What it takes to make room for growth

Why your "favorite" products might be killing your business

A few weeks ago, I shared how Summer's business failed by putting all eggs in one basket. This week, I'll show you something that seems contradictory: Your business likely has 80% of its profit hiding in just 20% of what you offer. The trick isn't choosing between focus OR diversification - it's knowing WHAT to focus on within your diversified offering.

I'm sure you're familiar with the adage: "Out with the old, in with the new"? Some people use it mindlessly when they just want to get rid of something or to justify a new purchase, but fewer understand the deeper meaning of it.

In order to introduce new things, you need to create room for it. It is actually biblical wisdom. Mark 2.22 talks about how you can't pour new wine into old wineskins. This ancient wisdom comes from a parable that's as relevant today as it was 2,000 years ago. The story goes like this: you can't put new wine into old wineskins because as the fresh wine ferments and expands, it will burst the brittle, inflexible old containers that have lost their ability to stretch and adapt.

It's a perfect metaphor for why making room for growth isn't just about wanting it—it's about letting go of rigid systems, outdated business mindsets, and worn-out approaches that can't accommodate growth and change. Sometimes the "old containers" in our businesses, no matter how well they once served us, simply can't hold what’s needed.

There is a difference between wanting growth in your business and being ready for it. Being ready means having the courage to let go of what no longer serves you - which brings us to the hardest word in business: No.

"The difference between successful people and very successful people is that very successful people say 'no' to almost everything." Warren Buffett.

FOCUS

The decision to go after growth doesn't come lightly. More likely, you'll end up having to make hard decisions. One of the most difficult decisions for almost every business owner is to focus.

There are many decisions from small to big that come with it. Sometimes it comes in the shape of stopping a product or service that you thought was a staple for your business, but in reality, it's hurting your bank account. It's just not profitable.

Focusing on a strategy is something that I see many businesses struggle with. In an attempt to have every product or service possible for their customers, they are borrowing money, time, and energy from the real bread-winners of the game: your profitable products!

Some business owners are reluctant to kill products that don't have enough share in their revenue sheet, fearing the customers will stop coming if they don't have it, or thinking they won't be able to make up for that lost revenue. All those are LIES. Not that the business owner is lying, more like those arguments are planted by old fears.

DOUBLE DOWN ON WHAT WORKS

"Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight." Jeff Bezos

Numbers don't lie. Get your excel sheet that shows the revenue by product, check it, line by line, and see what products ACTUALLY get you the most profit. If you don't have your profit broken down by product, no worries, your revenue and cost are a good proxy.

A rule of thumb is 20%. That's right! Only 20% of your product or service offering brings in 80% or more of your profit. In some cases, that top 20% is so profitable it actually covers for losses elsewhere - meaning it generates more than 100% of your total profit while other products drain money. And yet, 60% to 80% of the products that bring in the least amount of revenue are the ones that take up most of your time and energy. Thereby creating these sink holes in your business.

You spend countless hours to be able to source and supply these products and yet, they bring in the least amount of profit back to you.

If we were acting out of pure logic, the logical thing to do would be just to get rid of them and focus on the products that actually get you money into your bank account. However, we are only humans and for better or for worse, we do not act purely logically, do we?

As business owners, we are emotional to the things we have created. They are our babies and no one should speak ill about them! Is that right? I've had and still have my share of babies too, I get it.

I've also talked to hundreds of business owners and worked with dozens of them. The same conversations go around, in different tones, different levels of attachment and most certainly different levels of financial pain. Some business owners aren't even aware that the shiny product they proudly serve doesn't bring back the investment.

There is a sunk cost fallacy.

The sunk cost fallacy is a cognitive bias where people continue investing in something because of previously invested resources a.k.a. time, money, effort, rather than assessing whether continuing is actually the best decision going forward.

For business owners with unprofitable products, this manifests in several ways:

How it shows up:

• Continuing to fund a failing product because "we've already spent $500,000 developing it". I've done this running my first company back in 2013.

  
  

• Refusing to discontinue a product line because of years invested in R&D

  
  

• Maintaining inventory of slow-selling items because of the initial purchase cost

  
  

• Persisting with unsuccessful marketing campaigns because of upfront creative costs

  
  

Why business owners fall into this trap:

• Emotional attachment - They've poured their heart into the product and can't let go. Again: me, right here! I too have been guilty of this. After all, it's your baby, remember?

  
  

• Pride and ego - Admitting failure feels like a personal defeat.

  
  

• Hope for turnaround - Believing that just a little more investment will finally make it work

  
  

• Loss aversion - The pain of "wasting" past investments feels worse than continued losses

  
  

If you were nodding along these lines, you are not alone and there's nothing to be ashamed about. Like I said, this is more normal than you think among business owners.

What matters are your decisions moving forward. Once you have identified the winners and losers of your spreadsheet, take heart and kill the bottom three. Yes, it will feel like a small death. You might lose sleep. You might second-guess yourself. That's normal.

Here's what will happen next: See how much space it will save you not having to stock on that product. The time you'll save not having to find those specific supplies to produce it. Last but not least, the money you'll save by not doing those things and instead creating mental and physical room for your winners! Your customers want more of them! Remember?

One of our partners cut their product line from 130 to 85 items. Revenue dropped 5% in month one. By month six? Up 34%. Turns out, when you stop drowning in complexity, you can finally deliver excellence.

Do this test and re-assess your spreadsheet in a month, see what happened with your numbers! It's a step of faith. Trust the process. Make room for growth.

New wine, requires a new wineskin! And sometimes, this is the most courageous thing you can do: make room for what's coming.

If this hit home, I’d love to hear from you.

Carmi

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