Fewer doors

There is a move that has worked in every sector I have worked in, and almost nobody sells it, because it is the opposite of what a growth consultant is supposed to say.

Take an operation that has grown more complicated than it needs to be. Cut it back. End up more profitable than you were before.

Fewer stores. Fewer lines. Fewer people. Fewer markets. More profit.

Why over-extension happens without anyone deciding on it

No management team sits down and decides to become over-extended. It accumulates.

A new territory is opened because a good distributor became available. A product line is added because a large customer asked for it. A store opens because the landlord offered a decent rent, and the marginal contribution looked positive on the day.

Every one of those decisions is defensible in isolation. The problem is that nothing ever comes off. Additions are decisions somebody made and can point to. Removals are decisions somebody has to make, defend, and be blamed for if revenue dips before it recovers. So the operation only ever grows.

Ten years of that and you have an estate where a meaningful share of the outlets, lines or accounts consume more attention and cost than they return, and nobody can tell you which ones, because the reporting was built to show revenue rather than contribution after the cost of serving.

The number that is usually missing

Ask most businesses for revenue by customer and you will have it in an hour. Ask for fully loaded profitability by customer, counting the cost of serving them, and you will usually get a pause.

That is the number the whole exercise turns on. Until it exists, every conversation about what to stop is a conversation about opinions and relationships, and the loudest voice wins.

When it does exist, the pattern is remarkably consistent. A minority of the estate produces the large majority of the profit. A meaningful slice produces none, or negative. And a middle band is genuinely marginal and can go either way depending on what you do next.

Cutting is not the hard part

Working out what to cut is analysis, and analysis is straightforward once the number exists.

The hard parts are these.

• Revenue falls before profit rises, and there is a period where the numbers look worse. If nobody has been prepared for that in advance, the plan gets reversed halfway through, which is the worst of both outcomes.
• The things being cut have advocates inside the business, often senior ones, often the people who added them.
• Customers who are unprofitable to serve are frequently pleasant, long-standing and well liked. Nobody wants to be the person who ends that relationship.

Which is why this work usually needs someone from outside to carry it. Not because it takes special insight, but because it takes someone whose standing in the business does not depend on the outcome.

What good looks like afterwards

The honest measure is not the cost taken out. It is what happens to the remainder.

A cut that works frees attention, and the surviving accounts, lines or stores grow, because they are finally getting the service they were always supposed to get. A cut that fails is one where the cost came out, the complexity stayed, and everybody is now doing the same confused job with fewer people.

The difference between the two is almost entirely about whether anyone changed how the remaining operation is run, or just made it smaller.