Saturday, 7 July 2007

Walking in the Shadow of the Valley of Death

Will Critchlow has made a post after attending my Wednesday seminar in London. He discusses the session on growing your business while watching profits crash...

"The one piece of advice that has stuck with me and been bugging me ever since is a little chart he drew of what he called the ‘valley of death’. He said that, as a skilled sole-trader practitioner, you could (depending on your industry, of course) perhaps make £100,000 / year. As soon as you start employing a person or two, your profit tends to decline (with rising overheads, the distraction factor and the time taken for an employee to become fully productive for you).

"He said that it isn’t until somewhere over on the right that you tend to get back up to decent profitability (perhaps making £100k profit on turnover of £0.5-1 million). The number of employees where this typically happens varies depending on your industry, but is typically in the 5-10 range. His advice was that this is the absolutely critical point where most small businesses fail (once they have got past the initial hurdle of getting going and proving that they have something the market wants and that they can deliver in a profitable fashion).
"What do you do, therefore? Robert Craven says “run as fast as you can”. As soon as you start going down the route of having employees, sprint like crazy to get through the valley (watching your marketing, operations and financials like a hawk) to get to the other side to sustainable profitability from where the sky’s the limit.

"We had been gradually coming to this conclusion - having been thinking a lot about the advice contained in the e-myth recently, and wanting to have the directors spending more time on the business rather than in the business - the inevitable conclusion is that you need a bunch of people to do the work!

[In the Woody Allen Film Love and Death, Allen's Character, Boris, mentions the verse:
"I shall walk through the valley of the shadow of death... In fact, now that I think of it, I shall run through the valley of the shadow of death, cos' you get out of the valley quicker that way".]

Will then goes on to discuss my comments on hiring staff.
I am flattered that he took such detailled and accurate notes!

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