In Part 1 of Growing Your PDR Business I used the metaphor of growing plants and what happens if you do not nourish them. To continue with that metaphor; let’s say you plant one kernel of seed corn, you feed and water that one stalk of corn, what do you get? Well, there is a good chance you will get a return on your investment from 1 kernel of corn that yields 972 kernels.
Out of those 972 kernels, you have to sell 955 kernels to pay for your costs of doing business (break-even), leaving you with 17 kernels of corn. As your business goal is to create long-term wealth, you understand that the costs of doing business are going to go up each year and that your machinery will have to be upgraded. As a wise businessperson you create a retained earnings account to be used only for reinvestment back into the business. As a corn grower who wants to grow the business you may put 15 kernels into your retained earnings account, 9 to be used to plant and grow 9 additional stalks next season and 6 to cover the increased expenses of adding those 9 stalks and to make a down-payment on a purchase of a more effective and efficient corn planter. The final 2 kernels go to your dividends account.
To state the obvious, the key is to increase revenues while maintaining the most appropriate level of efficiency and I would be surprised if any of you has not worried about how to increase revenues. From a businessperson’s perspective there are only 2 ways to increase revenues; 1) increase market share and/or 2) diversification. Both take significant resources and serious planning to accomplish.
There are three major issues that a businessperson must grapple with in order to effect the growth of his/her business; sacrifice, risk, and planning. None of which most of us are very good at. Sacrifice means not giving in to those short-term satisfiers, such as the new Corvette, the 5000sq.ft. house in the burbs, or the 63” flat screen TV. Those funds need to go into your retained earnings account in order to grow the business to achieve your long-term wealth creation goals. To grow your business you have to take risks and by design most humans are risk averse, especially in the area of taking financial risk. But sacrifice and willingness to take risks in and of themselves will not generate business growth, you have to have planning, note I did not say you had to have “a plan”, but you had better have charted a course based on the best evidence, the best thinking, and business intuition that you can muster (in my next blog I will discuss the concept of planning).
In “Growing Your PDR Business Is a Choice Part I” I said you have three choices, if you forgo the first two and choose to grow the business, you need to ask yourself: 1) How much am I willing to give up the short-term return for the long-term? 2) How much risk am I willing to take? and 3) Am I willing to take the time and put in the effort required to adequately plan for the growth of my business in order to achieve my long-term wealth creation goals?
PDR Mobile….It Keep You Pushin’