Better Margins Start with ‘No’

Why would an entrepreneur take on significant financial risk based on vague project specifications for net profit percentages somewhere below savings account interest rates?

Selling out of fear is the fastest way to the poor house

Have you ever tried to explain the AV integration industry to an investor? Why would an entrepreneur take on significant financial risk based on vague project specifications for net profit percentages somewhere below savings account interest rates? There must be a better way to make a living! Yet, day in and day out integrators continue to compete for diminishing margins in increasingly riskier applications. And many owners and managers have accepted razor thin margins as normal – believing that their operations are as efficient as they can be under the circumstances. What’s the reason behind this rationalization? Fear is clouding decision-making. As a result, other industries now look at AV integration and think, “Hey, I think I could do that better.”

Salespersons and Managers often agree that projects should be more profitable, but believe that sales quotas must be met first. So they negotiate from a position of fear – fear of not winning the job. The revenue becomes too tempting or the prestige too alluring. Rational decisions are set aside and emotions take over. Fear of losing drives prices down. “We can’t make a profit if we don’t have revenue,” is the battle cry of fear-driven business. The burden of profit falls to the operations process. The assumption is that all revenue is potentially profitable, whether it is for a given integrator or not.

The problems all start when we say, yes. Successful salespersons turn no’s into yesses. Isn’t that what we’re told? Positive is good; negative is bad. However, without a functioning no companies lose the ability to negotiate, to rethink processes, or rationally evaluate results. Both yes and no are necessary for a healthy, profitable business. Fixing this dilemma will take some fresh thinking. Without a clear understanding of a firm’s business metrics, it is difficult to prevent sub-marginal projects from being pursued in the first place. The integrator has to do a better job of setting margin expectations while improving estimating. The industry’s lack of success at this is rather discouraging. Again, fear is the culprit. Managers are afraid that someone else can make money with low margins, so “Why not us?”  Then they pledge to be more efficient on the next project.

Most everyone has attempted some form of sales and operational redesign, but few have bravely taken their efforts far enough. Because the biggest fear of all is discovering that you really don’t know how to turn a profit – that your business models and processes are inherently flawed or outdated. And what could be scarier than having to start all over or worse, admit defeat?

Management itself needs to take more responsibility for sub-par outcomes. The solution is to spend more on efficient and data-rich infrastructure. Software, vans, tools, and training can all lead to improved efficiency and profit. These are investments – not simply the cost of doing business. But, fear of raising overhead costs forces every expense to be “job-costed.” So, which project will pay for improving the infrastructure? That’s right – none of them.

Truly successful companies have well developed “no” mechanisms. Company bandwidth is an extremely valuable resource that is often wasted on developing low margin business. Sales must walk away from jobs that don’t meet all the “yes” criteria including an intentional fit, potential for recurring revenue, manageable risk, and potential for profit. Operations must plan as if every man-hour and connector matters, and that requires better business tools, new workflows, and a clearer understanding of all expenses – not just job costs. Successful integrators protect their capacity and focus on profit instead of revenue. Maximizing efficiency requires investment. The right infrastructure and training can reduce operating expenses.

Learning when and how to say no isn’t the first step. Learning why to say no is. Look at your numbers. All the reasons are in plain sight.

Tom Stimson MBA, CTS helps owners and management teams rediscover the fun and profit that comes from making better decisions about smarter goals. He is an expert on project-based selling and a thought leader for innovative business processes. Since 2006, Tom has successfully advised over two hundred companies and organizations on business strategy, process, marketing, and sales. Please send your questions to: tom@trstimson.com

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