If you're a company you really only have two means of controlling your profit. You can increase your revenue or you can decrease your costs. Money in vs. money out. Of course, the details on how to do this are vast and have lead to an entire industry of education devoted to it along with another industry devoted to the consulting and strategic thinking around the subject.
But let's keep it simple. We'll acknowledge that businesses are always looking for new ways of increasing their revenue and decreasing their costs.
But with a business there are, essentially, three positive phases of growth:
1. Entrepreneurial Phase
In this phase we have the founders of a company, the people committed to creating an idea they are passionate about. These are the early years of sleepless nights filled with work and worry. These are the years spent building a company from scratch and being thankful for every new win you get. In other words, these days are far less about cost and much more about revenue because your costs are hard to quantify. How do you put a price on sleep? How do you define when you are or aren't working? Your focus is getting your idea off the ground and validating that by getting money in the door.
2. Power Growth Phase
From those visionary early days great lessons are learnt. Most entrepreneurs discover the most essential of business lessons; "You can't do it all." As the company grows leaders begin to focus on their skills and the parts of the business they can contribute the most to. This is the phase when growth takes off. When "exponential" is word you can use with reasonable accuracy. This happens not just because of the preceding years of toil but for two other central reasons: you've learned to refine your core vision and you've hired people to make that vision a reality. Without those employees your company wouldn't exist. Revenue growth happens because of the daily effort of your employees. But what about cost? This is the time companies truly begin to acknowledge how cost affects profit. Maybe there's a venture capitalist who's terms require a certain profit margin before the next round. Maybe the company needs to rethink it's vendor relationships or make large investments in new technology. Whatever the reason, costs apply far more pressure now.
3. Maturation and Optimization Phase
Once the company has grown to a large-scale organization it reaches a point where its growth slows to a stable pace. It can still be large growth but it has stabilized. This is the point where cost rules. When revenue can be projected out more than four quarters then cost becomes a leading decision maker. This is the focus of most business consultancy work. How do we come up with new ways of reducing cost or increasing revenue? This is also where the employees come into the picture. Remember, when the company was small and growing fast there was a need for more and more hires. It seemed like each new hire was fuel to the fire. The company needed the doers that made growth happen. Each employee was a revenue generator. But today, on the back of "insights" we see employees referred to as "resources" and as a cost. Consultancies look at the business structure and recommend ways of streamlining. Your company has now moved from supporting your employees to looking for ways to cut them. This is exactly how most large companies act. Employees are costs, costs that can be replaced with depreciating technology or serviced by outside vendors who handle the work of reducing employee cost with outsourcing and reduced quality. How long will your company, that you spent so many sleepless nights building, survive with this mentality?
But there are examples of companies continuing to treat their employees as revenue generators and not costs. Apple stores employ more staff per square foot than nearly any other retailer. They use technology that assists the employees by providing mobile checkout. The results? Apple stores are the most successful retail spaces in the world and are the envy of copy-cat companies like Microsoft and Samsung.
Employees are a source of revenue for a company. The "cost" they exact on the bottom line should be compared to the value that they generate over an entire year. Investing in your employees will actually increase the revenue that they generate. Why? Because employees are people and people are all great learners if they are inspired.
Here's another example, assuming you like cars. There was a car maker who provided language classes to their employees, they would educate them on hygiene and the proper way to present themselves. They also paid their basic workers more than any other manufacturer ensuring that if a job opened at their facility it was filled immediately. That car maker? Henry Ford, founder of Ford Motor Company, at the time, the largest car maker in the world. What I'm suggesting isn't new. It's simply been forgotten.
Focus on your employees, invest in them, inspire them and they will reward your company with increased revenue.
Not only that but with greater investment and education in your employees on the ground you reduce the need for oversight. This means you can reduce the costs associated with the managerial layer in your company. Those employees that don't generate revenue but simply move it from one place to another. Focus on the doers.