Islands of Profit in a Sea of Red Ink

How to bring profitable growth back into your business

Are you a business owner and find yourself working exceptionally hard, often asking yourself, “is it really worth it?”. Do you question if the money coming in is worth working yourself to the bone, or why you are even putting in the effort for such small reward? If so, you may want to broaden your ‘business blues’ horizon with Jonathan Byrne’s book, “Islands of Profit in a Sea of Red Ink”.

So, what’s the message? And how can it benefit you?

Jonathan talks about how you should take a careful look at the strategy you’ve set up for your business. In many cases, when we begin a coaching relationship with a business and its leadership team, we find that the business itself is under ever-increasing pressure to service its customers as best it can, while simultaneously feeling the pressure to reduce prices. Never mind that at the same time, the business is trying to grow revenues and profits. A seemingly impossible and insurmountable problem to solve, right?

The good news though, is that there are a few simple tools that you can (and should!) use to think through how to break these negative forces within your business.

Let’s start with the fundamental tool: Customer Segmentation. This is the exercise of analysing characteristics of your customers in such a way that you can place them into groupings in which they all exhibit common characteristics.

This powerful exercise will help you improve your business in a multitude of ways:

1. It makes it easier for you to find ways to service customers in each group efficiently and effectively.
2. It allows you to start analysing your financials and discover which customer segments are profitable and which are costing you money. Your profits are hiding here, and you should be looking for them!
3. It makes it easier for you to find new customers that exhibit the same characteristics, which is where your growth is hiding.
4. It helps you figure out if you’ve tapped into the full potential of the market that each customer segment represents to your business.

Let’s take a closer look with an example of each of the above…

With regards to serving customers more efficiently, effectively and profitably, let’s look at one of the software businesses that GROW works with.

This company has built an incredibly successful software selling business within a clearly defined industry. The founding team are very competent salespeople and place heavy emphasis on providing great customer service. Their business growth was fuelled by attracting a diverse set of customers, ranging from small to large businesses. All customers received incredibly high levels of attention in the early days, but the model for servicing customers was simply not scalable or sustainable. The company’s profits started to erode as they took on more and more service staff. Regardless of the increase in service staff, customers were becoming increasingly unhappy. Word started to spread in the industry. Talks of the poor levels of service meant that competitors were starting to sniff blood in the water.

By carefully segmenting their customer base, they are now in the process of building specific teams per customer segment, focused on giving those identified in each segment the right type of service for their needs. This improved service efficiency is helping turn some very unprofitable segments back into profitable ones, as well as returning the business to having satisfied customers once more!

When looking at finding new growth, Ultra Foods comes to mind – a company that GROW has had a business coaching relationship with for many years.

Ultra Foods are manufacturers of dairy products, including yoghurts and cheeses. As a mid-market player in the industry, it was always very tough competing against the large, well-known and established dairy manufacturers in South Africa. The attractive market of the large retailers, who buy exceptionally large volumes of yoghurt and cheeses, was incredibly difficult to compete in, with cut-throat prices making it near impossible to build a profitable, growing business.

Through some careful customer segmentation, Ultra Foods identified an interesting customer segment – wholesalers and distributors that sell to restaurants and hotels. This group was not well serviced by their competitors, and was a significantly sized market, presenting Ultra Foods with plenty of room to grow. Having identified the specific needs of this customer segment, Ultra Foods was able to focus their business to service the segments unique needs, and in doing so, grew their revenues by over 500%!

Ensuring you’ve tapped the full potential of your existing market:

Another business we work with is a supplier of materials within the construction industry., It had focussed its business solely in the healthcare construction sector. With such a clear and streamlined focus, they became the dominant player in their market. It became very apparent that there would be extremely limited growth for them if they stayed only focussed on this customer segment – inflationary growth at best. Being in this position and with this in mind, they were able to clearly identify the need to tap into a new market. They explored an adjacent move into a new segment (commercial and retail construction), but after a few years, identified that the service needs of these markets were not well suited to their offering. This, in turn, helped them make yet another clear-cut decision: growth would come from servicing the healthcare sector in strategically selected African territories.

Contrast and compare this clarity of thought to another business GROW worked with. A business that sought growth in international markets before becoming crystal clear on whether they had tapped into the full potential of their local market first. After bleeding profitability for several years, they started conducting a customer segmentation exercise and market sizing analysis. It became clear that there was still plenty of growth opportunity right on their doorstep in South Africa. The company was already a dominant player in their home country, and instead of diluting their company resources in international markets, they’re doubling down on fully tapping into the low hanging fruits of the markets that are right under their noses. While they are doing this, they are continuing to run very light-weight experiments in international markets, gathering data on potential customer segments that they could go after when the time is right for the next stage of growth in their business.

At GROW, our trademark GROWth Formula combines the world’s best methodologies to help founders and CEOs of mid-market businesses to craft a growth formula unique and tailored to their business needs.

If you need help thinking through how to drive strong profitability without working too hard and tapping into new avenues of growth for your business, reach out to us and we’ll set up a no-obligation exploratory conversation to see if and how we can help you.