Outgrow Vs. Grow Into
This concept of outgrowing vs. grow into is an important topic that I wanted to talk with you about today. All our life we have been taught to grow into. When you were a kid your parents bought you bigger shoes in order to “Grow Into” them. Clothes were done the same way. Your parents possibly even bought their house with the same concept. We are going to have more children you guys are going to get bigger. Let’s buy a house that is much larger so that we can grow into it in the future.
The opposite is true in business. You want to outgrow your situation. You want to outgrow your location you are in before you go buy another location. You want to have more work than you can handle before you bring on additional employees. You want to let the numbers tell you when it is time to upgrade, increase or duplicate your situation. I watch the show “The Profit”. A great show that has actually taught me a lot about business (surrounding yourself with people who you want to become like). In the show Marcus walks you through a business on what it is great at, it’s flaws and where are the turning points that can crank out heavy profits. He always determines his decisions based on the numbers. I recall one episode an ice parlor who wanted to purchase a new building but was hesitant on making the purchase. Don’t quote me on the numbers but I am going to walk you through the numbers and explain how the decision was made.
The current location of the ice cream shop could not produce any ice cream. So they actually used a co packer to produce all their ice cream. Their employees had to travel on a daily basis to pick up the product and bring it to their location. The co packer was eating 20% of their margin. I believed they had revenues of $2.5M. Which meant the co packer was taking about $500,000/year for their service. The other problem was that they were at capacity with the co packer meaning they couldn’t take on any more orders because the co packer would not produce no more than what they currently were producing, which handicapped the company at $2.5M. The son on the show had found a building that he felt would be great. To purchase the building and the build out he estimated would be about $600k. I would like you to dig into these numbers and understand why Marcus made the decision to go ahead with purchasing the building and equipment. The company was spending $500k a year to the co packer to produce their material. Not including the daily driving of multiple trucks. Also they could not increase income due to the limit being placed on by the company. Just purchasing this building and removing the co packer would see its money paid off in just over 1 year if nothing changed. Not to mention the additional clients they could possibly take on which could shorten that pay back time to less than a year.
Watching this show gave me a outlook on how to make smart business decisions based on financials. I just purchased a $6k lawn mower for my company. The equipment is going to save me about $1500/month. Which would pay itself back in 4 months. Good investment but why I really made the decision to buy it was because my current truck was at capacity. I could not add on any more properties and so buying this equipment would allow me to take on more work and make a 1 time investment instead of purchasing another truck and dealing with more on going expenses, gas, insurance, maintenance and etc. Learn to outgrow your situation instead of growing into your situation. You can not predict the future but you can look at your current situation and make adjustments.
Its always a pleasure