I talk about the law of profit.
Companies are not non-profit organizations. They have to first be profitable to give to give to non-profits.
Sometimes we want to make our mission statement so glorious, so feel good, like you’re going to clothe the unclothed, we’re going to feed the homeless, etc. I appreciate that. I’m glad that’s in your values, but you can’t do anything without profit.
Profit is your one goal. If that doesn’t happen, all other goals cease to exist. When you’re profitable:
- You can hire talented people.
- You can market.
- You can give away money.
- You can keep expanding.
- You can buy up other companies.
- You have reserves to handle a downturn.
- You can put money into research and development.
You can’t do any of that without being profitable! Other than teaching you how to start a company, there’s nothing I can do more valuable for you than to teach you how to build a profitable company because that is the singular goal: Profitability.
There’s four must to a profitable company:
1. You Have Tremendous Demand
There’s a tremendous demand for Amazon, Uber, Grubhub, Zoom, Peloton. What is the common denominator in all these companies? Tremendous demand.
Why are companies going out of business right now? Why are restaurants going out of business right now? It’s not their fault, but they can’t have demand because you can’t go to them. There’s no demand for what they offer because it’s been limited. The demand has been limited. There’s been a roadblock. Well, if you don’t have demand, you’re not going to be profitable.
So when you’re trying to create a company, you want it to be profitable. You need to ask yourself, is there going to be a tremendous demand for what it is I’m offering? Have a tremendous demand, just pure incredible volume.
2. You Have Tremendous Margin
If you don’t have that, there better be incredible profit margins. Rarely do you have tremendous volume AND tremendous profits. That was kind of like when Henry Ford was the richest person in the world there for quite a while because the margins at the time were very profitable. And oil at the time…that’s why they broke up all these companies because they had all the demand and they could create their own margins. A monopoly can create its own margins because it’s not going to have any competition. That’s why the government will step in because it’s not competitive enough, so you basically create whatever margin you want.
3. You Have Minimal Competition
Bill Gates made a fortune because Windows was Windows and there was nothing else out there. To my knowledge, there still isn’t anything that competes with Windows. All I know is every one of my computers in every one of my businesses have Windows on it. That’s all it’s all I can tell you.
Amazon must do well because I think I place an order every 48 hours. I can’t think of any online store that competes with Amazon. I know there’s different specialty stores, but I can’t think of anywhere that can compete.
I was in a craft store and the line was long. Just for fun, I went on Amazon and typed in the product. It was like a 4-inch foam cushion. I was trying to do a sound-proof area in our studio. I was able to order it before I got to the end of the line for a price way better than where I was and it was going to be delivered by the next day.
No competition. Minimal competition will obviously make you a profitable company. The more competition you have, the more you have to compete in pricing and the margins get lower and lower.
4. You are Systematized
Number four is its systematized, so that fulfillment is consistent.
What does that mean? You provide what the customer’s paying for at a level each and every time. In other words, what they’re paying for, they get it and it meets their expectations. That’s how you have a profitable company that’s systematized.
Have you ever seen an Amazon Fulfillment Center? It’s like nothing you’ll ever see in your life. Unbelievable. When you systematize things, it’s more efficient, which lowers costs. There’s not as much labor there. If you get automation involved, you speed things up.
These are the four components of creating a profitable company, and I say you better have two.
