April 7, 2025 • 24 mins
Master business finance for free with 100+ video lessons—no gimmicks, no hooks, just valuable knowledge: https://www.byfiq.com/
Your company is generating real revenue, but where’s the profit? In this episode of Boosting Your Financial IQ, Steve unpacks the most common (and often hidden) reasons businesses struggle to turn revenue into bottom-line results.
From product-market fit to pricing, from customer experience to capital structure Steve reveals the pitfalls that drain profitability and how smart founders fix them. If you’re leading a $3M–$20M company and wondering what’s holding you back, this episode is for you.
Disclaimer:
BYFIQ, LLC is a wholly owned entity of Coltivar Group, LLC. The views expressed here are those of the individual Coltivar Group, LLC (“Coltivar”) personnel quoted and are not the views of Coltivar or its affiliates. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Coltivar has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendations. The Company is not affiliated with, nor does it receive compensation from, any specific security. Please see https://www.byfiq.com/terms-and-privacy-policy for additional important information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Every touch point that frustrates your customer,
adds hidden expenses and itreduces your chance of repeat
business, which is reallycritical.
This is BYFIQ.
Wealth and success come fromunderstanding how finance works
in business, and together we'llexplore the most important
topics to 10x your financialresults.
My hope is that we can worktogether soon.
Please share and enjoy.
(00:20):
Your business is doing realrevenue.
You've built a team, signedcustomers and maybe even hit
eight figures in sales.
But despite all the activity,there's one nagging question
that won't go away Where's theprofit?
All right, I've been therebefore.
If you feel like that in yourbusiness and you're wondering
why am I not making a profit?
(00:42):
In this episode I'm going tobreak down exactly why your
company may be struggling tomake a profit and even if you're
generating millions in revenue,I'm going to share with you
what you could do to fix it.
If you're a founder leading athree to $20 million company,
this episode is especially foryou, because we're going to
identify and address the mostcommon profit blockers.
(01:04):
All right, so check this out.
Number one, the first thing thatI want to kick off with, is
that you may be measuring thewrong things.
Here's the deal Revenue, it'seasy to track.
So are expenses, but realprofit drivers are more nuanced
and if you're not measuring them, you can't manage them.
Founders often operate withoutclear visibility into what's
(01:27):
actually working inside theirbusiness.
They review lagging indicators,like last month's income
statement, but they miss themetrics that matter the most,
the ones that will help them topredict and influence
profitability.
I see this all the time AtColtivar.
What I do is, with my team, weteach founders to think in terms
of value drivers, salesefficiency, operational
(01:50):
efficiency and value creationefficiency Sales efficiency is
about acquiring customers in away that adds gross profit, not
just top line revenue.
Operational efficiency measureshow effectively your people and
systems convert resources intoresults.
And then value creationefficiency that's about how well
(02:11):
your profits are beingreinvested to generate long-term
returns.
So if you're not evaluatingthese three levers, you might be
growing the wrong parts of yourbusiness and leaving cash on
the table.
All right, so that's number one.
Number two you've outgrown yourproduct market fit, so it's
possible to hit a revenuemilestone and still be operating
(02:33):
with a product that no longerfits the market.
In the early years you might'vefound a niche that responded
really well, but now you'reserving a broader audience and
your offering hasn't kept pace,or maybe your original customers
aren't as profitable as youthought.
Here's the deal.
Profit often dries up becauseyour product pricing or
(02:56):
positioning isn't aligned withcurrent demand.
If sales cycles are dragging,margins are shrinking or
attention is weak, there's achance you're no longer solving
a meaningful problem or you'renot solving it for the right
customers.
So if you take a hard look atwho your best clients are, what
they're paying and why they'restaying, it may be really
(03:17):
enlightening.
So then you could build youroffer around them, these core
customers, not just what you'vealways done.
The strongest businesses evolvetheir positioning as they scale
.
I've seen this over and overagain, and the most profitable
ones know when it's time topivot.
Here's another thing to consider.
If you're thinking aboutlaunching a new product because
(03:39):
we're talking about productmarket fit maybe you're like,
okay, our product isn't doing aswell, there's not as much
demand in the market anymore orthere's disruption going on.
One thing you could do is youcould test new ideas, because
this is what it's all about it'stesting new ideas as cheaply as
possible in a variety of ways.
You could create a landing pageand then create a wait list for
(04:01):
a product you're considering ora service you're considering,
and then reach out to, let's say, a thousand people and say hey,
I'm launching this new productor the service.
If you're interested, go aheadand sign up, put down 10 bucks,
50 bucks, a hundred bucks,whatever it may be, and then you
can see whether or not that newproduct or service that you're
considering has legs.
(04:21):
So Elon Musk he did this reallysuccessfully with the launch of
the model three and theCybertruck.
He created a wait list.
So think about it.
Some people think the Cybertruckis so ugly.
My son is like obsessed withthe Cybertruck, he loves it.
But some of them are like, yeah, I would never buy something
like that.
So if you're designing this andyou're thinking about this
concept, instead of just goingout there, investing millions of
(04:44):
dollars in a factory and supplychain and all the capabilities
required to build this truck andthen finding out that the
market doesn't want it, likeSegway back in the day, what you
could do is you could create await list, and that's what Elon
did.
He was really smart in thisapproach and he got millions of
people to put down a deposit.
So then that validates thewhole idea.
(05:05):
So then if Elon goes toinvestors and says hey look, I
have a million people who put$100 down for the Cybertruck.
Of course people are going toinvest.
So that's just a quick littlehack that I wanted to share with
you.
If you're thinking aboutlaunching a new product or a new
service, instead of going allin, it's really important to
test the market first.
(05:26):
So test it.
Do it as cheaply as possible,as quickly as possible, to
discover whether or not you haveproduct market fit.
So, whether you're launching anew product or whether your
product is starting to losesteam, that could be a serious
problem and it can significantlyimpact profitability.
All right, the next reason whyyour company may not be
profitable or earning profit isbecause your business model
(05:49):
isn't built for margin.
Let me explain.
Some business models aredesigned to scale, others
they're not.
If your company relies on toomuch customization, high labor
intensity or large overhead todeliver value, then growth is
not going to solve your problem.
It will only amplify it.
A surprising number of foundersoperate with structurally weak
(06:12):
models high COGS, low pricingpower or revenue streams that
don't repeat, or they're really,really hard to scale.
So if your margins shrink asyou grow, you don't have a scale
ready model.
You need to take a step backinstead and assess the economic
engine of your business.
Are you earning enough marginper sale?
(06:33):
Are you recovering customeracquisition costs in a
reasonable timeframe?
Are you scaling complexityfaster than revenue?
These are all importantquestions to ask yourself, and
having the data so you can lookat the data and make database
decisions is going to be reallyimportant.
But maybe your business modeljust isn't designed for scaling
(06:55):
and for profit and just for themodern world that we compete in,
so it may need some reinventionand transformation.
The next reason why your companymay not be profitable is
because your pricing is off Allright.
So pricing is the best lever.
There are four levers toprofitability.
There's pricing, volume, costof goods sold and op-ex.
(07:18):
So in other words, if youincrease your prices, if you
increase your volume, if youdecrease your cost of delivery,
your cost of goods sold or youreduce your overhead, all these
things will impact your profit.
I have a course.
It's free, completely free.
It's on the Coltivar website.
You can go to coltivar.
com under resources and you'llfind it there.
(07:39):
It's called how to Make yourBusiness More Valuable.
I talk about these four valuedrivers in more detail if If you
want to check it out.
That may be very helpful for you, but nonetheless, pricing is
the most impactful lever onprofitability.
In fact, I did a study and justacross the board, just
generally speaking, okay, forjust the average company, a 1%
(08:00):
increase in pricing will have a12.5% impact on the bottom line,
compared to reducing youroverhead, your OpEx.
A 1% decrease in OpEx will havea 3.8% impact on the bottom
line.
So think about that.
You go out there and you slashyour overhead, which typically
means cutting jobs, and peopleare crying.
(08:22):
They're all sad, morale is down, like just you cut the fun out
of the business by reducingoverhead and sure as a 3.8%
impact on your profit.
But if you can increase yourpricing by increasing the
perceived value that you deliverto your customers, it will have
a 12.5% impact About a 3ximpact compared to just cutting
(08:44):
your overhead.
So pricing is one of the mostunder leveraged tools in a
founder's toolkit.
Too often, companies price basedon what competitors charge,
what customers expect or whatfeels fair, rather than based on
actual value delivered.
That's what I'm talking aboutthe perceived value.
So as a result, they leave aton of money on the table.
(09:04):
Your pricing should be reverseengineered based on your cost
structure, your profit goals andthe economic outcomes you
create for your clients.
So remember, when a perceivedvalue exceeds price, customers
buy.
When price exceeds perceivedvalue, customers don't buy.
So if people aren't buying yourproduct, then the perceived
(09:26):
value isn't there.
Maybe your offer isn't strongenough, or it's compelling
enough, or maybe just thepackaging, maybe the delivery,
whatever it may be something'soff and customers may not see
the value right.
So if you help your customerslet me just share this example
If you help your customers savetime, increase revenue or reduce
risk those three things thatvalue needs to be reflected in
(09:49):
the price you charge.
So think about how you package,how you anchor value, how you
tier your services, how youdeliver your offer, present your
offer All these things arereally critical.
So pricing isn't just a number,it's a strategy, and small
changes here, like I said, canunlock significant margin
without needing a single newcustomer.
(10:11):
So that's one of the firstthings that I would look at.
When it comes to profitability,if you can change prices,
increase prices because you havethe perceived value, that's
gonna be the best way tomaximize profitability.
But if you're not deliveringvalue to your customers and you
increase prices, you may losecustomers.
So you have to focus on yourstrategy and how you enhance the
(10:34):
customer experience, thequality of your products, just
the overall value delivered, andthat's going to be really
critical.
All right, here's another reasonwhy you may not be profitable.
You're spending too much to winbusiness.
All right, here's anotherreason why you may not be
profitable.
You're spending too much to winbusiness.
All right, here's what I mean.
Customer acquisition can be oneof the most expensive functions
inside a growing company,especially if your marketing and
sales teams aren't tightlyaligned with profitable outcomes
(10:57):
.
So if you don't know how muchyou're spending to acquire each
new customer and how much profiteach customer produces over
time, you're operating blind.
I have companies come to me allthe time.
I'm like Steve we need tocreate a marketing budget.
What do you recommend?
In a certain percentage of ourrevenue, a certain dollar amount
for our size?
Like what do you think?
Like we need to create amarketing budget.
(11:18):
And I'm like you don't need tocreate a marketing budget
because if your customeracquisition machine right and
your ratio, your LTGP, yourlifetime gross profit compared
to your customer acquisitioncost, if that spread is good
enough and I always say itshould be at least three to one,
three LTGP to one CAC, at leastthat.
(11:40):
If it's five to one, 10 to one,20 to one, even better.
But if your spread isn't there,if your function isn't working,
if you can't acquire a customerat a profitable rate, then you
should limit your marketing.
Right, because you're justlosing money.
But if it's working, why wouldyou limit your marketing spend?
(12:00):
The only reason why I'd limitmarketing spend is if operations
can't keep up and like thewheels are falling off the bus.
But other than that, if I spend$1 and I get $10 in gross
profit, heck, I just max out mycredit cards and my line of
credit and sell, you knowwhatever?
Sell my bike at my house,whatever it is to dump that into
(12:22):
my business because that returnis so great.
So here's the deal.
When I said you're operatingblind, it's really important to
measure this one ratio, that is,your LTGP, your lifetime gross
profit, versus your customeracquisition cost, your CAC, all
right.
So LTGP to CAC, like I said, agood threshold and this is like
(12:44):
the minimum is three to one, allright.
So if you're not there,something's broken and you're
overspending.
So start by analyzing eachacquisition channel and trim the
fat.
So whatever's not working.
If you're spending a ton ofmoney on the meta ads or on
LinkedIn, or you have a salesteam, whatever it may be and
you're not earning that returnand you've done enough reps,
(13:05):
then start making some cuts.
I've had founders in the pastare like all right, steve, yeah,
we need to make a change.
You know we've sent out like athousand emails and just cold
emails not working for us.
I'm like a thousand emails overwhat period of time?
It was like three months.
I'm like really you should besending out like a thousand
emails a week and you should bedoing that for a year and then
(13:27):
make a decision.
Anyways, you have to put thereps in.
You can't just go to the gymone day, do 10 curls and then
walk out and be disappointedbecause your biceps aren't
bulging.
So the same thing is true whenit comes to acquisition.
But if you're doing stuff andyou have the data and it's just
not working, then you may need apivot.
So lean into your highestperforming funnels, double down
(13:47):
on retention and then exploreways to increase wallet share of
each customer over time.
So remember this profitablegrowth isn't just about more
leads, it's about acquiring theright ones for less, all right.
The next reason why you may notbe profitable is your team isn't
aligned with profit.
Labor is likely your biggestcost, yet many growing companies
(14:09):
don't track the return they'regetting on that investment.
Teams expand quickly, rolesbecome unclear and overhead
grows faster than output.
You may be overstaffed,misaligned and carrying roles
that don't drive revenue orreduce cost.
So start by calculating yourreturn on labor.
This is going to measure youroperational efficiency, just
(14:30):
like LTGP to CAC measures.
Your sales efficiency return onlabor is going to measure your
operational efficiency.
Just like LTGP to CAC measures,your sales efficiency return on
labor is going to measure youroperational efficiency.
That's one of the levers Imentioned at the very beginning
of this episode.
If you take your net operatingprofit after taxes and you
divide that by your total laborcosts, you'll get your return on
labor.
So once you calculate this,then look at whether each team
(14:53):
member is tied to a measurableoutcome sales, client success,
throughput or innovation.
I call these success measures.
So make sure your employeesunderstand what their success
measures are so they're very,very clear on how they drive
value in their role.
Profit comes not from justhiring great people, but from
deploying them intentionally,and that's what success measures
(15:13):
help you to do.
So don't be afraid torestructure, retrain or refocus
your team around financialperformance.
High performing cultures arebuilt on clarity, accountability
and aligned incentives right.
So that's key, all right.
Moving on, the next reason whyyou may not be profitable is
you're managing the past, notthe future.
Most founders rely on monthlyreports, but those are just the
(15:38):
financial equivalent of lookingin the rear view mirror.
If you want to make betterdecisions, you need to forecast
at least 12 months ahead.
I talk about this all the time.
It needs to be rolling.
It needs to be forward looking.
Without a forward looking model, it's hard to manage cashflow,
plan hiring, test strategies oranticipate risks.
So if you build a simple,dynamic model that projects
(16:01):
revenue, gross margin, fixedexpenses and, most importantly,
free cashflow, you're going tobe on a really good path.
So use it to run scenarios.
What happens if sales slow downby 10%?
What if you raise prices by 5%and you lose 3% of customers?
Is that a good idea?
What if you delay that higherfor three months?
What will that impact be onyour return on labor or on your
(16:22):
throughput?
So forecasting isn't just forCFOs, it's a tool for every
founder who wants to get aheadof their numbers, not be
surprised by them.
So forecasting is different frombudgets.
I don't really subscribe tobudgets because budgets follow,
like this annual cycle.
It's like, okay, we're going toget together and try to predict
the next 12 months, thecalendar year, and you create
(16:44):
this budget for the year.
And then it's this game ofmeasuring variances and locking
people into performancecontracts, right, where you say,
okay, if you do this, then I'llpay you that.
And you're just always lookingbackwards measuring variances
and it's like, okay, that couldbe good, I guess.
But I'm more about creatingthis rolling forecast 36 months
(17:05):
out, at least into the future,and I'm modeling different
scenarios and I'm lookingforward.
Okay, so sure.
I'm looking at relativeperformance month over month, so
I may look at July and say,okay, how did we do last July?
And then I move forward.
I'm not trying to measurevariances and wonder why we
overspent $300 on officesupplies While on the other side
(17:28):
of the business we're burningthrough so much cash because our
labor is inefficient, or we'respending all this money to
acquire customers and our LTGPto CAC is like two to one.
So so many companies just getinto like variance measuring
mode, while the rest of thebusiness is like on fire.
So you don't want to do that.
Okay, so that's my take onforecasting.
(17:48):
Just make sure you're notliving in the past, you're
focusing on the future and youhave the tools to do that, like
a forecast.
Next, your customer experienceis costing you.
You can't afford to overlookthe post-sale experience.
Poor onboarding, slow delivery,reactive service or unclear
expectations lead to churn,complaints and costly rework.
(18:10):
You don't want that to happen.
Complaints and costly reworkyou don't want that to happen.
Every touch point thatfrustrates your customer adds
hidden expenses and it reducesyour chance of repeat business,
which is really critical.
In my most recent book,cashflow, I talk about this
flywheel and retention and thengetting referrals off those
retained customers is a criticalpart of the flywheel, and if
(18:31):
that's broken, if you're notretaining customers and they're
not referring other peoplebecause you're delivering an
exceptional customer experience,you may be missing out so much
in your business and this may behurting your profitability.
So, instead of pouring moremoney into acquisition, focus on
maximizing the value of eachcustomer you already have.
Make onboarding effortless.
Increase speed to value Likeyou, bring on a new customer.
(18:53):
Figure out how to shorten thetime delay between when they
come on as a customer and whenyou deliver that first piece of
value.
If it takes you three days,reduce it down to one right,
whatever it may be All right.
So create repeatable servicesystems, listen to customer
feedback and track net promoterscores.
When your delivery system runssmoothly, customer lifetime
(19:14):
value goes up.
That LTGP that's your lifetimeof your customer complaints go
down and then your profitmargins expand.
All right.
Moving on, you don't know whatsuccess actually looks like.
This may be another problem whyyour business is not profitable
.
We want to be more profitableisn't a strategy, it's a wish,
and if your team doesn't knowwhat winning looks like, they
(19:37):
won't know how to help you getthere.
That's why you need to findsuccess measures I was talking
about that before with eachemployee Specific, measurable
and actionable targets that tiedirectly to financial outcomes.
So every single employee needsto know what their part is in
delivering and executing on thecompany's overall strategy.
(19:58):
So if you set a clear financialgoal maybe it's 15% net income,
maybe it's $1 million in freecashflow, maybe it's return on
invested capital of 22%,whatever it may be then break
down that goal into departmentlevel targets and initiatives
right.
This is what we call IARs atColtivar initiatives, actions
(20:18):
and results, and we use IARs toturn a strategy into execution.
So when your goals are visible,aligned and regularly reviewed,
profitability becomes a teamsport, not just a finance
department issue.
(20:39):
All right, the next thing yourcapital structure may be the
problem.
Sometimes, the issue isn't howmuch money you're making, it's
how much is going out the doorto service debt or fund the
wrong kind of growth.
So if your business is overleveraged, undercapitalized or
you're using short-term fundingto finance long-term investments
, guess what?
(21:00):
Profit will stay elusive.
Take a close look at yourbalance sheet.
Are you carrying high interestloans that need to be refinanced
?
Are you taking on projectswithout a clear ROI?
Are you holding off on hiringor upgrading systems because of
cash strain?
Smart capital strategy and thisis where strategic finance
comes in aligns your financialstructure with your growth goals
(21:20):
and gives you the flexibilityto invest when it matters the
most.
All right, all that being said,here's a final word profit.
Really, it's not a mystery,it's a system.
So if you're wondering why yourbusiness isn't making a profit,
trust me, you're not alone, butyou're also not stuck.
Profitability is not just formassive companies or
venture-backed startups.
(21:41):
It's for any founder who'swilling to stop guessing and
start leading with intention.
That's the key need to rebuildyour company from scratch.
Okay, you don't need to startover.
In most cases, the answers areright in front of you A few key
insights, a few aligned actions,a few systems that turn vision
and your strategy intomeasurable results.
(22:02):
Right, that's what we do atColtivar.
We go into companies and wetake them, especially when
they're struggling withprofitability and cashflow, and
we turn them around.
And these are the things that Ilook at and it works right.
I've seen it over and over andover again.
I was meeting with the founderthe other day and I was showing
him his KPIs.
We're reviewing the KPIs in ourdashboard because at Coltivar,
(22:24):
we have our own proprietarysoftware and we have our KPI
dashboards that we share withour clients.
And I opened up EBITDA and Iwas like look, two years ago,
this is when we started on thisdate Look at where EBITDA was.
And then now look at where itis.
It's a $950,000 improvement.
And I don't say that to brag,it's not like I'm like oh yeah,
(22:44):
I did it all.
I made EBITDA go up by somemagic power.
Instead, I was saying it to himso we could celebrate because
it has been an incrediblejourney, a lot of hard work, but
we put in place a system.
That's what I'm talking abouthere A system to ensure the
company has a strategy, they'remeasuring the right things, they
(23:04):
have a forecast, there aresuccess measures, all this stuff
and it works as a team effortto make EBITDA improved by that
much, and it's just really cooland really rewarding to see and
I've seen this over and overagain that's the thing.
We can't hide behind our numbers, right, the numbers are visible
.
Right to our client, it's likelook at the graph.
This is when you hired us, thisis where profit was, this is
where it is now.
(23:24):
There are the results, right,there's no hiding.
So I I know the system worksand I know you could be
successful in your business.
So if you're struggling withprofitability, if you follow
some of these key principlesthat I shared with you today,
you're going to be on your wayto turning your business around
and increasing that bottom line.
All right, all the best.
That's all I have for you.
(23:45):
Until next time, take care ofyourself, cheers.
Every touch point that frustrates your customer,
adds hidden expenses and itreduces your chance of repeat
business, which is reallycritical.
This is BYFIQ.
Wealth and success come fromunderstanding how finance works
in business, and together we'llexplore the most important
topics to 10x your financialresults.
My hope is that we can worktogether soon.
Please share and enjoy.
(00:20):
Your business is doing realrevenue.
You've built a team, signedcustomers and maybe even hit
eight figures in sales.
But despite all the activity,there's one nagging question
that won't go away Where's theprofit?
All right, I've been therebefore.
If you feel like that in yourbusiness and you're wondering
why am I not making a profit?
(00:42):
In this episode I'm going tobreak down exactly why your
company may be struggling tomake a profit and even if you're
generating millions in revenue,I'm going to share with you
what you could do to fix it.
If you're a founder leading athree to $20 million company,
this episode is especially foryou, because we're going to
identify and address the mostcommon profit blockers.
(01:04):
All right, so check this out.
Number one, the first thing thatI want to kick off with, is
that you may be measuring thewrong things.
Here's the deal Revenue, it'seasy to track.
So are expenses, but realprofit drivers are more nuanced
and if you're not measuring them, you can't manage them.
Founders often operate withoutclear visibility into what's
(01:27):
actually working inside theirbusiness.
They review lagging indicators,like last month's income
statement, but they miss themetrics that matter the most,
the ones that will help them topredict and influence
profitability.
I see this all the time AtColtivar.
What I do is, with my team, weteach founders to think in terms
of value drivers, salesefficiency, operational
(01:50):
efficiency and value creationefficiency Sales efficiency is
about acquiring customers in away that adds gross profit, not
just top line revenue.
Operational efficiency measureshow effectively your people and
systems convert resources intoresults.
And then value creationefficiency that's about how well
(02:11):
your profits are beingreinvested to generate long-term
returns.
So if you're not evaluatingthese three levers, you might be
growing the wrong parts of yourbusiness and leaving cash on
the table.
All right, so that's number one.
Number two you've outgrown yourproduct market fit, so it's
possible to hit a revenuemilestone and still be operating
(02:33):
with a product that no longerfits the market.
In the early years you might'vefound a niche that responded
really well, but now you'reserving a broader audience and
your offering hasn't kept pace,or maybe your original customers
aren't as profitable as youthought.
Here's the deal.
Profit often dries up becauseyour product pricing or
(02:56):
positioning isn't aligned withcurrent demand.
If sales cycles are dragging,margins are shrinking or
attention is weak, there's achance you're no longer solving
a meaningful problem or you'renot solving it for the right
customers.
So if you take a hard look atwho your best clients are, what
they're paying and why they'restaying, it may be really
(03:17):
enlightening.
So then you could build youroffer around them, these core
customers, not just what you'vealways done.
The strongest businesses evolvetheir positioning as they scale
.
I've seen this over and overagain, and the most profitable
ones know when it's time topivot.
Here's another thing to consider.
If you're thinking aboutlaunching a new product because
(03:39):
we're talking about productmarket fit maybe you're like,
okay, our product isn't doing aswell, there's not as much
demand in the market anymore orthere's disruption going on.
One thing you could do is youcould test new ideas, because
this is what it's all about it'stesting new ideas as cheaply as
possible in a variety of ways.
You could create a landing pageand then create a wait list for
(04:01):
a product you're considering ora service you're considering,
and then reach out to, let's say, a thousand people and say hey,
I'm launching this new productor the service.
If you're interested, go aheadand sign up, put down 10 bucks,
50 bucks, a hundred bucks,whatever it may be, and then you
can see whether or not that newproduct or service that you're
considering has legs.
(04:21):
So Elon Musk he did this reallysuccessfully with the launch of
the model three and theCybertruck.
He created a wait list.
So think about it.
Some people think the Cybertruckis so ugly.
My son is like obsessed withthe Cybertruck, he loves it.
But some of them are like, yeah, I would never buy something
like that.
So if you're designing this andyou're thinking about this
concept, instead of just goingout there, investing millions of
(04:44):
dollars in a factory and supplychain and all the capabilities
required to build this truck andthen finding out that the
market doesn't want it, likeSegway back in the day, what you
could do is you could create await list, and that's what Elon
did.
He was really smart in thisapproach and he got millions of
people to put down a deposit.
So then that validates thewhole idea.
(05:05):
So then if Elon goes toinvestors and says hey look, I
have a million people who put$100 down for the Cybertruck.
Of course people are going toinvest.
So that's just a quick littlehack that I wanted to share with
you.
If you're thinking aboutlaunching a new product or a new
service, instead of going allin, it's really important to
test the market first.
(05:26):
So test it.
Do it as cheaply as possible,as quickly as possible, to
discover whether or not you haveproduct market fit.
So, whether you're launching anew product or whether your
product is starting to losesteam, that could be a serious
problem and it can significantlyimpact profitability.
All right, the next reason whyyour company may not be
profitable or earning profit isbecause your business model
(05:49):
isn't built for margin.
Let me explain.
Some business models aredesigned to scale, others
they're not.
If your company relies on toomuch customization, high labor
intensity or large overhead todeliver value, then growth is
not going to solve your problem.
It will only amplify it.
A surprising number of foundersoperate with structurally weak
(06:12):
models high COGS, low pricingpower or revenue streams that
don't repeat, or they're really,really hard to scale.
So if your margins shrink asyou grow, you don't have a scale
ready model.
You need to take a step backinstead and assess the economic
engine of your business.
Are you earning enough marginper sale?
(06:33):
Are you recovering customeracquisition costs in a
reasonable timeframe?
Are you scaling complexityfaster than revenue?
These are all importantquestions to ask yourself, and
having the data so you can lookat the data and make database
decisions is going to be reallyimportant.
But maybe your business modeljust isn't designed for scaling
(06:55):
and for profit and just for themodern world that we compete in,
so it may need some reinventionand transformation.
The next reason why your companymay not be profitable is
because your pricing is off Allright.
So pricing is the best lever.
There are four levers toprofitability.
There's pricing, volume, costof goods sold and op-ex.
(07:18):
So in other words, if youincrease your prices, if you
increase your volume, if youdecrease your cost of delivery,
your cost of goods sold or youreduce your overhead, all these
things will impact your profit.
I have a course.
It's free, completely free.
It's on the Coltivar website.
You can go to coltivar.
com under resources and you'llfind it there.
(07:39):
It's called how to Make yourBusiness More Valuable.
I talk about these four valuedrivers in more detail if If you
want to check it out.
That may be very helpful for you, but nonetheless, pricing is
the most impactful lever onprofitability.
In fact, I did a study and justacross the board, just
generally speaking, okay, forjust the average company, a 1%
(08:00):
increase in pricing will have a12.5% impact on the bottom line,
compared to reducing youroverhead, your OpEx.
A 1% decrease in OpEx will havea 3.8% impact on the bottom
line.
So think about that.
You go out there and you slashyour overhead, which typically
means cutting jobs, and peopleare crying.
(08:22):
They're all sad, morale is down, like just you cut the fun out
of the business by reducingoverhead and sure as a 3.8%
impact on your profit.
But if you can increase yourpricing by increasing the
perceived value that you deliverto your customers, it will have
a 12.5% impact About a 3ximpact compared to just cutting
(08:44):
your overhead.
So pricing is one of the mostunder leveraged tools in a
founder's toolkit.
Too often, companies price basedon what competitors charge,
what customers expect or whatfeels fair, rather than based on
actual value delivered.
That's what I'm talking aboutthe perceived value.
So as a result, they leave aton of money on the table.
(09:04):
Your pricing should be reverseengineered based on your cost
structure, your profit goals andthe economic outcomes you
create for your clients.
So remember, when a perceivedvalue exceeds price, customers
buy.
When price exceeds perceivedvalue, customers don't buy.
So if people aren't buying yourproduct, then the perceived
(09:26):
value isn't there.
Maybe your offer isn't strongenough, or it's compelling
enough, or maybe just thepackaging, maybe the delivery,
whatever it may be something'soff and customers may not see
the value right.
So if you help your customerslet me just share this example
If you help your customers savetime, increase revenue or reduce
risk those three things thatvalue needs to be reflected in
(09:49):
the price you charge.
So think about how you package,how you anchor value, how you
tier your services, how youdeliver your offer, present your
offer All these things arereally critical.
So pricing isn't just a number,it's a strategy, and small
changes here, like I said, canunlock significant margin
without needing a single newcustomer.
(10:11):
So that's one of the firstthings that I would look at.
When it comes to profitability,if you can change prices,
increase prices because you havethe perceived value, that's
gonna be the best way tomaximize profitability.
But if you're not deliveringvalue to your customers and you
increase prices, you may losecustomers.
So you have to focus on yourstrategy and how you enhance the
(10:34):
customer experience, thequality of your products, just
the overall value delivered, andthat's going to be really
critical.
All right, here's another reasonwhy you may not be profitable.
You're spending too much to winbusiness.
All right, here's anotherreason why you may not be
profitable.
You're spending too much to winbusiness.
All right, here's what I mean.
Customer acquisition can be oneof the most expensive functions
inside a growing company,especially if your marketing and
sales teams aren't tightlyaligned with profitable outcomes
(10:57):
.
So if you don't know how muchyou're spending to acquire each
new customer and how much profiteach customer produces over
time, you're operating blind.
I have companies come to me allthe time.
I'm like Steve we need tocreate a marketing budget.
What do you recommend?
In a certain percentage of ourrevenue, a certain dollar amount
for our size?
Like what do you think?
Like we need to create amarketing budget.
(11:18):
And I'm like you don't need tocreate a marketing budget
because if your customeracquisition machine right and
your ratio, your LTGP, yourlifetime gross profit compared
to your customer acquisitioncost, if that spread is good
enough and I always say itshould be at least three to one,
three LTGP to one CAC, at leastthat.
(11:40):
If it's five to one, 10 to one,20 to one, even better.
But if your spread isn't there,if your function isn't working,
if you can't acquire a customerat a profitable rate, then you
should limit your marketing.
Right, because you're justlosing money.
But if it's working, why wouldyou limit your marketing spend?
(12:00):
The only reason why I'd limitmarketing spend is if operations
can't keep up and like thewheels are falling off the bus.
But other than that, if I spend$1 and I get $10 in gross
profit, heck, I just max out mycredit cards and my line of
credit and sell, you knowwhatever?
Sell my bike at my house,whatever it is to dump that into
(12:22):
my business because that returnis so great.
So here's the deal.
When I said you're operatingblind, it's really important to
measure this one ratio, that is,your LTGP, your lifetime gross
profit, versus your customeracquisition cost, your CAC, all
right.
So LTGP to CAC, like I said, agood threshold and this is like
(12:44):
the minimum is three to one, allright.
So if you're not there,something's broken and you're
overspending.
So start by analyzing eachacquisition channel and trim the
fat.
So whatever's not working.
If you're spending a ton ofmoney on the meta ads or on
LinkedIn, or you have a salesteam, whatever it may be and
you're not earning that returnand you've done enough reps,
(13:05):
then start making some cuts.
I've had founders in the pastare like all right, steve, yeah,
we need to make a change.
You know we've sent out like athousand emails and just cold
emails not working for us.
I'm like a thousand emails overwhat period of time?
It was like three months.
I'm like really you should besending out like a thousand
emails a week and you should bedoing that for a year and then
(13:27):
make a decision.
Anyways, you have to put thereps in.
You can't just go to the gymone day, do 10 curls and then
walk out and be disappointedbecause your biceps aren't
bulging.
So the same thing is true whenit comes to acquisition.
But if you're doing stuff andyou have the data and it's just
not working, then you may need apivot.
So lean into your highestperforming funnels, double down
(13:47):
on retention and then exploreways to increase wallet share of
each customer over time.
So remember this profitablegrowth isn't just about more
leads, it's about acquiring theright ones for less, all right.
The next reason why you may notbe profitable is your team isn't
aligned with profit.
Labor is likely your biggestcost, yet many growing companies
(14:09):
don't track the return they'regetting on that investment.
Teams expand quickly, rolesbecome unclear and overhead
grows faster than output.
You may be overstaffed,misaligned and carrying roles
that don't drive revenue orreduce cost.
So start by calculating yourreturn on labor.
This is going to measure youroperational efficiency, just
(14:30):
like LTGP to CAC measures.
Your sales efficiency return onlabor is going to measure your
operational efficiency.
Just like LTGP to CAC measures,your sales efficiency return on
labor is going to measure youroperational efficiency.
That's one of the levers Imentioned at the very beginning
of this episode.
If you take your net operatingprofit after taxes and you
divide that by your total laborcosts, you'll get your return on
labor.
So once you calculate this,then look at whether each team
(14:53):
member is tied to a measurableoutcome sales, client success,
throughput or innovation.
I call these success measures.
So make sure your employeesunderstand what their success
measures are so they're very,very clear on how they drive
value in their role.
Profit comes not from justhiring great people, but from
deploying them intentionally,and that's what success measures
(15:13):
help you to do.
So don't be afraid torestructure, retrain or refocus
your team around financialperformance.
High performing cultures arebuilt on clarity, accountability
and aligned incentives right.
So that's key, all right.
Moving on, the next reason whyyou may not be profitable is
you're managing the past, notthe future.
Most founders rely on monthlyreports, but those are just the
(15:38):
financial equivalent of lookingin the rear view mirror.
If you want to make betterdecisions, you need to forecast
at least 12 months ahead.
I talk about this all the time.
It needs to be rolling.
It needs to be forward looking.
Without a forward looking model, it's hard to manage cashflow,
plan hiring, test strategies oranticipate risks.
So if you build a simple,dynamic model that projects
(16:01):
revenue, gross margin, fixedexpenses and, most importantly,
free cashflow, you're going tobe on a really good path.
So use it to run scenarios.
What happens if sales slow downby 10%?
What if you raise prices by 5%and you lose 3% of customers?
Is that a good idea?
What if you delay that higherfor three months?
What will that impact be onyour return on labor or on your
(16:22):
throughput?
So forecasting isn't just forCFOs, it's a tool for every
founder who wants to get aheadof their numbers, not be
surprised by them.
So forecasting is different frombudgets.
I don't really subscribe tobudgets because budgets follow,
like this annual cycle.
It's like, okay, we're going toget together and try to predict
the next 12 months, thecalendar year, and you create
(16:44):
this budget for the year.
And then it's this game ofmeasuring variances and locking
people into performancecontracts, right, where you say,
okay, if you do this, then I'llpay you that.
And you're just always lookingbackwards measuring variances
and it's like, okay, that couldbe good, I guess.
But I'm more about creatingthis rolling forecast 36 months
(17:05):
out, at least into the future,and I'm modeling different
scenarios and I'm lookingforward.
Okay, so sure.
I'm looking at relativeperformance month over month, so
I may look at July and say,okay, how did we do last July?
And then I move forward.
I'm not trying to measurevariances and wonder why we
overspent $300 on officesupplies While on the other side
(17:28):
of the business we're burningthrough so much cash because our
labor is inefficient, or we'respending all this money to
acquire customers and our LTGPto CAC is like two to one.
So so many companies just getinto like variance measuring
mode, while the rest of thebusiness is like on fire.
So you don't want to do that.
Okay, so that's my take onforecasting.
(17:48):
Just make sure you're notliving in the past, you're
focusing on the future and youhave the tools to do that, like
a forecast.
Next, your customer experienceis costing you.
You can't afford to overlookthe post-sale experience.
Poor onboarding, slow delivery,reactive service or unclear
expectations lead to churn,complaints and costly rework.
(18:10):
You don't want that to happen.
Complaints and costly reworkyou don't want that to happen.
Every touch point thatfrustrates your customer adds
hidden expenses and it reducesyour chance of repeat business,
which is really critical.
In my most recent book,cashflow, I talk about this
flywheel and retention and thengetting referrals off those
retained customers is a criticalpart of the flywheel, and if
(18:31):
that's broken, if you're notretaining customers and they're
not referring other peoplebecause you're delivering an
exceptional customer experience,you may be missing out so much
in your business and this may behurting your profitability.
So, instead of pouring moremoney into acquisition, focus on
maximizing the value of eachcustomer you already have.
Make onboarding effortless.
Increase speed to value Likeyou, bring on a new customer.
(18:53):
Figure out how to shorten thetime delay between when they
come on as a customer and whenyou deliver that first piece of
value.
If it takes you three days,reduce it down to one right,
whatever it may be All right.
So create repeatable servicesystems, listen to customer
feedback and track net promoterscores.
When your delivery system runssmoothly, customer lifetime
(19:14):
value goes up.
That LTGP that's your lifetimeof your customer complaints go
down and then your profitmargins expand.
All right.
Moving on, you don't know whatsuccess actually looks like.
This may be another problem whyyour business is not profitable
.
We want to be more profitableisn't a strategy, it's a wish,
and if your team doesn't knowwhat winning looks like, they
(19:37):
won't know how to help you getthere.
That's why you need to findsuccess measures I was talking
about that before with eachemployee Specific, measurable
and actionable targets that tiedirectly to financial outcomes.
So every single employee needsto know what their part is in
delivering and executing on thecompany's overall strategy.
(19:58):
So if you set a clear financialgoal maybe it's 15% net income,
maybe it's $1 million in freecashflow, maybe it's return on
invested capital of 22%,whatever it may be then break
down that goal into departmentlevel targets and initiatives
right.
This is what we call IARs atColtivar initiatives, actions
(20:18):
and results, and we use IARs toturn a strategy into execution.
So when your goals are visible,aligned and regularly reviewed,
profitability becomes a teamsport, not just a finance
department issue.
(20:39):
All right, the next thing yourcapital structure may be the
problem.
Sometimes, the issue isn't howmuch money you're making, it's
how much is going out the doorto service debt or fund the
wrong kind of growth.
So if your business is overleveraged, undercapitalized or
you're using short-term fundingto finance long-term investments
, guess what?
(21:00):
Profit will stay elusive.
Take a close look at yourbalance sheet.
Are you carrying high interestloans that need to be refinanced
?
Are you taking on projectswithout a clear ROI?
Are you holding off on hiringor upgrading systems because of
cash strain?
Smart capital strategy and thisis where strategic finance
comes in aligns your financialstructure with your growth goals
(21:20):
and gives you the flexibilityto invest when it matters the
most.
All right, all that being said,here's a final word profit.
Really, it's not a mystery,it's a system.
So if you're wondering why yourbusiness isn't making a profit,
trust me, you're not alone, butyou're also not stuck.
Profitability is not just formassive companies or
venture-backed startups.
(21:41):
It's for any founder who'swilling to stop guessing and
start leading with intention.
That's the key need to rebuildyour company from scratch.
Okay, you don't need to startover.
In most cases, the answers areright in front of you A few key
insights, a few aligned actions,a few systems that turn vision
and your strategy intomeasurable results.
(22:02):
Right, that's what we do atColtivar.
We go into companies and wetake them, especially when
they're struggling withprofitability and cashflow, and
we turn them around.
And these are the things that Ilook at and it works right.
I've seen it over and over andover again.
I was meeting with the founderthe other day and I was showing
him his KPIs.
We're reviewing the KPIs in ourdashboard because at Coltivar,
(22:24):
we have our own proprietarysoftware and we have our KPI
dashboards that we share withour clients.
And I opened up EBITDA and Iwas like look, two years ago,
this is when we started on thisdate Look at where EBITDA was.
And then now look at where itis.
It's a $950,000 improvement.
And I don't say that to brag,it's not like I'm like oh yeah,
(22:44):
I did it all.
I made EBITDA go up by somemagic power.
Instead, I was saying it to himso we could celebrate because
it has been an incrediblejourney, a lot of hard work, but
we put in place a system.
That's what I'm talking abouthere A system to ensure the
company has a strategy, they'remeasuring the right things, they
(23:04):
have a forecast, there aresuccess measures, all this stuff
and it works as a team effortto make EBITDA improved by that
much, and it's just really cooland really rewarding to see and
I've seen this over and overagain that's the thing.
We can't hide behind our numbers, right, the numbers are visible
.
Right to our client, it's likelook at the graph.
This is when you hired us, thisis where profit was, this is
where it is now.
(23:24):
There are the results, right,there's no hiding.
So I I know the system worksand I know you could be
successful in your business.
So if you're struggling withprofitability, if you follow
some of these key principlesthat I shared with you today,
you're going to be on your wayto turning your business around
and increasing that bottom line.
All right, all the best.
That's all I have for you.
(23:45):
Until next time, take care ofyourself, cheers.
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