Remember What Brought Success When Making Business Decisions
Tight margins can force poor decisions as business owners look at any option for relief, including a cutback on input costs. But when dropping an input causes a loss in productivity, the flow of cash can quickly go from a river to a stream.
What successfully brought cash into the business before the downturn will continue to deliver cash through tight periods and beyond.
An article in Forbes by Jeff Kauflin offers a great case study: Felipe Lavalle owns a bike tour business called Get Up and Ride in Brooklyn, New York. His business had seen three years of double-digit growth. Even though his business was successful, he made significant changes, including accelerating growth through adjusting his role in the company and investing heavily in the business. The changes didn’t work - this summer Lavalle was literally down to his last $200. What caused the decline?
First, many of his customers were foreign tourists, and the high dollar and Brexit put a nix on many of his customers. Lavalle says his biggest mistake was poor cash management. “He hadn’t been monitoring his finances daily, and he kept thinking sales would turn around,” says Kauflin. “He likened it to a gambler making a bad bet and repeatedly telling himself that he’ll win the next hand, even though he keeps losing.”
Lavalle also changed what brought him success, partly by growing too fast and also by removing himself from day to day interaction with customers. He slowed growth and got back to more customer interaction, and the business has turned around.
So how do you apply a story of a Brooklyn bike business to a large dairy operation? Successful and sustainable businesses stick to the path that brought success in the first place, regardless of economic situation. And when growth is desired, it should be pursued with caution and sound strategy.