Profit: The Real Business of Winning (Path to Profitability Series, Part 1)
Why are some businesses rewarding and profitable at $1 million in sales, with happy principals and employees, and others, at $20 million, are miserable, grueling, and difficult?
In the promotional products industry, we have lists that have skewed our view of what winning looks like. The “top distributors lists” produced by ASI and Promo Marketing are two of the primary lists that determine industry leaders (who the winners are) by sales. To even hit the top lists, you must produce at least $20 million (Promo Marketing) or $40 million (ASI) in sales. However, according to the largest trade association in the 23 billion dollar industry (Promotional Products Association International Distributor Sales Survey), 96% of the industry is comprised of distributors that produce less than $2.5 million per year. This eliminates over 99% of the distributors in the industry from the conversation about what defines success. Gross sales have always been a misleading indicator of who is winning in the promotional products business.
Topline? Meet the bottom line.
For the longest time, I was, blindly, a top-line person. My barometer for success was gross sales. Sell, sell, sell. New business development, marketing, prospecting, any activity that moved the top line upward was of critical importance. And then the recession of 2008 hit and everyone’s top line took a tumble. Frantically, I found out that the bottom line was the most important line I had ignored. Like many in a roaring economy, it was easier to make sales than it was to make a profit. But when the decline came, we suddenly had to focus on staying afloat, my foundation had shifted, and I began to question what a successful company really looked like. Through that downturn, I learned some valuable lessons. I started to understand what profit really meant. Not only the brutally harsh lesson of profit to stay solvent, but what it meant to run a winning business that produced more than just profit in the purely monetary sense: A business that produced profitability for all stakeholders: principals, leaders, employees, suppliers, and the community.
Profit for all stakeholders
Before the 2008 recession, practically anyone could become a success in the promotional products industry. Money flowed freely, and buyers were less discerning due to hyper-growth in the market. The economic climate was one where price became less important than speed and availability. Many distributors ignored or diminished any focus on delivering objective strategic results through our medium. And who could blame them? Clients were not clamoring for proof of viability; they just needed stuff. And the industry was merely responding to the market. But when the recession hit, buying behaviors changed immediately. Downsizing seized practically every business sector, and marketing departments and budgets shrank rapidly. Buyers became more acutely concerned about ROI and distributors were suddenly caught, having to do the one thing they were not prepared to do: justify our medium. Shortly after the recession, distributors began to focus on their unique value proposition, largely because the market forced it. Creating projects that had profitable outcomes for clients was now the new normal.
How does this impact us today and why is it important? The economy has been in sharp growth for some time now, sailing past the average typical expansion cycle of 58 months. Speed and availability are slightly overshadowing price as an important factor but with much less brazenness than before. But producing profitable outcomes for all stakeholders is still the key factor in winning business. John Mackey, the founder of Whole Foods, often referred to all the stakeholders in the sphere of their business claiming that businesses should be “an adaptive and self-organizing system creating value for its stakeholders.”The top-line, as the only defining barometer for success, is an illusion. A profitable, winning business today must, of course, produce a profit, but “profit” as a fat number on the bottom line is a narrow definition of profit. Producing profitable outcomes for all stakeholders is some of the most rewarding work you will do as a distributor. Not only will you gain monetarily, but what it does to boost the value of your business in your customer’s eyes, your employee’s eyes, the community’s eyes, and in your own estimation, builds a more fulfilling career and yields long-term success.
At commonsku, we’ve had the unique opportunity to work with hundreds of distributor entrepreneurs through the years. Catherine Graham, commonsku’s CEO, has daily conversations with principals in distributorships. As one of the key stakeholders in their success -since commonsku’s platform powers their business- she has had the privilege of consulting with many. The conversations are deep and expansive, they are about infrastructure, commissions, clients, culture, personal fulfillment, UVP’s and more, conversations about how to create a profitable and thriving business, regardless of size. Over the next several weeks, we’ll explore more of what it means to create a profitable business. Just as in our Path to $10 Million series, our team will share our collective knowledge about what it takes to build a profitable distributorship.
We’ll dig deep into the secrets of some of the most profitable distributor companies and share those best practices with you here, from productivity to healthy supplier and customer management, margins, and more. When looking back, John Mackey spoke of his success by using words that were more robust than merely making money, “Whole Foods is my ashram,” he said. “Whole Foods is where I’ve learned my great life lessons. It’s full of love, full of creativity, full of compassion and caring. It has a bit of me in it, as well as a bit of everybody else who’s contributed their care and love and creativity.” Join us on a journey as we explore what it means to build a company, and a life, that’s profitable.