As a former football player, I have been able to observe many similarities between business and the game of football. For example, businesses follow a business plan to win in the marketplace … football teams follow game plans. Businesses work toward goals and use regular reports to measure progress; football teams work toward the goal posts while the yard markers allow measurement of progress. In a competitive environment, both businesses and football teams are reminded by the clock that there is only a certain amount of time to play the game. And, those guys in the black and white striped shirts make sure a football game is played fairly, while in business the "referees" are auditors, regulators, and boards of directors.

A lot of CEOs (like many football coaches) think they will be successful only if they perform major acts, such as changing their company’s strategic direction, completely re-engineering their products, re-tooling their factory, or dreaming up the next "dot com." Well, I learned a long time ago that the best strategy for winning (or profit) is not throwing long bombs … rather, history demonstrates that those who focus on the fundamentals, establish a solid ground game, and play under the coverage will consistently win.

In other words, winning (as in profit realization) is a game of inches. Successful managers know it’s not major acts, rather that it’s a matter of persistent attention to the little things as they execute a strategy (or plays) that will differentiate them from the unsuccessful people and companies.

To provide an illustration, let’s say that ABC Fictional Tool Company is a manufacturer that generated $5 million in revenues last year and a five-percent pre-tax profit resulting in operating profits of $250,000.

Let’s see what the impact was on their bottom line when they increased revenues not by ten or twenty percent, but only by two percent. ABC Tool Company did many small things including marketing a special promotion, re-packaging some slower-selling products into bundles, and slightly raise prices on better-selling products. Other ideas they have for next year to incrementally raising revenues include lowering prices on
slow-moving items, adding function / feature benefits to products to justify raising prices, charging for service calls, and selling extended warranties and/or service contracts. With a two-percent increase in revenues, ABC Tool Company ended the year with $5,100,000 in revenues. Since the company is a manufacturer with cost of goods sold fixed at 40 percent, this extra revenue added $60,000 in incremental operating profit.

Now, let’s say that during the same year they also reduced cost of goods sold and improved gross profit margins by one percent. The goal wasn’t to completely re-engineer their products with less expensive parts or to improve production efficiency with the latest and greatest technologies. ABC Tool Company simply negotiated with vendors for better pricing and consolidated purchasing with fewer vendors to get greater
volume discounts. They also practiced just-in-time inventory management to avoid costly excess inventory. ABC’s production manager knew that inventory carrying costs can be as high as 34% of revenues (when procurement, warehousing, insuring, handling, obsolescence, etc. is included), so excess inventory can be a huge cash sponge. At the end of the year, the result of all these little efforts was another $50,000 of incremental operating profit.

ABC’s CEO also focused on effective expense control. He didn’t completely re-structure the organizational chart, consolidate middle management, or eliminate some major research and development projects. By routinely reviewing and challenging each general ledger item to eliminate unnecessary expenses such as overnight shipping, multiple magazine subscriptions, rented plants, and over-abundant office supplies, ABC
Tool Company reduced its general and administrative expenses as a percent of revenue by one percent, which added another $50,000 to operating profit. Remember that $1 of revenue puts 5 cents on the bottom line, but $1 of eliminated expense puts $1 on the bottom line. You’d be surprised how seemingly little expenses like travel and enter tainment expenses add up!

Finally, let’s say that this company also paid close attention to cash flow. First, they leveraged payables by holding on to cash as long as possible without incurring significant penalties or damaging vendor relationships. Longer terms with vendors were negotiated to stretch out payables to 90 days whenever possible. At the same time, ABC Tool Company got more aggressive in collecting its receivables. Their financial manager routinely called customers who were 60 to 90 days overdue. Invoices were re-written to
be easier to understand, and now offer a small discount to customers for early payment. Reference checks were conducted on new customers to weed out those with a history of slow payments.

Their goal was to pay bills in 90 days, and collect receivables within 30 days --- which suddenly raised two-month’s worth of operating cash. These seemingly small actions allowed the company to only make minimal use of their asset-based working capital loan, which added another $25,000 to the bottom line through interest and loan fee savings.

At the end of the year, ABC Tool Company’s many small actions resulted in a total of $185,000 in additional profits, which when added to the previous year’s profit of $250,000 was $435,000, or almost a 75% increase!

The point is that you don’t have to reach for a 50 percent increase in revenues, a 25 percent improvement in production efficiency, or a 30 percent reduction in expenses. It’s not necessary to pour lots of money into new research and development products, ramp up new major marketing campaigns, or significantly expand and upgrade production equipment in order to improve profits. Winning in sports as well as in business is a matter of consistently taking many, many small actions along the way of executing a business (or game) plan. Focus on the fundamentals and extract more profit margin out of your current operations, core products, and competitive advantages … it’s a game of inches!