Gratuitous sorcery and incantations from actual Wizards.

Focus on Profit

As I mentioned earlier, the focus of my work and of this series is on improving the profitability of companies while also getting them to grow bigger. I’ve come to realize that the number of people willing to teach you how to increase your sales, sometimes at the expense of profits, is much greater than the number of consultants like myself who are focused on the money you keep. So for that reason, I encourage my clients to look at the bottom-line numbers rather than top-line sales numbers.

Maybe it is because sales numbers are used to measure the performance of a company more than profits, or that sales growth is considered more important, or maybe because without sales there can be no profit – clearly, the majority of focus is on sales. But consider this: even for companies that are growing rapidly and showing losses, the reason people invest in them is not because they want to lose money. They invest because of the future profit potential. Sure short-term investors may want to dump the stock on its way up before profits are realized, but the ultimate end game for all companies is their ability to generate profits, not just revenue.

For the small business, profits are what allow the owner to enjoy the fruit of their labor without having to sell the business. Let’s explore a real-world example: Would you rather own a company that did $7.5mm in sales with profits of $520k or one that did $5.5mm with profits of $1.25mm? Oh, and in case you are wondering, it’s the same company, and the lower sales year followed the higher sales year. What changed? In the second year, the company managed to optimize profitability – thus, the owner was able to both enjoy increased profits and reinvest the money for the next year. Now, imagine once sales are grown back to $7.5mm level, with all the efficiencies in place, what kind of profit would be generated? Something in the $2mm range is likely.

So how do you ensure that your company is both profitable and growing revenues? Well, you have to start with the product!

Whether it’s a physical, digital, or service product, the margin on the product needs to be better than 4:1. Or another way to say it is the cost of delivering the product (not including sales and marketing costs) needs to be less than 25% of the price that it will be sold for. By the way, I don’t mean 25% of retail price, I mean of the real average price you are able to sell the product – that might be the wholesale price if you rely on retailers. If your product costs more than 25%, then you are facing an uphill battle in generating profit with it.

Of course, even if you do keep the product cost at less than 25% of the sales price, you still have to deal with costs of sales and marketing as well as with costs of scaling. It is not unusual for every last gross profit dollar to be spent, leaving nothing for net profit. If you can find a product to sell that costs 10% of the sale price, then you are hedging your bet against the costs associated with sales.

So before you pick or develop a product to sell, do a reality check to figure out what your gross profit on it could be, and don’t be afraid to decide that selling something doesn’t make financial sense.

Next, I want to discuss the top line number and how it relates to the bottom line number.

Focus on Sales

Profits allow you to reinvest money in the company, have a nice lifestyle, and possibly take time off – but without sales, there can be no profit. This is probably why the majority of business consulting literature is focused on improving sales. I have to admit as well that sales needs to be the first measure of a business. I even subtitled my book to reflect a ceiling at a sales figure of $5mm, not as a profit of $500k. So let’s talk about sales for just a moment.

When expenses were low, and the business was just starting out, sales and profits were much closer together. Ok, sometimes profit may have been a negative number, but even then, it was probably closer to the sales number than the profit is today. So can you increase sales without increasing expenses? Can you get the numbers to be closer again? To some extent, you can. In fact, the preferred method of increasing profit is to hold expenses relatively steady while increasing sales. This both grows the business and increases profit. This is the first path I recommend to increased profits. I’m happy to leave the actual details of how to grow sales to people much better qualified than me to answer such questions.

However, sometimes it is not possible to ramp up sales, perhaps due to lack of funds needed, or a shrinking market, or some other reason. In that scenario, it is often still possible to improve profits through reductions in operating expenses.

If you can’t grow sales, let’s see if we can keep the same level of sales while reducing some of the costs of the business. This can be done by reviewing supplier and vendor contracts and renegotiating them to more favorable terms. It may be a reduction of overall staff size by eliminating positions that do not require a full-time person, given the volume of sales. It may be by moving the office to a cheaper location or shrinking the office by having more staff working from home. The last one is usually very popular with employees because it saves them commute time while also saving the company rent and overhead money. Changing vendors, such as credit card processors or ad agencies, is another good way to use competition to reduce spending and improve profitability. Using these methods, I increased profits by over 65% for a client who, at the same time, saw a sales decrease of 35%. Not bad if you are facing shrinking sales. You might as well be sure you keep more of your money than you did before.

Sometimes, no matter the savings achieved, decreases in sales will take away everything you have managed to save. So for that reason, I explain to clients that what we are doing is akin to changing tires on a moving car. If we could stop the car, we could make the tire change go much faster, but I have yet to meet a company willing to shut down for 6 months and have no sales at all while it is being retooled to grow larger. While the car is moving, changing tires means taking fewer risks on the road or, in your case, taking fewer risks with customers. It also means that, at least for a little while, the company is going to have to pay for several sets of tires, not just the ones on the car right now. This is why it is doubly important to try and increase sales while changes to the operating environment of the company are being made. The extra revenues will be used for temporary costs during this change period, after which profit should start to increase substantially.

So to summarize, don’t neglect sales while spending time and money retooling the company operations. You need one to support the other during the process, and when the company is ready for growth to the next level, you will be poised to grow very rapidly.

Focus on Growth

In a bonus chapter I discuss the different kinds of business models that your business may be right now. This series assumes that you want to grow the business from about $5mm to $20mm or more, and so there will be a focus on growth moving forward. This means that while the efficiency of the company can be improved by removing the roadblocks that are discussed, to really grow to the next level means reinvesting much of the profits back into the business. To get to the next level, a new type of employee – an expert – will need to be hired. Up to this point, the business could have been grown without any experts other than the founders.

Moving forward, experts will be needed, as well as contractors and outsourced roles discussed in previous posts. The process of retooling a company for growth will also incur some one-off costs. Standardized process and procedure creation, for instance, takes a considerable amount of time and may require specialized positions like a project manager, which may not have existed before. In the end, these expenses will allow the company to grow well beyond the current size, and efficiencies will kick in increasing profit potential, but I want to be very clear that if growth is the goal, then prepare for an increase in costs and a deferred payout to the stockholders. A company focused on growth can not at the same time be a lifestyle business with an ever-increasing profit ready for the owner to pull out of the business.

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Entrepreneurs start businesses for many reasons. Some want to grow a business and sell it for millions, others want the freedom to run a business and control their own destinies, while others still want to create an annuity that will be within their family for generations. Whatever reason you started the business, it’s important to have an end game in mind. The end game doesn’t need to happen when you get old! For many business owners, the faster they get to the sale of the business, the sooner they can start to enjoy life more and work less. Of course, for some it actually means the sooner they sell this business, the sooner they can be back in startup territory with their new business opportunities.

Regardless of what the ideal end scenario looks like, it’s important to plan it out because the shortest path to each possible end game may very well follow a different route. A company that is built to sell will focus a lot more on fast growth and EBITDA. While a company that is built to provide freedom, both financial and creative, to the owner may grow much slower, but allow greater profits to be taken out by the owners.

Having a goal and, more importantly, a business plan that defines milestones for the company on its path to the goal helps to keep focus on the most important aspects of running a business. Quite often, it may feel like the owners may be working 60-hour weeks just to keep the business afloat.

Succession Plan

While we’re on the topic of planning, a succession plan is something that most small business owners don’t have. It may not be as important to a small business because the business is so dependent on the owner’s involvement for its existence, that without the owner, there is no business. However, once the business grows past $5mm, and certainly over $25mm, the dependence on any single person, including the founder or owner, should be greatly reduced. So a succession plan is not only nice to have once the business grows, but is very much needed for the future success of the business and the well-deserved payout of dividends or buyout payments to the founder.

You should at least go through a yearly exercise to determine what constitutes your role. Who would have to pick up each piece of your role, and what changes in the organizational structure would benefit the company if you were to suddenly disappear? This is a great exercise to do both for the what-if scenario of being incapacitated as well as for a planned exit.

The ultimate goal for most entrepreneurs when they are starting a business is hoping that their business, whether it’s a family business or sold to an investor, can outlive them. I’ve only met one person who didn’t agree with that sentiment in all my years. I suspect they saw their business as a pharaoh saw his kingdom, starting with him and ending with him! For everyone else, it’s vital not to neglect to have a succession plan.

Retirement Plan

Transition out of your business while you are still young enough to enjoy life if you can and start another one if you must.

While the topic of business succession is worth an entire book, I will say that most business owners are not comfortable with this topic and generally delay even conversations about it for years and years. It is important to remember that while the business is successful, employees are willing to follow management, and they in turn, the CEO or owner. However, if the owner waits too long in making retirement plans, the employees – including management – may lose confidence and take the matter into their own hands. I saw this unfortunate turn of events happen firsthand 20 years ago.

One of my clients was a $25mm+ company still run by the man who founded it 30 years earlier. He kept putting off retirement, and when he finally decided to retire, he expected that his management would happily buy him out to continue the business. Unfortunately for him, they realized that his only contribution in the last few years to the business was his name, and that in the end, his name was not worth the millions he wanted for the buyout. They didn’t see a value in the company other than the name, and so they left together, founded a company with a different name, and took almost all his clients with them. If you think about it, the less risky thing for a client to do is to go along with where the majority of the employees end up.

Of course, they were able to do this and circumvent non-compete agreements because by refusing his buyout offer, they effectively had to be laid off from a company that was shutting down, thereby avoiding contractual requirements. This is a real-world example of a retirement scenario going badly. The original owner, now in his late 60s, had to start from scratch with just his name and a couple of clients who were faithful to him. He had no staff, and more importantly, very little cashflow. Instead of living off the fruits of his success in Florida, he had to work harder than he had in many years. Don’t let that be you.

One related topic I want to bring up: Knowing when to let go. Once you’ve broken through $5mm and whether you are at $8mm, $15mm, or $25mm, you’ve now made it into a fairly exclusive club of successful business owners. So how long should you keep piloting the ship? Well, first off, congratulations! Your company has now grown to that size. You need to take a step back, pat yourself and your other founders on the back, and just be happy at the fact that you managed to do something most people can’t. That’s a good thing.

Now, ask yourself: Do you want to do the same thing that you just demonstrated you’re actually good at doing, again?

Meaning you sell off your stock to the other partners, or you start becoming a silent partner in this business, and you start up a new business. Or do you want to transition your role into something that you’ve not done, maybe you’re not very good at, and that is being a very high level, 50,000 foot view, “don’t stick your nose into operations” guy who only focuses on strategic investments and capitalization of the business, which not everyone is cut out to do.

Like I previously said about your employees, you may now be asking yourself to practice a whole different set of skills. There’s no shame in saying, “What I like to do is start companies. I got it to $25 million. I’m just going to walk away, get some money out of it, and I’m going to start up another one that’s again going to be this big.” That is a great way to look at using your best skills without having to take on responsibilities that have little to do with what you proved to be good at!

To learn more about how we can help you, book a call with Ryan Chute of Wizard of Ads® today.

Your bumper sticker reads, “tailgating won’t make me drive any faster.”

Yet, as you slam the car door behind your laboring wife, you realize… the only way we’re going to make it is if I floor it…

When we feel the weight of desperate situations, we’re prone to bend rules we’ve always held to.

Heads of Marketing feel this weight daily.

For decades, MBA programs have taught about the importance of building the brand perception of your potential client base, but the relationship between the CEO and CMO has scarcely changed.

CEOs solve problems, so when they don’t see marketing results within the month, quarter, or year, they feel the need to spring into action, sometimes by replacing the head of Marketing. Even though we all know it takes longer than 12 months to meaningfully build a brand, CEOs are accountable to Venture Capitalists, boards, etc. who are understandably anxious to ensure their money isn’t lost.

Defending against this tends to lead marketing heads down similar spirals:

Since brand building likely won’t show results (at least not trackable results) within the timeline they’ll be evaluated, Marketing Heads “drink the Kool-Aid” of sales activation marketing. They resort to using special promotions, sales, and product updates in an effort to receive an immediate, direct response from customers. This causes your customers to depend on only using your product/service when there is a discount or sale (depleting your profit). In essence, your tactics become less and less effective over time. Marketing Heads insist “it’s a numbers game” and expand their prospect list. To reach more people, they begin standardizing campaigns, therefore neutering any creativity in the process. During performance reviews, Marketing Heads assure there’s always something exciting on the horizon… at least, until they are left looking for the silver lining.

While it doesn’t have to be this way, stopping this spiral requires everyone on your team share a realistic, honest perspective.

Marketing Heads need to clarify during the interview process whether they’re being hired to build the brand for years to come, or if the CEO is stuck measuring results in the short term. CEOs and Boards need to understand that brand building takes time AND often cannot be tracked accurately in the near term. CEOs therefore need to hire Marketing Heads they believe in, and then make it their job to run interference for them so that they can work without worrying about the Board. The Head of Marketing needs to spend a comparable amount of time with the business’s potential customers as they do with peers. To expound on this last point… it is the job of your Marketing Head to build your company’s brand image TO THE POTENTIAL CUSTOMER.

When your Marketing Head spends more time with their peers than with customers, they begin marketing in a way that appeals to peers rather than customers.

So ask yourself, have I “drank the Kool-Aid” of sales activation marketing? Who am I marketing to? Future customers? Or the boss/board/peers?

At Wizard of Ads, we are all about being creative, entertaining, and telling your story in a way that makes your potential customers excited to do business with you. We refuse to drink the Kool-Aid!

Ready to stop drinking the Kool-Aid and start standing out with your marketing?

Book a call with Ryan Chute of Wizard of Ads®, and we’ll hook you up.

Last year, I predicted three things that all came true for residential home service companies. 

• Customers will be more cautious. 
• Replacement opportunities will not change. 
• Customers will be more price-sensitive. 

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We saw customers looking for repair solutions over replacement more often. Buyers were more inclined to leave the repair to the bitter end, sometimes to their own detriment. 

We also saw many customers look to DIY and handymen solutions as many residential home service companies struggled to shift to a repair mindset. 

We saw finance options used more often, more shopping around, and more customers trying to squeeze out every last drop from their home's equipment. 

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In 2024, we are walking into one of the toughest years in your company's history. 

With household debt DOUBLE that of the 2009 housing crisis, even people with good credit will struggle to get approved on finance terms this coming year as they run out of runway.  

With inflation persisting, people simply don’t have any more money and are not earning enough to catch up with the cost of living.  

And a looming election year always causes uncertainty, lowering consumer confidence. 

Companies who’ve not invested in a strong mass media brand story to build and grow trust, will face a tumultuous year of lead generation. 

If you're thinking of cutting your marketing budget in 2024, be sure to cut your revenue expectations in league with that decision. 

For those companies who haven't worked on their efficiencies and productivity, will face razor-thin margins or simply fail to close the sale. 

And for those companies who haven't shifted to a repair-first mindset, will face the inevitability of lower replacement conversions and, thus, revenues. 

Now, this doesn't mean that you won't have replacement opportunities. It just means that chasing replacement opportunities in your advertising is going to have you fishing from a small pool with small fish. 

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2024 Action Steps: Slow down your sales process and love the customers you are with. 

Don't try to smash your database too heavily. Be a farmer, not a miner. 

Look for opportunities to buy mass media. As your competitors retract, there will be deals to be had in speaking to the masses in a less noisy market. 

Build trust BEFORE they need you, and win the game before the game has even started in Google search results. 

You don't need more leads this year. You need more good leads to run your limited resources out to. 

A powerful brand campaign will get more people to know, like, and trust you BEFORE they need you. 

With rising costs of acquisition, a mass media campaign will eventually 4X your marketing spend. All you have to do is deliver on the promises made in your advertising. 

If you need help growing your business in a shrinking economy or improving your marketing efficiency for a higher Net EBITDA, give me a call. I specialize in helping residential home service companies become BIG brands. 

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To learn more about how we can help you, book a call with Ryan Chute of Wizard of Ads™ today

Importance of Standard Operating Procedures

There are many reasons for having Standard Operating Procedures for most roles in the company. SOPs allow an employee to understand the requirements and expectations of their role. They also allow management to measure the performance of that employee in that role. SOPs allow for faster expansion of departments by reducing the training time required of existing employees working with new hires. As there are more people doing the same job, SOPs ensure that regardless of who does the job, it is done the same way, which brings additional benefits from standardization. Customers will see a consistent result from the company if each person they interact with follows the same SOP. For business continuity, SOPs make it possible for temporary help to provide some basic level of help, even if it is outside their department. Of course, it also means replacing an employee who quits or is terminated also becomes easier.

With this many reasons to have SOPs, why is it that I still find only a fraction of companies have them in place? The simple but honest answer is probably that most people don’t associate working on SOPs with increased bottom-line profit or even with increased sales. So using the question, “Does this bring more money to the company?” It is no wonder that SOPs are rare among small businesses. I’ll even go a step further. Even among the Fortune 1000 companies I’ve worked in, quite often, part of what I needed to do was help them develop Processes, Procedures, and Standards. Ideally, every business has all of these, but at the very least, developing SOPs is an important step in allowing the business to grow beyond its current size.

While it is true that I would have a hard time showing how an SOP increased sales, it is quite easy to show, after developing and implementing SOPs, how they increase the flexibility, efficiency, and resiliency of the company. All of which should reduce operating costs, which in turn should increase bottom-line profitability.

The Bob Problem

Another extremely common problem that I see in small businesses is the proverbial guy who knows the answers no one else has. This is often a long-term employee of the company who seems to be the only one with certain knowledge. He may be in IT or Marketing or any other department. I know he is there when I ask questions about different areas of operation of a company during my interview process at the start of a consulting engagement, and the answer is always something like, “Oh, Bob is the only one who would know that.” It happens in virtually every company I visit.

Surprisingly, people are willing to live with the risk of Bob having a stranglehold on certain types of data, although all my other questions can be answered by multiple people.

The problem can usually be traded to two things. First, Bob is notorious for not developing or even adhering to processes. For Bob, everything is done the first time, each time. As my British colleagues would say, Bob is all about bespoke. If everything has to be done from scratch each time, then the person who has done the most from-scratch things will seem very skilled at finding answers. The reality, of course, is that if Bob had developed standard procedures, then he would not have to do everything from scratch, and in fact, others could follow his procedures, and maybe then Bob wouldn’t be the only one who knows the answers.

Second, Bob is always busy. He probably works more than 40 hours a week and sometimes has to come in on weekends. This creates a false persona of someone who cares deeply for the company and is willing to spend his own time for the company’s sake. This is again self-serving because if Bob had developed some standard procedures for doing his job, then not only would he be able to do his job faster and more efficiently, but others would be able to fill in for him when Bob was not around.

When I work with a CEO on improving the company’s efficiency, and I find out about a Bob, I know that Bob’s days are numbered. Before I leave that project, Bob will be looking for another job, and someone probably significantly junior to Bob will easily have taken over his responsibilities and is accomplishing more in less time. Get rid of your Bobs and be sure that every role is defined either before you bring a person in to do that job, or by the first person actually doing that role.

Even if they are not the model of efficiency, it’s important to create a set of SOPs that can then be modified and improved as time goes on. Once the SOPs are created, it will make it much easier to see if a process is redundant and unnecessary. SOPs allow for more clarity within the organization because they show relationships between tasks and how they lead up to the full product and sales workflow. Many employees will not care about the big picture, but it will be much easier to see nonetheless.

To learn more about how we can help you, book a call with Ryan Chute of Wizard of Ads® today.

So there’s a meme making the rounds about Gen-Z / texting slang that’s worth some study if you want to create powerfully persuasive advertising. Check it:

As you know “stuff” is inevitably lost in translation.

But in a great translation, important “stuff” is also added to the mix.

So what’s lost in translating from adult / corporate speak to teenage?

And, most importantly, what’s added?

What’s lost is formality. And not the good kind.

We’re not talking about the high formality of solemn occasions and deep rituals.

We’re talking about the bullshit formality of corporate speak. That’s totally ditched in the translation to teenager.

So what’s gained?

• Personality.
• Attitude.
• Emotion.
• Vulnerability, and
• Real Perspective.

In other words, EVERYTHING that matters when it comes to distinguishing your ads and brand from the background clutter.

Look past the slang to see the attitude, emotion, and perspective embodied in this way of speaking.

The lack of caps and opening “sup?” are meant to convey the casual, friendly familiarity of equals. The person writing this doesn’t take herself too seriously.

Moreover, she implicitly recognizes that she’s asking the reader for a favor with her plea to “Hook Me Up at [phone number] by pointing out anything that’s “sus.”

A sentiment that’s echoed with the admission of “need your help fam” as the sign-off. Note the no-BS vulnerability of this phrasing.

Now compare this to the rather distant and bland “Please don’t hesitate…” opening of the adult sign, which automatically puts the reader at a remove, and then pretends that the writer is offering to do the reader a favor should the reader be responsible enough to report “anything that needs our attention.”

Note also how the teenage translation provides concrete examples: “like IDK a toilet that got REKT or something.”

Most important is the unabashed, vulnerable willingness to admit to big goals.

Contrast “We want to make this campground as relaxing and comfortable as possible” with “TBH we high-key tryna glow-up this campground. can’t stop, won’t stop until this place straight up slays.”

What Kind of Language Is In Your Ads?

Are your ads using language that conveys personality, attitude, vulnerability, and perspective?

Are you presuming an intimate familiarity with the audience?

Or are you insisting on an awkward formality?

[Hint, if you introduce yourself in every ad, you’re inadvertently insisting on an awkward formality]

Do you use the casual language of close friends?

Or do you use the artificial language of corporate-speak?

Do you have a recognizable attitude towards your profession and your customers?

Do you have an articulable “advocated position”?

Do your ads have personality? And recognizable branded chunks?

In other words, are your ads closer to the teenager version of the sign?

Or are your ads imitating the blah-blah-blah of the adult sign?

If you need new branding guidance, book a call with no other than Wizard of Ads®. We'll help you figure out what new perspective on branding can work for your business.