Increasing Sales or Building Capacity - Which Comes First?

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This is what you might call a Chicken or Egg question, "Which comes first?” It is a conundrum which can be difficult to answer and people affirm the truth to both sides of the argument. In this case, our chicken or egg can be equated to “Sales or Capacity.”

If sales come from selling widgets and the number of widgets sold determines sales, which comes first: The ability to make more widgets or the ability to sell more widgets?

Over the last 30 years, I’ve changed my point of view on this question more than once, depending on whether I was producing widgets or selling widgets.

A few years ago, we had a problem with a new client. He had been plagued by a similar problem for 18 months. The previous IT company had not been able to solve his problem and it was so aggravating that they replaced their IT service provider. When my team was called in to provide services, it was on the condition that we solve their problem… permanently!

Initially, it was a little confusing but it only took about two hours to analyze the issues and determine a 'fix'. Two hours more and the problem was fixed… permanently. That day I thought we were in the “computer fixing” business. I was impressed with my troubleshooting skills. (IT guys do not lack ego.) Six weeks later, my opinion changed after receiving a call from the client.

As the accountant for my client (A small cabinetry shop) and I were talking, she shared “…since fixing the original problem, something amazing happened. Our company made an additional $30,000 in profit."

There were no sales campaigns, no new clients, nor had they made any other major changes. After reviewing everything, we found the secret: employee productivity. The productivity level of each employee had increased by 25% (which is an increase in capacity). By the end of the year, this increase in employee productivity had returned an extra $360,000 in profit. Besides the new income, there was an increase in business value. At the end of the year, we found that the actual value of the business increased by 30% (about one million dollars EBITDA) as a result of our four-hour project. I was no longer in the “computer fixing” business.

Let me share a story about three bricklayers working on a cathedral. When asked, “What do you do?”

The first bricklayer said,
“I’m putting down a brick, then putting mortar on that brick.”

The second bricklayer said,
“I’m building a wall.”

The third bricklayer said,
“I’m building a cathedral for God.”

The experience with the CPA from my new cabinetry shop client was my personal “Cathedral” moment. Instead of troubleshooting computer problems, I realized there was something more more, I built company value.

Early in my career, I had not yet learned to see past the “brick by brick” value as a computer technician though I brought significant business growth in hours instead months or years. 

Over the years I have developed a list of questions more related to business growth strategy: 

  • Why are we building this new technology?
  • What is the business purpose for this technology?
  • Who is the business driver, the champion, and the executive sponsor?
  • Where is the cost benefit analysis, the projections and business metrics?

'Fixing technology' may be included in a plan but it is not the primary focus. Helping a business owner realize his/her dreams, pursue their vision and the “Why” of the organization is much more interesting and highly motivating.

My early experience provided new insights about how to answer the sales vs. capacity debate. To this date, I continue to stay aware of similar projects that provide productivity gains (Like the 4-hour fix we performed for our CPA client) with a small investment.

If more sales was the only component to company growth, then adding another sales person, sales campaign or sales incentives would be enough. Increasing capacity would make no difference to profitability. It turns out that the opposite happened. By increasing capacity, significant profit was generated without increasing the client base or sales capacity. For our owner, it meant a million dollars in EBITDA value and an additional $360,000 in annual profit.

What is your situation? Do you need more sales or more capacity?

To help answer the question, we created the 15-minute technology self-assessment. It is designed for you and your team to identify opportunities to increase income by increasing technical capacity.

The assessment has ten primary questions. Each question identifies a problem one or more of my clients experienced in the last 25 years. Most large companies fail 75% of the questions. Some of the questions can help you identify the issues and improve profitability by $1,000 to $30,000 per month. You may find a few of the questions will actually save your business.

Statistically, when your technology 'breaks' and is down for:

  • One hour - the average company is losing $40,000 / hour in employee productivity.
  • Five days - 90% of businesses go bankrupt within the next 12 months

After I had my "Cathedram moment" I began recording the business questions owner should have been asking.  Questions that have added $1000, $5000, $30,000 (like the cabinetry shop) or more to the bottom line of the company.  The self-assessment represents just a few of the most basic questions that have protected companies and put income back into the owners pocket.

Download the self-assessment,

Remember the cabinetry shop story I mentioned earlier.  What this meant for the owner was an additionall 1 million dollars in business value and $360,000 dollars that the owner put into his pocket that year.  Just based on one of these questions.  The other questions came from customers just like the cabinetry shop that I've worked with over the last 25 years. 

This is a "Do it yourself way" of putting money back into your pocket.  It's also the basis of what I call a "Down and Dirty" assessment that we do to find red flags for clients.  If you are past doing everyhing yourself, give us a call.  We can do a down and dirty assessment for you.  After the assesment we'll identify opportunities like the cabinetry shop in your business.

This assessment is the first step we take to build fast value and quick profitability for your company. 

PS. If you schedule an appointment we'll share how we helped that small cabinetry shop grow from 2 million to 25 million in less than 10 years after that first experience.

Topics: Business Development Business Value Business Assessment Technology Self-assessment Employee Productivity EBITDA