The Criticality of H2O to Your Business Model (October 2014)

Recently I wrote What Can You Learn from a Waterfall? and Is Your Pool of Capital Sufficient? In both issues, I used water as an analogy to the cash flow and profitability of a business.

In this issue, there are no fancy analogies. This is literally about water.

In recent weeks, I’ve had multiple conversations about executives who are in what I consider to be a turn-around situation looking at the cost of bottled water and soft drinks. Make no mistake about it, I believe that no cost is too small to overlook – my long time readers might remember Is $10 Real Money? (December 2006).

But unless you are in the ice business (where water and cold are the two primary ingredients), bottled water packaging and distributing (where water is part of COGS), or hydro-electric power generation (where without water you are out of business), I hope that you have more compelling places to look than at the cost of amenities provided to your team.

When businesses are thinking about profit improvement and how to meaningfully move the needle, they need to be thinking about step function improvements. This comes from evaluating the business model and thinking about the key levers they have at their disposal. Alternatively, it comes from thinking about how they might change their business model either immediately or over time.

Leadership needs to think about the big ideas that will either transform the company or provide enduring value to customers. I encourage and help all of my clients to understand their business model so that they can think about both step-function changes and evolution over time. Being able to articulate a business model is the first step in understanding how to change it.

When I see management in a troubled situation focusing on minutia, I know that they have no vision of how to change the business. The minutia in troubled companies should have been trimmed out a long time ago – not when a company has reached the turn-around state and is about to hit the wall. In these situations, either a change in leadership is required or the company is doomed to failure.

Think about where you are spending your time. Could you eliminate hours of dealing with trivial tasks freeing up valuable time to focus on things that really matter?

If water is critical to your business model, by all means focus on it. But if not, figure out what really matters and focus your energies there.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to [email protected]

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