Lesson #27
Survival Math—Business Is Not a Zero-Sum Game
Every entrepreneur must teach his or her team “survival math.” This includes the basics on how to read and understand an income statement and balance sheets. Many a strategy can be improved after everyone involved understands the financial components of the business. Not everyone has to be an accountant, but anyone who contributes to the bottom line must understand how his or her actions impact profitability. I have found that once employees grasp the mystery of debits and credits, even nonfinancial types can come up with unique ways to make important improvements in an organization's finances.
The first dose of survival math is to convey a critical truth to employees: In order to compete and gain market share, a company may have to sell certain items and services at or even below cost. But in doing so, you and your team can never forget that the mix of products and services must include components of nearly every sale that make up for the unprofitable sales. This is known in retailing as selling “blind items”—products that customers need, but have little or no clue what they should cost. In office supplies, these were little widgets that people absolutely needed to complete a project using strange-looking “bulldog clips” and uniquely shaped binders that are used for presentations—plus all types of unremarkable, but much needed, plastic file folder accessories. Customers either didn't care what these items cost because the ...
