Last week I read this story about the CEO of Steak n' Shake who had a rather unorthodox plan to rebound from a $19M quarterly loss…
He tried to reassure investors with an action plan, which included a $1M annual savings by…. Well, check out the video. It’s pretty crazy!
If you can’t watch the video, I’ll spoil the punchline… His plan was to cut $1M/year by removing the cherries from their milkshakes.
There's an instinct to try to cut costs and to "hunker down" when things get bad, instead of trying to solve problems in a way that actually makes sense, and from now on, this is going to be my go-to example of that behavior in a high profile company.
I've heard this from prospects and clients alike even when we've identified initiatives with massive returns and improvements that will turn a sinking ship around.
Now, the original article referred to the CEO as a "cocksure executive who scoffs at conventional corporate governance practices," but this suggestion is just plain dumb.
For example, I’d be willing to bet more than they spend on cherries that I could help Steak n’ Shake dramatically boost sales by putting into place a proper customer retention strategy in place.
Or by improving their in-store experience.
Or by developing an effective re-engagement strategy (individualized rewards based on purchase history, for one...)
Or by literally dozens of other strategies that I’ve helped clients put into place to focus on generating higher and more stable revenues, rather than cutting costs.
Many companies operate with the accountant's attitude of taking revenues for granted and seeing all of the costs that support that revenue as somehow being optional.
If your customers are paying premium prices for a milkshake, it's insanity to approach the problem by saying, in effect:
“Well, if we cut out all the parts people like, they will still buy from us, right? Then we'll profit!”
But that’s exactly what he’s suggesting.
Here’s what’s so dangerous about this attitude…
When times get tough, it’s the companies that invest in themselves (tightening up operations; improving customer service; improving their sales process; identifying and correcting the hierarchy of horrors) who not only make it through the downturns but who are also in a position to capitalize on the failures of their competitors.
The companies that hunker down… Well, they’re the ones that get capitalized on.
Invest when you need to invest. Grow when you need to grow. And for heaven's sake, don't hunker down when you've got an opportunity to grow…
Your Challenge For This Week:
Answer these questions on your own, and then have your senior management team do it:
- If we had to make up a shortfall of 5% of our current revenues, what would be our best path to do that (without simply cutting staff, bonuses, etc)?
- Identify 2 scenarios that would mean a “downturn” for your business. Maybe that’s tariff increases. Maybe it’s a high local unemployment rate that would reduce your current customer base. Whatever it is, ask the following: “If we ran into a 2-year downturn, how could we be better off at the end of it than our competitors?”
Or asked a simpler way, how would you make more money without taking it from somewhere else?
You can’t cut the cherries!