Purpose and the P&L

Ask a CEO if they’d like double digit EBIDTA improvement, and most will emphatically answer, “Oh hell yes.” Even better, ask how they might feel about a 5X company valuation. Then, ask that same CEO how they’re going to achieve that improvement, and you will hear every conventional answer known to business, most often in the neighborhood of “efficiency gains,” aka cost reductions.

To be clear, cost reductions really means:

• Trim head count (ingenious, and always #1)
• Pummel suppliers and partners for lower pricing (because they’re the problem!)
• Freeze everything, including budgets, salaries, and the like (now that took a lot of critical thinking and brainpower to figure out)

Of course, as I learned early in my career, you can’t expense your way to profitability.

Continuing with our story, here’s where most senior leaders miss the boat. The greatest root cause of poor profitability is ever increasing organizational variation. To make matters worse, it is a “hidden cost,” the silent killer that plays no favorites. There is no line item on the P&L for this profit assassin. It lurks in the shadows, taking many forms as you’ll see below.

Yes, I can see your furrowed brow and hear your skepticism laced with confusion. To provide clarity and understanding, here are four key areas that cause company-wide variation to skyrocket, sabotaging every important KPI, including revenue, margins, cost control, customer and employee satisfaction, and overall profitability to name just a few:

4. No understanding of a system. To be more specific, businesses often have no idea how their entire ecosystem interacts – the key components therein that impact one another – to produce healthy profits. As Mufasa said to young Simba in the Disney hit The Lion King, “Everything you see exists together in a delicate balance. As king (business owner), you need to understand that balance, and respect all the creatures, from the crawling ant to the leaping antelope. When we die, our bodies become one with the grass. And the antelope eat the grass. And so, we are all connected in the great Circle of Life.”

3. Identity crisis. Not only do companies not know who they are, they don’t know who they are not. It’s a Jekyll and Hyde sort of thing. If there’s no clear organizational identity, then people show up one day thinking and behaving one way, and show up the next day with a different persona. That inconsistency wreaks havoc on the ecosystem, and subsequently, performance.

2. Sameness is rampant. I’ll write a separate post for this one, however most CEOs and business owners believe their value proposition rocks their respective customers’ world. After all, the orders keep coming in, right? Most believe the organization possesses clear strengths. Believe me, this is a fallacy, and I’ll prove it in the upcoming post. Then the top dog declares the firm’s clear differentiation, but it’s nothing more than hollow strengths (and everyone knows it, especially the sales team). Next comes competitive advantage, and if it’s evident, it only has a six to nine month shelf life because someone will copy it. Last is the elusive “unprecedented” value, where demand creation lives, and sameness is slain.

1. Lack of true north. Similar to identity crisis, but it’s actually the root cause. With no higher calling, bad decisions through the enterprise are made minute-by-minute, day-by-day, and elite profit performance never has a chance.

The remedy? Organizational fitness, beginning with becoming purpose-driven, reduces variation like nothing else. It’s the hardest thing senior leadership will ever design, yet it can yield the greatest rewards for all stakeholders.

NOTE: If you found this post helpful, please refer to Chapters 3, 11 and 14 in Clean Slate for more beneficial information.

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Why leadership should trash their current business model, reject popular sales advice, operate like a startup, and leverage the new rules for prosperity to achieve explosive profitable revenue growth (PRG).