When Maximizing Profit Can Destroy Your Company

Maximizing profitsWe’ve all witnessed it – companies who maximize their profit at all expense – regardless of the potential consequences.  No matter what anyone says, maximizing profits should not be any company’s highest priority.  While it’s a vital lifeline within any company, often times it’s maximized at the expense of increased potential for long term success.

Because this article will touch on a number of real life instances, I will refrain from using these companies’ names to protect their identities.

After I publish this article, I fully expect a number of my trusted partners, colleagues and clients to call me, I know that I’ll hit a chord and well… the truth always hurts.  So here are the most common scenarios where focusing on the maximization of profits tend to erode a company’s potential for long-term success.

  • When long term is ignored

If you are sacrificing the long-term success of the company in order to maximize your short term profits, no matter the justification, it’s going to cost you significantly.

I’ve personally witnessed two companies delay important long-term investments within their own infrastructure and software investments until it was no longer a choice.  In both instances, by the time it was no longer a choice, it was too late.  By the time they started to invest, they were on a tilt, losing customers quickly and couldn’t get the new infrastructures into place quick enough to reverse the tide.

Both of these companies have folded, hundreds have lost their jobs.  These two business owners have become the most painful individuals to have a conversation with, every few minutes their topic of conversation wanders back to their regrets, ranting the classic “If only I…” over and over again.

  •  When vision is blurred

Those who fail to plan, plan to fail.  You must create a long-term vision and focus on it.  If you get too far off-track, the company can quickly lose its competitive edge.

I’ve witnessed countless companies to date that got distracted by too many “pet projects” that resulted in them going in circles.  Ever see a dog chase its own tail?  It’s painful!  Try watching a business owner do the same… it’s ridiculous that they don’t even realize that what they’re doing is preventing themselves from ever reaching their long-term goals.  I bet you’ve already thought of a few colleagues that have a tough time accomplishing anything because of their inability to focus on one project and see it through to completion, haven’t you?

This is why it’s vital to maintain and continually re-assess a long-term plan.  Hold yourself accountable with priority lists.  When you deviate from this plan, figure out why and prevent it from happening again, or, adjust your to-do list so long as it compliments your long-term vision.

  • When sustainability is not considered

Sustainability of a business model is an important consideration.  Making decisions that will maximize immediate profits but not be sustainable in the long-term can be a dangerous model.

Think about the number of companies who went under over the years by maximizing immediate profits only to find themselves in an unrecoverable situation afterwards.  There are dozens of companies that can be named that used to manufacture typewriters, cassette tapes and vacuums that have went out of business.  The ones who survived reinvested in evolving markets, building products and services that would continue to be in demand.  Short term profits were sacrificed in order to ensure a bright and prosperous future for these companies.

Even just last week, I witnessed this classic mistake once again.  I had a call from a friend of mine who owns an electronics store in Toronto.  He enjoyed healthy returns for 3 years when all televisions were being changed to flat panels and amassed a whopping profit.  He then followed that up by saying “Unfortunately now that the fad is over, I have hundreds of thousands of dollars in inventory that is depreciating in value faster than I can sell it.  Even worse, now I’ve got to survive the next 5-10 years on limited capital until the next big trend comes along while taking a hit on slow moving inventory”.  By riding the trend and ignoring sustainability, he’s put himself into this challenging situation.  He put all his eggs in one basket instead of investing the profits into the sustainability of his business.  As a friend, I’ve recommended to him that he should find a team of experienced consultants to brainstorm and assemble a plan that will help him overcome this challenge and reinstate the sustainability of his business.  Unfortunately now that his cashflow is constrained, this is going to be one of his most difficult challenges to date.

  • When morals are questioned

When companies make decisions to cut against the grain of their own moral fibers simply to maximize profits, they are essentially playing Russian Roulette with their own business.  Companies who step outside the bounds and perform an action that they or their customers could perceive to be immoral will inevitably lose the trust of their customer base.  As tempting as it may be to “make a quick buck”, it always comes at the expense of sacrificing the potential for increased long-term profits and success.

So if maximizing profits is the wrong approach, what’s the right one?  Focus on maximizing value instead.  If you maximize the value that your customers receive from the products and services that you offer, profit will begin to speak for itself.  Customers invest in products and solutions that fulfill a need or desire.  By focusing on maximizing the value, you ensure that the needs of your customers are being fulfilled.

Well now it’s time for my readers to share some of their stories.  I’d love to hear from you some of the instances where you’ve seen companies literally erode their value, hindering their own positive momentum because they focused on the solitary goal of maximizing profits, at all cost, ignoring the importance of ensuring that they were providing a fair value proposition.

Brent Mondoux
CEO, N-VisionIT Interactive
brent@betterwebsites.ca

Ottawa web design

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2 comments on “When Maximizing Profit Can Destroy Your Company

  1. Wow, Sir. An amazing advice with true substance. It really gives insight to why some of the businesses fail, while others succeed.

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