WHAT WE THINK ABOUT WHAT YOU THINK ABOUT.
Weâ€™ve been talking to some retailers who are thinking about expansion. This isnâ€™t the first time weâ€™ve talked to clients in this position. The difference is that these folks seem to have a rare ability in the area of operations. The fact is, if you canâ€™t operate profitably, thereâ€™s nothing marketing can do for youâ€”except hurt you faster.
If you canâ€™t make a profit with one store, with three employees, and with 1500 square feet, chances are you wonâ€™t be able to make a profit with two stores, six employees, and 3000 square feet. Thatâ€™s not how the economies of scale work.
The better model is to figure out how to deliver your product with two employees and 1000 square feet, if you canâ€™t make money with three employees and 1500 square feet. Once you have the â€œunit modelâ€ working at a positive margin (operations/accounting talk for â€œprofitâ€), then you can scale it (expand to a larger space and more people as the demand grows) and port it (recreate the model in a new location. This is the art and craft of franchises.
One mistake mom-and-pops make is undervaluing the time, skills, commitment, and round-the-clock presence of mom and pop. This is a huge factor in the portability and scalability equation. If you ARE your business (as far as your customers are concerned), then you are only portable to the extent that you can be two places at once. I donâ€™t have that down yet, but Iâ€™m working on it.
One of my favorite measures of productivity is a little index called MPMH (margin per man hour). You can run it across the board. You can run it per group or unit. You can run it per location. You can run it per product group. It can tell you a lot. Itâ€™s as close as I ever come to really â€œrunning numbers.â€
I did know a guy who was a numbers runner in Wheeling, West Virgina, back in the 1950s. But thatâ€™s another story.