Business isn’t as fun as it used to be - how to fix it
Originally sent exclusively to The Letter subscribers on May 27. Want to be the first to get my personal newsletter in your inbox every Monday at 7am? Subscribe for free here.
Hello Gang,
Do you sometimes feel like the bad guy? I do.
Just as Spider-Man was told, “with great power...” You know the rest.
The responsibility of keeping everything going.
To be kind long term, you have to be strict short term.
Feeding kids unlimited treats and spoiling them endless does punish them later on in life.
The same can be said of business: tough controls lead to long term success.
That said, I hate being the bad guy who can't just give everyone what they want, the one who always reminds teams about labour costs, overheads, and spending.
I'd prefer to be Santa Claus.
You can’t be Santa every day.
The reality is, I would love to pay all my 1,200 people more money but I struggle (more than ever) to invest, find a million for payroll each month, and pay all these mammoth, out-of-control taxes. You'll know the ones I'm talking about - the ones you pay before you've even made a profit.
It's bonkers, completely out of control.
They're not called turnover taxes, but that's what they are, and I'll jolly well call them out...
Horrific VAT (it used to be 17.5%, then 15%, now 20%)
Insurance Premium tax
Green levy on fuel
Employers NI
Business rates
Fuel tax
Custom duties
Stamp duty
I always train my brain to think: “Jim, just grow your way out of the problem.”
“Grow, so you can afford to stay in the game and give your people more opportunity.”
All the above taxes used to be lower in percentage when I started, and some weren't even on the list - like IPT and green levy. It's just a joke.
They've ballooned in size. The result is that you now have to be stricter with the team. I want my people to have great lives. I want them to earn more.
The truth is, the turnover taxes, utilities, high-interest rates, and wages suck up what comes in.
When I started out, you could run a leisure and hospitality business (the sector I'm mainly in) with 25% of your turnover going to the labour bill.
Nowadays, I'd literally dance around Buckingham Palace naked if I could get back to that.
The royals might just see another set of crown jewels…
The cost of employment is so high now. Not what you pay your people, but all the add-on costs, pensions, NI, holiday pay.
SMEs are struggling with all this.
These days, I feel like a mad mechanic in the garage, tinkering away with my engine to get it to be more efficient. It's just not as fun as it used to be.
The choices I have to meet the increase in overheads are:
Reduce costs
Increase prices
Look for economies of scale
Buy companies to leverage costs
Sweat assets
And my favourite: slag the government off for adding more turnover taxes than I have potholes on the way to work (what do they do with all our money?)
I'm tinkering with the engine non-stop. It's exhausting.
I feel sad when I'm pulling up managers for not controlling costs. I know they just want to give people work and run an effective service.
I just want us to still be here next year!
If I have learned anything in business, it's this... Your profit is all in how efficient you are with labour costs.
You want a Goldilocks approach. Not too hot - not too cold. Just right.
Spend too much and you go bust. Spend too little and you’ll destroy customer service and lose customers.
Let's ponder a couple of scenarios.
Scenario 1: Retail
In retail, you can easily slash labour on the checkouts and make your P&L jump for a few months.
You'll look like a god. BUT... If you're like me and you hate queues, you'd lose my custom long term. I wouldn't come back.
Watch your sales drop when you get rid of the nice stuff that your customers love. If the top line drops, it eventually hurts the bottom line.
It's a thousand little cuts until you notice it. Be wary of short term cost saving, here's an example - Restaurants slash the menu choice to be more efficient, but slash it too much and customers miss choice - will they come back?
Scenario 2: Software Design
Make software? You might decide not to hire an additional team member to create new features. Well done Captain! You've saved a cost.
You decided to bolster profits (short-term win there). You decided not to delight your customers and keep ahead of the pack with new features.
You do this in a quest to save on payroll. Smart? Trouble is, you might find a competitor, see your folly and compete.
An expensive lesson
I often think of the accountancy software giant "Sage". Why did they let Xero take so many customers from them? I was a Sage guy for 15 years.
Xero is just so much better than them now. Xero has out-developed them.
Sage lost my money to Xero because it was easier.
Silly Sage.
This tinkering of our engine can be exhausting.
You can't just put your prices up in line with all your increasing overheads because your customers are tinkering too - they're in pain too.
Your customers are sensitive.
Unless you're Hermes or Rolex (we'd all love to be here). You can't just cut back and destroy customer service.
I don't think value for money has been as important as it is today for your customers (recessions and inflation do that).
You have to market hard, work hard, add more revenue streams, and sweat the asset.
As I ponder the next five years of a new government, I hope they deliver relief on turnover taxes and help companies and our economy.
A change of UK government could be on the horizon.
But at the end of the day, you are your own economy. It's best to think no help is coming, but if it does, and occasionally it does, welcome it as a friend coming to stay for the weekend.
Remember though, friends do leave and go home.
You're on your own again.
Essentially... You are your own economy. That’s especially true if you're an entrepreneur and, for your teams, you're their economy too.
What a flipping responsibility that is.
Seriously, if you didn't love it, you'd have to be mad to carry on.
See you next week - you "value for money creators" - as we talk about a Mars Bar and a pair of scissors. Intrigued? Wait seven days and you'll know what I'm blabbering on about.
To your continued success,
I have a rule, which I am about to break: “never do religion or politics.”
For me to work, and for my companies to work, I need fellow entrepreneurs around to make the economy tick.
Take the energy away from an economy and it’s curtains. We become a nice place to go for a city break.
Here’s my plea ahead of Budget day…