Allocating business resources
Time, resources and money are limited assets of a business, and actually everyone. Successful organizations and people know how to maximize each one and how to integrate and allocate them for the best benefits possible.
These assets are called into action when opportunities arise. However, typically opportunities come in bunches and then a choice must be made. Is the newest opportunity taken, the easiest or the most strategic? That is when the organization’s leadership earns its pay. Here are some thoughts using a client’s specific situation.
The client has a successful business and has been given the opportunity to sell to a major warehouse retailer, and wants to take it and asked for my opinion. There is no question that this can be a gamechanger catapulting the business into much greater wealth. The trouble is that the first orders would be a test and if successful a rollout would result causing a major expansion, and that is where I expressed concern. The expansion would be in facilities, equipment and managerial personnel. I suggested that a projection be prepared to determine the amount needed assuming the best occurs.
Pricing and costs needed to be carefully considered since everything the warehouse sells is at greatly discounted prices. Further, they needed a contingency plan if the warehouse company cancels the contract or doesn’t renew it after its initial term. And the ability to raise the funds either internally or through borrowing needed to be assessed; in this case private equity was not an option.
The company’s products would be labeled with the warehouse’s brand so there would be no brand building or strengthening; and the company would become, in my opinion, a commodity manufacturer making price the major consideration of the relationship, assuming product quality and delivery schedules are maintained, and those are not unique to my client.
While this was being discussed I pointed out three other opportunities they could consider. Increasing their on line presence and sales; introducing new products to existing customers; or finding ways to increase demand for their products at the retail level. These are not new, but ever present and as time permitted some efforts were applied to these but nothing in a major way. My bringing them up was not considered in the same category as the “new” opportunity.
I told them that they had limited time, resources and money and needed to apply them in the way that provided the greatest potential benefit. They knew that they could only concentrate on one major new initiative and were attracted to the new gamechanger. The three I suggested were not considered gamechangers since they had been lying around almost forever.
Well, as it turned out, the “excitement” of being a warehouse supplier was what was propelling them since the projections indicated it would be a couple of years, at best, before they would realize meaningful profits. The on line initiative, with a much smaller investment, could show a profit in about eight or nine months. Introducing new products was something they have been continually trying with some mild successes but no aha moments. Creating demand at the retail level for their products was tried once, was successful, but poorly evaluated and because of that was not followed up on. The evaluation did not consider the sales upticks from the new users obtained from the promotion, and through a discussion a new program was instituted with not much added effort.
The big game changer was to increase on line sales. To do it right required a substantial dollar commitment, but one that was easily handled by the client, the time was spent at their office with independent contractors, and the present facilities were able to handle the increased sales, which were substantial, but not outside of what they could handle with a second shift.
Businesses have limited time, resources and money and while they would like to jump on every opportunity, they cannot and need to choose. Sometimes the choice is something familiar and not the new. Limited resources need to be utilized on the ideas with the most potential, not the most exciting.
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