Profit

When it comes to running a successful business, CEOs must have the necessary skills to manage both people and profit. Not knowing how to balance these two things is the number one skill CEOs lack in the new purpose-driven economy.

In this article, Work It Daily experts from Vistage delve into the complexities of balancing these competing priorities and offer strategies for creating a sustainable business model that benefits both people and profit. Read on to discover what CEOs should know about people, profit, and success.

Kirsten Yurich

The number one skill I see lacking is the view that people and profit are a dichotomy. I believe that placing them at odds is a detriment to leadership and business success.

People are your profit. Only people will lead you out of a complex situation. Only people will find a better way to do something. And let’s be honest, it’s only people that will show up at your funeral.

Pitting profit against people places leaders in the position of having to choose. Having to think there actually are only TWO CHOICES! Saying, “What should I do here, pick people or pick the bottom line?”

What I suggest they do is ask “WHAT COULD I DO HERE?”

• What could I do that values both people and doesn’t place the business at risk?
• What could I do that will leverage my people for the sake of the bottom line?
• What could I do to turn two choices into more?

Thinking about people and profit as connected and not in competition with each other opens more possibilities for leaders.

Often, the dichotomy becomes more real when short-term decisions that promote or invest in people are costly in the near term. However, when taking a long view, many of these same decisions are both good for people and the bottom line. One just needs a wider lens with which to view the issue. Take for example investing in leadership development—a cost often viewed as a luxury over a necessity. McKinsey and others report otherwise. Investing in leaders values the people but when budgets get tight it is often cut.

This is a bias for the short term and an overall fallacy. When the costs of leadership development are compared to the costs of leadership mistakes and compounded by employee turnover costs, development expenses are both necessary and inexpensive.

People are your profit!

Kirsten Yurich is a former CEO and current Vistage Chair. As a clinician, professor, author, and executive, she leverages this unique blend and creates learning environments for executives to become better leaders, spouses, and parents.

Mike Thorne

One of the top reasons why CEOs report that they didn’t deliver on their “operating” plan is related to execution. When you dig into it, we also see that there is a disconnect between the business strategy and the people strategy. In most cases, there isn’t a people strategy (less than 50% of SMB leaders say they have one) so fundamentally it says there is value in determining what role people have in delivering the profits you anticipated.

For many SMB owners/CEOs, if their business is growing or making enough money from their perspective, they can brush off the miss and keep going on. For those who want to be the best, it is time to reflect on what is happening with the “P” side of the P&L, and I don’t mean profit. I mean PEOPLE.

According to a recent HBR study, purpose-led companies had faster growth and were more profitable. They averaged 12.5% higher EBITDA growth over a five-year period.

“How do I get there?” you might ask. I would start by going back to the well and reminding yourself of what the purpose you started with OR whoever started the company, what was their purpose? In that reflection time, be honest with yourself and decide if you are living it yourself or not. If not, why not? If yes, ask why isn’t it translating?

Here comes the part where you have to be willing to ask your organization (all levels), your suppliers, and your community and you will be pleasantly surprised at how they observe a lot of what happens and you will be able to take their feedback and perspective and begin to re-engage the organization on its purpose, live it, and engage everyone in it. Call out when people do things that show it, highlight when it isn’t lived, and reward those who carry it forward.

When you get this clarity, make sure that you are building a people strategy into your business strategy. It will allow you to put the foundation in place, and here is the value:

• Customers, employees, and the community will have clarity and will bring connected ideas, opportunities, and concerns to the forefront to grow and minimize risk. An increase in loyalty, sales, and advocacy (HBR).
• The employee turnover at first may spike as people opt out, but in a short time it will drop and you will have a more sustainable organization, reducing costs.
• Decision-making will speed up as people have clarity. Again, this will be an evolution and bumpy at first. It takes time to help people know where and test the guardrails.

In the end, reality always WINS. Always.

Mike Thorne is a former CEO and current Vistage Chair. He leads and facilitates a group of trusted advisor entrepreneurs and a CEO peer group in New Hampshire and Maine.

Mark Fackler

This month’s CEO Table Talks topic asks the question in relation to people vs. profit: “What is the number one skill CEOs lack in the new purpose-driven economy.”

First, let’s explore people vs. profit. I don’t consider these at odds with each other. In fact, I consider them in tandem with each other. Invest in people and increase profit. Of course, there is a limit to the investment, but a CEO should never stop investing in people. Never, never, never.

I suggest you focus on staff development long before you invest in perks like massages, dry-cleaning, and happy hours. Focus on education. Do not use the excuse that you can’t afford to educate staff. You might not have the cash to pay for formal education like degrees or even seminars, but there are countless less expensive alternatives, from lunchtime learnings to book clubs to YouTube videos. There is always a solution. Investing in your people will 1) make them more productive and 2) give them pride which is priceless.

Regarding the number one skill CEOs lack in the new purpose-driven economy, I’d like to shift to what is the lowest-hanging fruit that CEOs are ignoring. Simon Sinek’s “Just Cause” is a goldmine for forward-looking leaders. In his book The Infinite Game, Sinek defines a Just Cause as a “specific vision of an ideal state of the future that inspires people.” “Inspires people” is the key phrase in the definition. An inspired staff creates a ripple effect or, more accurately, a tidal wave of goodness, from increased productivity to low turnover to high-quality employee candidates.

In this short piece, I can’t describe a Just Cause, so please do your research. What I can do is give examples to inspire you to be part of this movement.

A plumbing company’s Just Cause could be “water for everyone.” A pest control company’s Just Cause could be “no more malaria.” A bank’s Just Cause could be “secure savings for everyone.”

Think of the implication of the bank’s Just Cause. Not only is “secure savings” mentioned, but also “everyone.” The idea that everyone on the planet could have savings is a “specific vision of an ideal state of the future that inspires people.” I would want to work for that bank. I would want to put my money in that bank. I would want to be part of moving toward that Just Cause.

Like I say, this is low-hanging fruit. What are you waiting for? Pick the fruit!

Mark Fackler is a retired CEO and currently leads the Vistage CEO group that he was a member of from 1991 to 2002. He is passionate about creating great ROI for his member CEOs.

What’s your experience trying to balance driving revenue and optimizing profitability? Join the conversation inside Work It Daily’s Executive Program.

When it comes to business growth, which is more important: driving revenue or optimizing profitability? The truth is that success lies in the balance of both. So how do you find the right balance between driving revenue and optimizing profitability for your business?

In this article, Work It Daily experts from Vistage will discuss the power of balancing revenue and optimizing profit for long-term success as it generates sustainable revenue while controlling costs. Read on to hear these Vistage Chairs explain how this balance allows you to work smarter, not harder, for business growth.

Kirsten Yurich

We’ve all heard the saying, “Revenue is vanity, profit is sanity, and cash is reality.” All three are vitally important. But they are also measures of things. Things in business. And it’s these things in our companies that require the attention of leaders. Things like what has changed in the last 30 days in our market landscape that alters our understanding of the future? Did we do what we said we were going to do in the last quarter? What was the numerical impact of the changes we made?

Numbers like revenue, profit, and cash flow help us evaluate the impact of our actions to either understand the past or, more importantly, shape the future.

Of vital importance for a leadership team is to find a common way to communicate about your numbers. Too often there is a disconnect between finance, operations, and strategic leadership. This disconnect will sub-optimize a company’s results.

How can you maximize what you are delivering to the market? Not all products and services are created equally. One basic strategy I have used is to simply make a 2×2 matrix that illustrates the relationship between new/existing customers and new/existing services or products. You then engage your team in a discussion about not only how the numbers bear out this decision, but other key factors such as the current contextual features of the customer market, supply issues, labor issues, and your current capacity to execute in any given quadrant.

Ask your team, “Do we want to provide more of the same services to the same customers? What is the advantage of finding new customers for our existing products?” Moving to another section on the diagram, “What have we been sitting on, waiting to unleash to the market? What new services can we offer our existing customers?”

Some of these answers are considered, shopping in your own closet. What opportunities do we have right in front of us? What are the needs of our current customers that if we meet them offer new revenue streams or increased profit margins?

Of vital importance, however, is knowing the costs and margins of every service and product that falls within each quadrant of that 2×2 matrix. If you don’t, you could select to double down on your least profitable service.

Kirsten Yurich is a former CEO and current Vistage Chair. As a clinician, professor, author, and executive, she leverages this unique blend and creates learning environments for executives to become better leaders, spouses, and parents.

Mike Thorne

I like defining what working smarter means to me. It requires a delicate balancing act of “driving revenue” (increasing the amount of money generated through sales and customer acquisition to increase top line and market share) and “optimizing profitability” (efficiency/effectiveness of operations—cost cutting, streamlining processes, and improving productivity).

Sustainable and working smarter businesses do a great job embedding these three disciplines in their businesses vs. applying them when a crisis hits or issues occur.

Cost Management – negotiating better deals with suppliers, optimizing inventory management, implementing energy-saving initiatives, or leveraging technology to automate tasks and improve operational efficiency.

Pricing Strategies – Analyze and adjust pricing strategies to ensure they are aligned with market conditions and customer value perception. Consider factors such as production costs, competitor pricing, customer demand, and perceived value. Implementing dynamic pricing, bundling products or services, or offering tiered pricing options can help optimize profitability while remaining competitive.

Enhance Customer Relationships – Focus on building and nurturing strong customer relationships to drive repeat business and increase customer lifetime value. Providing excellent customer service, personalizing interactions, and implementing loyalty programs can help retain existing customers and attract new ones. Additionally, understanding customer needs and preferences through market research and feedback can lead to targeted marketing efforts and product/service enhancements, ultimately boosting profitability.

These disciplines need to be embedded in your organization and take time. Once you have concrete processes in place for the core business, it is advantageous to explore what opportunities exist for either new customers, new channels, or new products and services. I refer to these as value-added complexity ideas. What is value-added complexity? These are opportunities to leverage existing capabilities and competencies that will stretch the organization but not “ask” it to build something new from scratch.

1. Customer Pain or Opportunity Points – What are your greatest ideas or challenges that they are looking for solutions to or to take advantage of their strengths? Are they core competencies that you have seen other customers solve or that you as an organization have dealt with before? They could be revenue drivers for you or simply ways for you to add value to the relationship. See yourself as a solution provider for your clients and watch opportunities come your way.

2. Partnerships/Licensing/Private-Public Partnerships – Staying with your expertise and studying your clients and seeing where you both could grow together. Instead of being a customer/supplier relationship, what would a partnership look like?

3. Retail 101 Techniques – Online and brick-and-mortar retailers alike think about three things all the time (driving our ticket, our traffic, and our conversion of that traffic). Look at your entire value chain and ask where could you drive more interest. Do your suppliers have customers you could do business with?

I am confident by reimagining your relationships and value equation you will prosper, build sustainability by diversifying, and, ultimately, working smarter will lead to improved profitability and stickiness with customers.

Mike Thorne is a former CEO and current Vistage Chair. He leads and facilitates a group of trusted advisor entrepreneurs and a CEO peer group in New Hampshire and Maine.

Nora Taylor

Driving revenue and optimizing profitability are both important aspects of working smarter for sustainable growth in business. For long-term sustainable growth, they should be worked in tandem. There is no right answer; it is a tricky balancing act, maybe more art than science. However, your highest probability of success is when you begin with defined goals and plans that the team understands.

Companies must focus on driving new opportunities and revenue growth if they want sustained growth—as long as costs are steady; it is difficult to sustain growth if costs are out of control. In my career, I admittedly would focus on profitability in the business development cycle upfront. I would ask the business development or sales team at the time considering an opportunity, “Why?”

• Why this opportunity?
• Is it aligned with our goals and strategic plan?
• What value does it bring?
• How is it helping us meet our objectives?

Unless there was a compelling business case for going outside the typical profitability parameters established for the business, I tended to err on the conservative side, however, my background is in a more regulated environment.

If there was a solid business case to drive revenue by taking a risk, then I believe you should be bold and take manageable risks. You will need to understand what your manageable risks are.

Remember, working smarter for business growth requires a balanced approach between revenue generation and profitability optimization. Continuously assess and adjust your strategies based on market dynamics, customer feedback, and financial insights to ensure sustainable growth for your business.

Nora Taylor helps CEOs and executives achieve success. As a Vistage Chair, she leads confidential peer advisory groups where the members work together to develop informed decision-making, improved judgment, and confident leadership.

Mark Fackler

I have a bias. Though there is a balance between driving revenue and optimizing profit, the priority between the two is straightforward: driving revenue far outweighs optimizing profit. Public companies aside, I see this as a stepped approach: drive revenue first and foremost, and optimize profit only after the revenue machine is well tuned.

But first, we must acknowledge that cash is everything. Cash is life. No cash. No company. Focusing on growing revenue is fine if you produce enough cash flow. Focusing on optimizing profit is fine if you produce enough cash flow.

Back to the question at hand, under most circumstances, I believe growing revenue should be the higher priority. Plow as much as you can into sales, marketing, and infrastructure to grow revenue. Let cash flow be your throttle. Growth takes investments. Just like a tree that needs water, nutrients, and sun, companies need sales, marketing, and infrastructure.

Though I stated that optimizing profit comes after the revenue machine is well tuned, that does not mean that money should be wasted in this effort. Be prudent in your employee compensation. Be prudent in your vendor negotiations. Be prudent in your marketing campaigns. Make your investment decisions based on if the investment supports revenue growth either directly or indirectly. Remember, back-office investments in things like accounting, IT, and HR are absolutely necessary to support revenue growth.

Because of my bias, I must conclude with this. Optimizing profit is important work as long as it does not jeopardize future revenue growth. Never stop growing.

Mark Fackler is a retired CEO and currently leads the Vistage CEO group that he was a member of from 1991 to 2002. He is passionate about creating great ROI for his member CEOs.

What’s your experience trying to balance driving revenue and optimizing profitability? Join the conversation inside Work It Daily’s Executive Program.

A critical responsibility of an executive is to set up a proper budget for their organization. Setting a proper budget usually involves setting financial goals, identifying expenses and revenue streams, and creating a budget that helps drive business success. So, what are some practical strategies for creating and managing a successful budget?

We recently asked our executives how they set up a proper budget.

Here are their responses…

Ana Smith, Talent Architect & Global Learning Strategist

As an executive, setting up a proper budget is a critical responsibility that requires careful planning, analysis, and monitoring. Here are some steps to consider when setting up a proper budget:

1. Define your financial goals: Before setting up a budget, you need to define your financial goals and objectives. This will help you to prioritize your spending and identify areas where you need to cut costs.
2. Estimate your revenue: Determine how much money your organization expects to generate in the upcoming period. This includes revenue from sales, investments, and other sources.
3. Analyze your expenses: Identify all of the expenses that your organization will incur during the upcoming period. This includes fixed costs like rent and salaries, as well as variable costs like marketing and materials.
4. Prioritize expenses: Once you have identified all of your expenses, prioritize them based on their importance to your organization’s success. This will help you to allocate resources more effectively and avoid overspending.
5. Allocate resources: After prioritizing your expenses, allocate resources to each category based on their importance. This will help you to ensure that you are spending money where it is needed most.
6. Monitor and adjust: Once your budget is in place, it is important to monitor your actual expenses and revenue against your budgeted amounts. This will allow you to identify any discrepancies and make adjustments as necessary.

In summary, setting up a proper budget requires careful planning, analysis, and monitoring. By following these steps, you can ensure that your organization’s financial resources are allocated effectively and efficiently.

Ana Smith helps people & organizations achieve their full talent potential by developing and co-creating people strategies and customized solutions, and turning them into impactful outcomes and collaborative relationships, using coaching as the “red thread.”

Michael Willis, Sports Business Operations Executive

I love the time of the year when it’s time to work on the upcoming year’s budget at the NFL.

For me, the budget is a living and breathing document. You just don’t put in all the effort to file the budget in the filing cabinet once approved. More on that later.

I have a process that I follow every year. I keep a folder with all the notes and conversations that I had to build the budget. I keep various budget versions as I move to the final approved budget.

My budget process goes as follows:

1. Current Year Actual

The current year’s actual P&L numbers will be my basis for the upcoming budget cycle.

I go to each department head in our group and ask them if they have anything they want to buy or change that they didn’t do this season. Also, I will ask if they have any one-offs that won’t be done after the season ends.

2. Game and Replay Officials – (CBA) Collective Bargaining Agreement

Seventy-six percent of the Football Operations budget is covered by the Game and Replay Officials’ salaries and travel expenses agreed upon in a seven-year agreement between the NFL and the Officials’ Union.

So, I only have control of 24% of the Football Operations budget.

3. VP & Finance Review

This is when I sit with my boss and Finance to make any adjustments, then move to the approval of the budget.

4. VP & Commissioner Review

After Finance approves the budget, my boss sits with the NFL Commissioner on what the department wants to do in the upcoming year.

The Commissioner doesn’t have the time to go through the entire budget page by page. So, I draw up a “one-page” report. This is a simple one-pager with one number at the top of the page, representing the current year’s “actual” spend. In the middle of the page are the budget changes for the upcoming year. At the bottom is the total budget for the upcoming year.

5. Finally, the Living and Breathing Part

Now that I have a final version budget in my hands, I will bring life to the budget by calendarizing the budget. That means I will spread the budget over twelve months, showing when to spend the money. That means I can discuss how we are pacing every month or quarterly, from budget to actual.

Michael Willis has 18+ years of experience working with accounting & sports organizations and has managed P&Ls of $10M – $125M+ with budgets of $3M-$50M+. He worked for the NFL for 22 1/2 years, mainly with the game officials working on the financial/accounting side of the business.

Lisa Perry, Global Marketing Executive

As a brand marketing executive, a well-planned marketing budget is critical to strategically allocating resources, outlining a successful marketing strategy, maximizing return on investment (ROI), and effectively reaching your target audience. Creating a marketing budget may seem daunting, but it doesn’t have to be. Here are six steps to help you set up a marketing budget that aligns with your goals and drives tangible results:

1. Define Marketing Goals & Objectives: Before diving into budget planning, clearly define SMART (specific, measurable, attainable, relevant, and time-bound) marketing goals and objectives. For example, what are you looking to do? Increase brand awareness or consideration, generate leads or conversion, drive loyalty or advocacy? Understanding your objectives will guide your budget allocation decisions and ensure your marketing efforts align with your business goals.

2. Conduct Analysis & Research: Analyze historical marketing data and conduct research that will provide valuable insights for budget planning. Evaluate the performance of past marketing campaigns, identify successful strategies, and pinpoint areas for improvement. Additionally, research market trends, customer behavior, and competitor activities to make informed budgetary decisions.

3. Develop a Marketing Plan: Develop a marketing plan with strategies and tactics aligning with your goals and objectives. Part of the planning includes researching the costs of the various marketing tactics. This is when you can determine which budget line item you want to include, how much money you want to allocate, and when you plan to spend it.

4. Estimate Marketing Costs: When submitting your marketing budget estimates for approval, it is crucial to accurately forecast how much you anticipate spending, as once approved, these estimates become your budget. Research industry benchmarks, obtain vendor quotes, and consult with your team to accurately estimate the costs involved.

5. Develop a Marketing Budget: Set a realistic marketing budget considering your financial resources, revenue projections, and the estimated costs of executing your marketing campaign. Strive for a balance between ambition and realism to ensure you have sufficient funds to support your activities throughout the budget period.

6. Monitor & Adjust: Regularly monitor and evaluate the performance of your marketing activities to ensure your budget is being utilized effectively. Track key performance indicators (KPIs) such as conversion rates, cost per lead, and customer acquisition. Identify areas that require adjustments or optimization. You can optimize your budget allocation for maximum impact by staying agile and responsive to data-driven insights.

Setting up a proper marketing budget requires careful planning, data analysis, and an understanding of your business goals. Then, you can create a budget that drives measurable results, strengthens your brand, and propels your business toward success.

Lisa Perry helps companies build leadership brands, driving loyal customers & delivering profitability. She does this through a process that builds brands consumers love. Her goal is to help companies develop, monetize, and grow their brands.

How do you set up a proper budget? Join the conversation inside Work It Daily’s Executive Program.

(NOTE: This message is laced with sarcasm to prove a point. Reader beware and enter at your own risk.)

One of my mentors taught me a very valuable lesson the hard way. He told me I had great ideas, and my sales approach was crap. He even sent me to “Sales Training” to get better at making my point.

I admit I was terrible. I have gotten better over the years and by making mistakes. One good idea after another thrown in the circular file until I learned an invaluable lesson from my mentor.

Executives only care about two things…

#1 – MONEY

And

#2 – MONEY!!!!

Money #1 – How Much Will This Cost Me?

One of the first questions after someone poses an idea to an executive is: “What will this cost?”

Money #1 is about how much outlay of cash, time, or effort this idea will cost me. Is this idea an investment of hundreds of thousands of dollars? Capital? Expense? How long will it take? Who needs to be involved?

Everything in business comes with a cost. If the executive decides to put effort into something, she needs to know what it will cost her. Do I need to change the schedule on another project making it late? Is she hiring someone to complete this project? Does she need to pay overtime? Invest cash? Take out a loan? Everything comes with a price tag.

When presenting your ideas to an executive, make sure you have these details ready at a macro level. Too much detail, you lose their interest. Not enough facts and you will be sent back to the drawing board. What is the right level of detail?

Each executive will have different motivations. See if you can identify them before the conversation and leverage their preferences. Going to a CFO with highly complicated technology will confuse him. Seeking financial support from the Director of Engineering without discussing the details? Good luck. Determine their preference and use it!

Money #2 – What Is The Revenue Or Cost Savings That Comes With This?

The second question: “How much can we make off this idea” The corollary question: “What are the savings?”

Money #2 is more about what is in it for me. How much will we profit from this exercise? Will it increase revenue? Can it save me money elsewhere in the business? What do I get from my investment?

If an idea is simply for an idea’s sake, you better have a flawless argument to get approval. Asking for money (#1) without stating what is in it for me (#2) is suicide. If you approached your mother for $100, would you simply get it? Sure, she’s Mom, and she loves you. Dad on the other hand wants a mowed lawn, clean garage, or something in return. (NOTE: This is a stereotype. See warning above.)

Executives need to know their investment will pay off. Some want immediate results, and others may be playing the long game of two to three years out. Either way, for their $100 today, they want something in return in the near future.

How can you save the business? Will the idea drive more revenue and improve cash flow? Is your production line 30% more efficient saving time and labor hours? Can we make and sell more widgets this month?

Approach your executive with some idea of what is in it for them. Show the way your idea can help meet (or exceed) their goals. If you ask for $100K, demonstrate the return of $200K, $300K, $500K, or more for the investment in your project.

Subjects like safety, risk mitigation, and even simply making a product right for the customer may not have hard dollars in return. Focus on cost avoidance when you cannot provide hard cash. Avoiding litigation and the lawyer fees associated to defend your product liability can be worth millions. Saving a person’s life is immeasurable. These costs are indirect, and they are potentially real.

In order to get Money #1 to begin your project, you must show how Money #2 pays itself back. Without it, your idea is nothing more than a dream.

Wrap It Up… This Is Costing Me!

I learned this lesson early in my career. As stated, my mentor saw potential in my new ideas. He knew I put a lot of effort into the concept and how it could help the business. I had opportunities to drive real change.

My presentation sucked. I spoke of the technical merits. I showed efficiency gains. I described in detail the plan of implementation. I knew generally what the “cash” costs were in the conversation. I could give him more detail than he needed.

In the end, he asked me what it would cost. I had the cash value of the idea, and I neglected the time and human capital. His second question: “How does this affect the bottom line (the return)?” I did not always have this level of detail.

Business is supposed to be simple. I sell something for a price (Money #2) while making it for a cost (Money #1). When #2 is greater than #1, business is good. If #2 does not exist and you continue to spend #1, your business will not last.

Approaching an executive with these two concepts well prepared will serve you well. In everyday negotiations with my team, I often ask, “How much effort will this take?” and “Why should we do this?” In a way, my mentor is perched on each of my shoulders (like the angel and devil) reminding me of two things…

MONEY and MONEY.

Go forth and sell your ideas better than I have in my past. Use the Money #1 and Money #2 tricks to your advantage. Get your paradigm-changing concepts implemented and improve your world!