So, I hear you say, what are the three rules? What is the answer to the ultimate business question, ‘How do some companies manage to keep excelling, year after year after year?’
ME Raynor and M Ahmed analysed 25,000 companies across 45 years to find the answers. And there were three clear rules that the most exceptional companies used when faced with the most difficult decisions.
#1 Better before cheaper
#2 Revenue before cost
#3 There are no other rules
While Rule #1, Better before cheaper, is clearly about creating the best value for the customer, Rule #2 Revenue before cost, needs a little more explanation.
The exceptional companies studied had a profitability formula summarised as revenue before cost. In a trade-off between increasing profitability by increasing revenue or reducing cost, they chose increasing revenue, even if this meant incurring higher cost. In other words, profitability advantages are rarely driven by proportionately lower cost or asset bases and are very often driven by disproportionately high revenues.
Two questions for you:
1. Are you obsessed with being cheaper? I hope not.
2. Are you obsessed with costs? Are you looking to cut costs rather than grow revenues?
At this time, reflect on your business. From pricing, cash flow and your business plan – what works post-COVID-19? What didn’t work? If you need extra support on this, we are here. Contact us for 1:1 coaching.