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Profits or Scale?

Let’s say you understand and accept that your business will not grow fast right from the start, that you know you have to start small and hone many aspects of the business before customers really start buying.  So how do you know whether it’s all going to be worth it in the end, that one day you’ll have a big profitable business?  Well the chances are greatly improved if you can make it a profitable small business to begin with.  That’s the thinking supported by some recent research .  If you manage to get sales to grow without figuring out how to make a healthy profit on those sales then it seems you are much more likely to fizzle out.  Last week someone told me about an IT business where growth has stalled and which doesn’t make money either.  Allegedly ‘you don’t make money in this business’ or so I was told, you just grow and then sell or I suppose just grow forever.  Well isn’t that a great illustration of what the stats tell us?  It pays to put growth on hold whilst you figure out how to make a big margin.  That way your chances of huge eventual success are greatly increased.  Conversely chasing sales in the hope that profits will follow can be a fool’s game.

This idea fits naturally with the concept of having some special advantage or differentiation over competitors – something which typically takes time or resources or both to develop.  The founders of Pret A Manger still only had two shops after five years of effort (and building advantage) so sometimes you might be in for a long haul.  If you are in those difficult early stages take a close look at whether there’s real profit – the difference between having it and not has a big impact on whether your dreams will come true!

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