05 October 2006

Someone with a robust business model

A little earlier this year, Chris and I met a business owner of a relatively new business which had gone through break-even during its first year and was already producing a good return despite running at well below capacity.

That's so unusual that it's worth noting. Very few organisations are profitable at low utilisation, but this business, based on the conversation we had, seems to throw cash as soon as utilisation breaks through 20%. The owner appears to be ambitious for the business and has many ideas for development. Better, the cost base doesn't increase dramatically as utilisation increases so any idea which produces an incremental improvement in revenues pays back very quickly. When talking about capacity, I meant the capacity of the infrastructure - the people in the business are all busy providing service to the existing clients. While the organisation has good fundamentals, it lacks the capacity to execute its improvement ideas.

How can that be a problem? Well, some of the ideas need to be tested and that takes time and resource. Resource is often the problem for a business like this - staff are vital in terms of the client experience and recruiting can often be seen as a chore which gets in the way of the day job.

When we started to talk about increasing revenues, neither of us was confident that we could access the target market - a notoriously difficult group of people. However, as the meeting developed, plenty of B2B opportunities emerged which made us feel significantly more sanguine about how effective we could be.

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