Learn why growing revenue is more important than cutting costs and discover other secrets to boost business performance.
So do you know what the top three rules are for exceptional business performance?
My name is Bernie Heine, and today I want to talk about a very interesting book: ‘The Three Rules for Exceptional Business Performance’ by Raynor and Ahmed. So they studied over 25,000 businesses over 45 years and came up with a list of 344 companies which really proved to have exceptional performance.
Better Before Cheaper
So the first rule is better before cheaper. So this is answering the question what value do we provide our customers? These exceptional companies focused on things that weren’t necessarily included in the invoices they sent to their customers, so these are things about exceptional customer service and going the extra mile to help customer out. They focused on “what are the things we can do in our strategy to be better, add more value to the equation, and be better for our clients rather than looking for ways to be cheaper. This strategy allows them consistently be competing on non-price activities.
Revenue Before Costs
So the second rule is revenue before costs. So this means internally their strategy, the strategy that is of the really successful companies, was to focus on building revenue as a principal way of achieving higher levels of return than it was cutting costs. Because there are basically three ways to improve the return on assets, or the overall profitability of a business, you can grow the revenue or you can cut costs or you can cut the amount of assets you have. Companies that consistently prioritize growing revenue over cutting costs or slashing assets proved to be really successful in the long term. That doesn’t mean that they didn’t have to go through cost-cutting or didn’t have to cut assets, especially in terms of downturns in the market or restructuring businesses, but they always prioritized growing revenues above those other opportunities.
So in summary, it’s better before cheaper, so focus on what are the things the customer really values, not just the things that are on the invoice. What additional values do they get? And two, it’s revenue before cost, focusing on growing the top line is the number one priority, and cost-cutting those other things second.
And number three, there are no other rules.
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