Sometimes truth is stranger than fiction. The most dangerous success can sometimes be the kind that blinds you to fundamental weaknesses.
Here’s the story…
I was sitting on the board of a company that seemed to be crushing it. In just a few years, they’d rocketed from $90 million to $500 million in sales. Impressive, right?
Hold that thought.
You see, there was a problem.
A big one.
Despite all those fancy revenue numbers, they weren’t making money. Why? Because they got distracted from making a profit by chasing revenue.
Here’s what happened: They got intoxicated by one massive customer who brought in huge sales volumes.
The catch? The margins were paper-thin. But when you’re seeing those big revenue numbers, it’s easy to get starry-eyed, right?
Here’s where it gets painful...
This wasn’t some startup making rookie mistakes. This was a fifth-generation family business with over 100 years of history. I was actually there when they celebrated their centennial. Speeches were made and everyone was optimistic about the future.
Two years later? The largest customer broke the contract and they had to sell to a competitor.
“Wait,” you might be thinking, “how does a company go from $90 million to $500 million in sales and still fail?”
Simple: They forgot the golden rule: “Volume is vanity; profit is sanity.”
That big piece of business they were so proud of was actually bleeding them dry. The capital demands were crushing. The management team was distracted.
And their actually profitable core business? It was withering on the vine while everyone chased the shiny object of big sales numbers.
Here’s a brutal truth about succession planning: Financial strength isn’t about how much money flows through your business - it’s about how much stays there.
It’s about having the discipline to:
Focus on your profitable niche
Say “no” to tempting but low-margin opportunities
Maintain healthy cash reserves as part of a strong balance sheet
Build sustainable profits that can weather storms
A pitfall is a hidden or not easily recognized danger or difficulty. An inordinate focus on revenue is a pitfall that can cause amazing companies to overlook profit.
It is a pitfall.
Want to know if your business is really strong enough to survive another generation? Ask yourself these questions:
Are you chasing revenue at the expense of profits?
Have you strayed from your profitable core business?
Are your biggest customers also your most profitable ones?
Could your business survive if your largest customer left?
Don’t let your business become another cautionary tale. Because trust me, watching a century-old business implode just two years after their centennial celebration... that’s not something you ever want to experience.
What steps are you taking today to avoid Succession Planning Pitfall #4: Failure to have the financial strength to continue another generation?
Need help evaluating your business’s financial strength? Let’s talk about building a legacy that lasts. Email me at Sunshine@cultivatingimpact.biz to start the conversation.
Harry T. Jones
P.S. Your company’s next chapter is waiting to be written. Make it one worth reading.
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