Addition By Subtraction: Dropping Low-Margin Clients to Grow Your Business

You’re a successful small business in the events industry looking to break through to the next level. Your work is good, your reputation solid, yet your growth still comes in the “two-steps-forward, one-and-a-half-steps-back” mode. This year will be the year we break out of our plateau and join the ranks of bigger competitors, you tell yourself each January.  By September it’s clear that didn’t happen, and you pull your hair out wondering why.

If this describes your company, there’s a pretty good chance you’re a business hoarder.  Growth to you means adding more clients, providing more services, and adding more staff to service both.  But unless you’re Amazon or Google, with the funds to match, this can be a recipe for frustration, because not all clients and service offerings are created equal.  Some are more profitable than others, and in order to grow, you’ll need to shift resources and focus from the least profitable ones to the most profitable ones.

Lessons From Preston Bailey & IBM

It may seem counter-intuitive to say no to a piece of business, but that’s the discipline you need to more aggressively pursue the clients and services that will fuel your growth.

Case Study: IBM

For decades IBM was known as the leader in computers and operating systems. Yet when Lou Gerstner came in as CEO in 1993, the company was in trouble.  Cheaper imports eroded profit margins on PCs, and Microsoft’s Windows had won the battle of operating systems, beating out IBM’s OS2. Gerstner made the gutsy decision to get out of both businesses and focus on providing IT consulting, which yielded higher profit margins and had better growth prospects.  While IBM could have kept those legacy businesses, getting out of them enabled the company to focus more of its creative energy on building the IT business, which ultimately turned the company around.

Case Study: Preston Bailey

Preston Bailey is one of the most well known and creative designers in the industry, yet when Sean Low was hired as President in 2003, the company’s energy was spread among low margin “drop-off” floral work, as well as high margin event design.  Since there are only so many hours in the day, Sean made the decision to get out of the drop-off business altogether, enabling the company to shift all of its focus and resources toward the higher end event design clients. This shift resulted in higher profits and substantially greater growth.

Addition by Subtraction

If you’ve ever fired a toxic employee, you’ve likely noticed that miraculously the remaining team is far more productive, despite having one less worker.  There’s less drama, everyone’s more motivated, and more work gets done. That’s a perfect example of addition by subtraction, one of the concepts explored in detail in my professional development course The Business Accelerator: Taking Your Event Company to the Next Level.  As in the case studies above, getting rid of a weak link in your company, whether it’s an employee or a type of client, gives more attention and resources to the stronger employees and clients, resulting in growth.

It’s simply too difficult to be a hoarder and hang on to every client and every type of event service, and expect to grow.  You’ll always be dragged down by the least profitable ones.

Saying no to a paying client, or a product line that brings in revenue, takes tremendous guts.  In addition, it won’t come without a fight.  In both the IBM and Preston Bailey examples there were employees who fought to hang onto the status quo.  But if you’re struggling to get your company to the next level, something has to change.  And shifting the thinking from “where can I add” to “where can I subtract” can be the key to breaking through.