I’ve recently gotten into CNBC’s The Profit as my show du jour. It’s similar to Shark Tank, in that there is an investor negotiating with a business owner for an equity stake. This investor, Marcus Lemonis, goes directly to small business owners and buys a chunk of their business. But that’s where the show gets interesting; Marcus works side-by-side with the owner/CEO for a few weeks to stabilize and revitalize the business.
Most of these businesses are mired in failure due to poor ownership decisions. It’s absolutely shocking to me how many business owners/CEOs have no idea what a CEO should be doing! I suppose it’s understandable, as most owners don’t have anyone to guide them. After binge-watching a few seasons of the show, I’ve synthesized the top 3 things that a CEO should do to run their business effectively:
1) Know Your Numbers
During one episode, a CEO is faced with the fact that he nearly bankrupted his company, saying, “I always wanted to be a CEO. I thought it would be the best job in the world, and I still do. And what I know now is that my decisions negatively impacted the company. Numbers isn’t my specialty.”
If you want to run a successful business, you have to know your numbers inside and out. But not just any numbers. Marcus hones in on these 3 figures as the key metrics of a business:
- Annual Sales Revenue (trailing 12 months). Revenue data is vital, but it needs to be recent in order for owners to make good decisions. In December 2017, the 2016 sales numbers aren’t going to say anything useful about hot SKUs or new market trends.
- Gross Profit Margins. How much does a business make on an individual product? If margins are too low, it may point to an easy way to boost revenue or to a product that should be discontinued.
- Expenses as a Percentage of Gross Profit. Business pay bills with gross profit, not with revenue. CEOs who don’t know this figure often don’t realize that they’re losing money, or they don’t understand why the business loses money despite strong revenue.
2) Delegate With Clear Roles
Many business owners are very skilled at making their product (as a cook, tailor, designer, etc.) but struggle to transition to a managerial role. Usually, this is because they are so involved in the production process that the business grows to the owner’s maximum output and then plateaus. Marcus comes in and makes the owner let go, turning the process over to trusted staff.
But letting go isn’t enough by itself; everyone needs to have a clear understanding of what they are responsible for. When multiple people have roles that intersect with each other, it causes power struggles that the CEO referees. When everyone has a clear responsibility, people can stop fighting and get back to work; it’s the CEO’s job to assign those roles and hold their staff accountable.
3) Have A Vision
Once a CEO has a grip on the numbers and has freed up their time by delegating, the next step is to develop a vision for the business. What makes it unique? Where is the business going? What should pop into people’s minds when they think of the company? For these watchmakers, that special sauce was returning to their original idea donating a percentage of profits to charitable causes. For a luxury chocolate company, Marcus made them expand on their Mediterranean flavor profiles with new product offerings and market themselves to new high-end clients such as cruise lines and resorts.
Many CEOs can’t or wont do these things and their businesses regularly fail. It’s hard! But those that do know their numbers, trust their staff and delegate, and create a clear vision for their business almost always succeed.