A business thought for Tax Day found in some dance music! If you were following music as the punk movement hit in the late 1970’s, you were quite aware of The Clash. You might have even shed a tear when Mick Jones, one of the guitar players and a key songwriter, was kicked out of the band. This TunesDay we’ll use a song from his next project – Big Audio Dynamite – as our jumping off point to discuss business. It’s called The Bottom Line and it’s a fun listen if only for the wacky, mid-1980’s video:
This lyric raises our business thought:
A dance to the tune of economic decline
Is when you do the bottom line
Nagging questions always remain
Why did it happen and who was to blame?
It always amazes me how many smart people forget that “margin” is at least as important as “revenue.” They spend a lot of time generating revenue from unprofitable activities while ignoring a part of the business that might have a high margin although the revenues aren’t much. I thought we had all learned about that sort of thing in the dot-com bubble long ago (internet years are like dog years – the intervening 15 years are like a century in real-time).
It takes a fair amount of courage to abandon unprofitable customers or segments of your business which are generating decent revenue. Revenue is always just one aspect of the business story. Cash flow and profit are two others which are far more important. Sure, revenue is the fuel that makes the business engine go, but a leaky gas line almost always results in disaster.
There is also the mistake some folks make in thinking about margin. They forget that in addition to the gross margin (basically the cost to the customer minus the cost to you) there are other things that are “indirect” costs such as advertising and overhead that should be factored in to prevent the business from losing money on many sales. Of course I see the need to scale – to build a customer base and generate cash flow – but if it’s not done in a sustainable manner, it’s just an exercise in futility.