Yaneek Page | Unlocking profits in 2020: Here’s why leadership is key

How can a small business increase profits in 2020?

It’s a question that will likely be top of mind for many entrepreneurs and managers at this time of year. It is also the most common question that’s popped up in my inboxes from last November to now.

 

In theory, the formula for boosting profits is pretty simple: increase earnings and contain or lower expenses. In reality, the biggest puzzle is ‘how’? Also, in a free market, in the age of globalization that’s marked by frequent and rapid industry disruption, growing profits is not only complex but elusive for many companies, especially small businesses.

 

At the centre of this dilemma is a crippling deficit in leadership skills when needed most, in particular the inability to devise and execute effective strategies to enhance competitiveness and increase earnings. In other words business is arguably more complex than ever before and as such the demand on leadership is greater than ever before. Even the best leaders will need all the help they can get in these times.

 

Unravelling the profit puzzle: A key leadership skill

 

Let’s delve deeper into what is often referred to as the profit puzzle. There are two sides to the profit equation, the income side and the expense side.

 

On the income side of the equation, the leader needs to determine whether the company should try to increase earnings by simply increasing prices, or by attracting new customers, or going after entirely new customer segments. Or perhaps it may be better to sell more to existing customers. Or should the company pursue a combination of new customers and increased customer spend? Or a targeted sales push of the most profitable goods or services? Or try adding new services? Or try diversifying income via investments in financial instruments? Each of these strategies have risk factors, cost considerations, branding and marketing dynamics, operational realities, human resource and organizational capacity demands and ultimately financial implications.

 

There is no profit growth strategy that is guaranteed to work, and almost all strategies will have considerable expense implications. Many may even require some shifts in focus from ‘bread and butter’ products or services to new hopeful new alternatives, which could backfire miserably and put the company in an even worse financial position if the profit growth strategies fail.

 

Great leaders understand that how a company increases profits is even more important than the level of increase. For example, increasing profits should not come at the expense of quality, safety, consumer experience and relationships, or fair and lawful competition, to name a few.

 

As a result any strategic decision to grow a company’s bottom line requires adequate data, rigorous analysis and the most reliable projections possible. These projections also should not be myopic and limited to the company’s performance, but also must anticipate possible responses from new and existing competitors as well as external shocks.

 

On the expense side, it could be that the company has significant opportunities to improve efficiencies and cut costs. These savings could come through new processes, simplified procedures, advanced technology. It could be that there is no considerable opportunity to improve efficiency and that to grow the company must increase fixed costs, with no guarantee of return. In fact, the best case scenario for many companies may be necessary dips in profits in order to realize future gains from those increased expenditures.

By now it should be clear that when it comes to profit growth, leadership is the gateway for many businesses, in particular small businesses that typically suffer from team and talent gaps. The real question for 2020 therefore may not be ‘how do we increase profits?’ but instead, ‘how to we develop and strengthen our leaders and our organization’s leadership capacity generally?’

 

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Yaneek Page is the program lead for Market Entry USA and a certified trainer in entrepreneurship. She’s also the creator & executive producer of The Innovators and Let’s Make Peace TV series. Email: Yaneek.page@gmail.com