The 4 P's of Leadership:  Inflation


Well, Inflation is not a P word.  But it is important to our view of Process.  Product Portfolios are a bridge between Products and Process as they have to do with how companies optimize and a Portfolio Review is part of that Process.

Inflation is the key point to start with Process.  Costs go up all the time, whether that is cost of materials or just the costs to operate the business.  Employees need raises and Insurance goes up year after year.  It is part of doing business.  Of course, the challenge with these rising costs is that they eat into the bottom line profits of the company.  There are only two ways to compensate.  First, you can get more Revenue.  Second, you can cut Costs.

If we look at raising Revenue, then we need to remember our Gross Margin.  Every dollar of Revenue does not create a dollar of profit.  Some percentage goes into Costs of Goods Sold or COGS.  At 50% Gross Margin, we would have to make $2 of Revenue for every $1 of increased profit that is needed.  Any significant increase in Revenue may require different Sales and Marketing methods.  These new methods are a change in Process.  Most Sales Teams can estimate the dollar Revenue per Sales person.  This is a hard amount to change unless there are fundamental changes to the way that Leads are generated or Sales are conducted.  This is the first place where Process comes in.

On the Operating Side, there also tends to be inertia about costs as well.  Things in a business work a certain way.  Those things cost a certain amount.  For example, how much does it cost you to execute a transaction in your business: Invoice, Get Paid, Deposit Cash, Update the Books.  If you take Credit Cards, there are Merchant Fees.  Is there a better way for this to happen?  Is there a constraint on how it limits your ability to take on clients of a certain size.  When I worked at Red Condor, we accepted monthly payments through Paypal.  That worked very well in our small business customer base and we were able to support thousands of accounts with 1 person part-time.  We paid Merchant Fees but the whole process could be automated.  When Edgewave took over, they went to paper invoicing those same customers.  Merchant Fees were gone but the stress of generating $20 monthly bills was high.  In the end, it cost less but we could not scale that process.  The same was true with Onboarding customers between our SaaS offering and our Appliance offering.

All of these things make a difference in the structural cost of the business and the only way to change the cost structure is to change the processes that make your business operate the way it does.  That is why Inflation is the key to understanding why Business Processes are so important.

Have a great day!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

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