The holy grail in business is profitability—long-term, exceptional profitability. Consistency in profitability is what helps you invest in the growth in your company. And reliable profitability is what lenders expect if you are looking for financing.
But building profitability is more than just having revenue exceed costs.
There are a multitude of books and studies on the qualities that distinguish truly great companies and leaders. These materials usually focus on the actions taken to achieve high performance. We all have read many of them but have had difficulty implementing them because they didn’t quite fit our organizations.
Authors Michael E. Raynor and Mumtz Ahmed have taken a different tact. In their book, The Three Rules: How Exceptional CompaniesThink, they created a guide on how exceptional companies think and how these decision making rules propelled them to long term success.
Executives with the consulting firm Deloitte, Raynor and Ahmed studied 25,000 U.S. companies in hundreds of industries over a 45-year period. Their findings focus on three rules that capture how high-performing outliers deliver long term profitability despite being faced with the same constraints as their competitors.
|Rule 1:||Better before cheaper
Compete on value, not on price.
|Rule 2:||Revenue before cost
Drive superior profitability with emphasis on higher prices and higher volumes, not lower cost.
|Rule 3:|| There are no other rules
Change anything/everything in order to abide by the first two rules. View all your choices through the lens of the first two rules.
In their very broad research, they found only two rules that showed meaningful behavior associated with differences in performances. And, even more importantly, companies dedicated to these two rules “delivered superior levels of performance for longer than anyone has a right to expect.”
Raynor and Ahmed selected companies that represented what they term “Miracle Worker,” the “Long Runner,” and the “Average Joe.” Then they compared each and asked: what does it take to pull away from the pack (e.g. how do Miracle Workers and Long Runners pull themselves up from Average Joes? And how do Miracle Workers pull away from Long Runners?)
The major differentiators was a link to a higher purpose—specifically, better before cheaper and revenue before cost—only then did the consistency of performance make sense. In fact, “the more persistently the rules were pursued, the better the odds of beating the competition and becoming truly exceptional.” The results resoundingly showed that the Miracle Workers made decisions through the lens of better before cheaper and revenue before cost.
What is your higher purpose? Are you making your decisions through that lens? And how is that working for you?
Diane Weklar, the Authority on Accelerating Business Growth, is the CEO of the Weklar Business Institute. She is the author of the award winning book, Mastering the Money Maze: 10 Secrets to Winning Business Financing,which is also an Amazon #1 Best Seller. This book provides practical insight to build a successful business and the practical steps to raise capital to help your firm grow. She can be reached at Diane@Weklar.com.