Editing note: Charley’s site is now Business & Investing
Some things can lower profit margins without your knowing it. James and Business & Investing’s Charley Valher have compiled a list of nine, five of which they discussed in their last episode together.
In this second episode, they reveal the remaining four things that can make your business lose money.
They share how, among other factors, a bad reputation can impact your bottom line.
And they present proof for the adage that health is wealth.
Table of contents
1. How do people perceive you?
2. Consider reputation by association, too
3. Sometimes more is not better
4. When you’ve got to edit and purge
5. The big events that sidetrack you
6. Parents getting on in years
7. The major events you put on
8. How are you doing healthwise?
How do people perceive you?
If you haven’t heard Part One of this topic, it’s episode 962, where James and Charley talk about five out of nine things that kill profit.
Number six in the list is reputation and first impressions.
This was something unknown to Charley when he first started in business. He now would go so far as to say that some businesses are built on relationships.
Let’s pretend, he says, that at a future James Schramko event, you see someone who strikes you as nice, someone you’d like to do business with. That is, till you see them mistreat the staff, or deal with other people poorly.
Charley has witnessed this himself, and it’s an instant deal-breaker.
In his time with Mercedes-Benz, James has had his share of encounters with people of prominence. Some of them, he can say, were particularly nice and amazing human beings; others were pretty bad.
This really impacted him. And since then, he’s learned something more: it’s the grapevine that will kill people before they ever even know it.
There is a network, and through it James hears who’s who and what’s happening – who got taken down, who didn’t pay a debt…
So be aware there is a grapevine, and you either take care of the grapevine or the grapevine will take care of you.
And never gossip. James houses many secrets himself, and when he can’t give a positive reference for someone, he simply declines to offer a perspective.
Consider reputation by association, too
Charley would like to throw in, too, it’s worth knowing the reputations of people you associate with. You wouldn’t want, for instance, to do business with someone who turns out to be a massive racist and cheat.
James agrees. You’ll often hear of organizations withdrawing sponsorship for someone who misbehaves, especially in the cancel culture environment.
James himself is immensely careful who he endorses. He has in the past deleted an episode of his podcast when the guest turned out to have false credentials.
When choosing guests, he looks for reputational signals, how they’re known in the marketplace, whether they have negative reviews. It’s the same when he looks to replace a pool pump.
To a large extent, says James, the impressions you make, the reputation, it’s the company you keep, it’s the actions you take, it’s your behaviors, even when no one’s looking, that will form the person you are, that will magnify, and people will be aware of it. And if you don’t think they are, you’re wrong, because they are.
People know all about your bad behaviors, and they’re talking about it when you’re not there, and it is costing you even if you never knew it.
Sometimes more is not better
The seventh profit killer is ad hoc services and products.
Charley learned this the hard way. In his first business, he thought the best way to drive profit was through product diversity, to offer more products and services.
So while they were doing ads, he thought they’d add on graphic design as an extra, or offer an additional little website thing.
In theory, it sounded great to be able to sell more things. But what it did was create a huge amount of complexity, which increased management and stretched Charley and ultimately destroyed profit by having everyone do too many things.
If Charley had stuck with one clean service and product, he could have scaled it much more efficiently. He could have trained his team better, and it would have been a better machine overall.
About a year after James quit his job, he had around 10 profit lines, among them affiliate work, info products, website building, SEO and coaching. They had the most revenue, the most team members at 65, and good profit.
But it was complex, and when people at conferences asked James what he actually did, it was hard to answer.
Since then, James has streamlined his business to just two items. He has JamesSchramko.com, and he has his surfing website, which probably just counts as a hobby at this point.
On the JamesSchramko side he’s focusing on one main product line. Then he’s got his rev share partners, and he’s got a few SilverCircle members.
How did he get there? Over time he used the process of measuring things like effective hourly rate and asset value.
He takes into account:
– How much revenue is coming in by product line?
– How many James hours are involved by product line?
– What are the team costs involved per product line?
– What are the total hours, total profit and the effective hourly rate?
– And then is there any compound, is there any sale value of that business model?
In short, by scoring your different product lines, your different divisions with some significant metrics, you should be able to work out which of all your products you need to cut, and just get down to the core.
And the more you specialize, the more you’re getting very clear on what you do and don’t do. If you are going to add on products or services, it would be good if they had something in common, either with the team you’ve already got or with the customer you’ve already got, so that you’re overlapping resources and getting some efficiency or leverage.
When you’ve got to edit and purge
At this stage in James’s business, he’s removing stuff. He likes Dieter Rams’s design philosophies – less but better.
Remove everything you possibly can remove, and have no more than that. And if you remove too much, then just add a bit back in.
Business owners appear to be pretty good at adding things in, says Charley.
People don’t talk about editing and deleting, says James. The real stuff is in the planning, the research and the planning. And then, once you are creating, get good at editing and deleting, purging.
One of his customers has a division costing ten of thousands a month to sustain, which services 40-something customers paying a couple of hundred monthly. They’re debating whether to get rid of it, when their other division makes tens of millions of dollars a year.
Recognize that if you delete poor-performing divisions, it automatically enriches the well-performing divisions. If you take the same time and energy that’s yielding a crappy result, and put it into something that gives you a good result, you’ll lift.
The big events that sidetrack you
Let’s talk about number eight, says Charley.
Life events, major events, says James, are an invisible profit killer. What does Charley have in mind?
His is about to turn three.
Now Charley is very fond of his son, Jack. But it’s undeniable that kids – or it might be parents, your partner, friends – take time away from a business and can dramatically shift profits if not properly provided for.
Charley knows firsthand some people for whom it’s been almost the destruction of a business.
James knows, as a parent, it’s incredibly hard to perform at your peak or to have the same level of focus or energy for a business that you’d have without kids.
That said, he is very grateful for having kids. If he hadn’t had his first son at the age he had him, he wouldn’t have gone into sales, and he wouldn’t have the life he now has.
At 24 years old, needing to double his income, he had nothing to fall back on. It forced him to take on the responsibility to succeed.
It’s interesting James mentions that, says Charley. It’s almost like a profit motivator long term – for a lot of people, having a kid turns into their motivation to do well in business.
Parents getting on in years
Another consideration is caring for aging parents. Of course you want to spend time with your parents and help them through that stage of life. It can be very challenging.
It definitely transforms how you think about things, says James, because they’re like an earlier model of you, working their way through the machine. As they get further down the line, it certainly brings up thoughts about mortality and the end game – more than ever, James wants to make sure he’s spending my time in a way that he won’t regret later.
The major events you put on
When James thinks of major events, he also considers the ones a business owner might put on, like the annual event he used to run every year.
A massive payment would go to the hotel, which could suck the profit out of a whole month. Hopefully, if you’re selling tickets, you can stage the timing well enough that you’re getting paid and making your payments at the same time.
James still pays a boat every year for his Maldives event, and he’s figured out a nice way to make that flow seamlessly. But these things can throw off your company profit margin if you’re running a real time cash accounting situation.
Some people, he says, post income reports on their blogs that are bullsh*tting the public. They count sales of things they haven’t collected for yet; they count the projected cash collection without taking into account refunds, and without taking into account part payment systems.
So on the topic of major events, don’t be wooed by people’s income reports, because they may need some serious qualification before you can believe them.
How are you doing healthwise?
Ninth and final point, health and wellness. They’ve sort of touched on it with parents and kids. Obviously, should something happen to either, it affects you.
Health matters can be all-consuming, taking a lot of attention and budget and frustrating any hopes of wealth building.
One thing James has found helpful is to have ample free space in his week to manage things that inevitably come up.
Charley would go further. He knows James has a sauna, which he believes if he enjoys three times a week makes him less likely to get sick (don’t quote him on that, however).
The point is, how well a business owner looks after themselves and tries to prevent themselves or their loved ones from getting sick can make a big difference.
And the reverse is also true – how many business owners compromise their immune system with alcohol at night and poor sleep? Should they brush past someone on the train or at the office, their chances of catching something are much greater than, say, James with his sauna.
You could lose significant time every year, just through lifestyle decisions. We know people get sick, and we can make choices to reduce how we are sick, and how long it takes to recover, and so forth.
James thinks attitude counts as well. Most entrepreneurs are fighters and can get a good management plan.
Surround yourself with good advisors, says James. He knows a guy who can help him through just about any ailment, seems to know exactly what to do, and it works, although some of it is less than conventional – science backed, but not mainstream.
That rounds out the list of nine profit killers. Charley’s personal number one, he says, is needing to delete some things.
You’ll feel the weight lifting off your shoulders as you let stuff go, says James.
If you’re listening, and you want to ask Charley and James something they should cover in a future episode, fire off an email, [email protected]. James answers personally.
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