The Profit Prophet

This is a sad tale of technology that I hope you will enjoy? An unemployed man is desperate to support his family of a wife and three kids. He applies for a janitor's job at a large firm and easily passes an aptitude test. The human resources manager tells him, "You will be hired at minimum wage of $5.35 an hour. Let me have your e-mail address so that we can get you in the loop. Our system will automatically e-mail you all the forms and advise you when to start and where to report on your first day." Taken aback, the man protests that he is poor and has neither a computer nor an e-mail address. To this the manager replies, "You must understand that to a company like ours, that means that you virtually do not exist.. Without an e-mail address you can hardly expect to be employed by a high-tech firm. Good day." Stunned, the man leaves. Not knowing where to turn and having $10 in his wallet, he walks past a farmers' market and sees a stand selling 25 lb. ...

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 choos...

Most business school programs focus on the financial aspects of an business endeavor, and most specifically tend to focus on one simple parameter: Return-on-Investment, or ROI. Specifically, ROI is determined by calculating the profit (or gain) from any investment or expenditure, subtracting the cost of that investment or expenditure, and dividing the difference by the cost of that investment or expenditure. While this is a great metric for determining actual expenditures’ returns, it does not really bode well when dealing with intangibles such as services, or activities such as sales, marketing, accounting, etc. A long time ago (30 years ago) I started measuring to a different metric, Return-on-Effort, which took into account how much time, energy, additional assets (such as people), and change any new project will cost and weighed those "costs" against how much easier, faster, or more efficiently you could perform the process by expending that additional effort, to...