I am only making 1/5th as much money, I am expending only 1/10th as much effort to do so. I ask this question of just about every sales person I hire, and 95% percent of them get it wrong! Remember, it is ALWAYS better to get a 50% return versus a 10% return. Being the biggest is not always the same as being the best. Choose being the best (most profitable).
While taking statistics during my quest to get an MBA and while earning my engineering degree, the professors always emphasized the importance of finding the statistical mean of any population by using the Central Mean Theorem (a.k.a the highest point of the Bell Curve). As an engineer, this was essential in order to maximize throughput, minimize cost and waste, and ultimately make a better, faster, cheaper widget. A funny thing happened on the way to the dark side of marketing. I discovered that the only thing in the middle of the road was quite literally dead road kill. I do not know if you remember stores like Bradlees, Ames and Service Merchandise (just to name a few), but they all folded because the environment changed and they were caught trying to service the mythological “average customer.” Part of that change came when Wal-Mart began its juggernaut with the discount department store. Wal-Mart did two things right: 1) Focused on “mobile” consumers, and 2) Fo...
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