Your Best Year Was a Trap: Revenue Growth vs Profitable Growth

It's recurring monthly revenue. It's several projects, not one, those kinds of things. So again, profitable, durable, repeatable. Profitable, durable, repeatable, and check your numbers. You got it. Awesome. Time for Ryan's fun fact. So fun fact, there's a principle called Goodhart's law, when a measure becomes a target, it stops being a good measure. The moment you optimize for a single number, people find ways to hit the number that have nothing to do with the thing you actually want.

So chasing revenue is the target basically corrupts it? Exactly. When you make revenue the only goal, you'll get revenue, but you'll discount, you'll take bad work, you'll burn out your team. You hit the number at all costs, but you'll lose your business in the process. That is crazy. A good moment for a word from our sponsor, and today it's Esther's Coffeehouse. Look at this, wearing the hat, right in downtown Massena in North Country, New York.

And it fits the episode because tonight is about slowing down enough to look at the right scoreboard. Esther's is a slow down kind of joint. It is. They roast their own beans in-house, they make the drinks and treats from scratch, and Chef Kathy's pastries are so good the locals say you'll think you've wandered into good old Montreal. High praise from this show given the company. Yes indeed, maple matcha, cold brew, silly sodas, real fruit smoothies, the whole creative menu, and they've got genuinely stylish swag, the kind of mug and merch you actually want on your head, and in your hand, not the kind you hide in a drawer.

A local shop that roasts its own coffee is a business that measured the right thing. They didn't chase volume, they chased good. Esther's Coffeehouse, Massena, New York, estherscoffeehouse.com, go slow down for an hour. Where the hell's the phone number? No, they don't answer the phone in a coffeehouse, you're too busy relaxing, you're serving you. But look at that, look at the coordination.

You realize what I had to do to be wearing this hat at this precise moment in time? Let's see, you wrote the episode with all the questions and stuff, and you put the sponsor Esther's. Oh yeah, and a lot of coordination, Jon. And I got the hat from my wardrobe, and I put it on my head. Okay, so yeah, not that amazing, I guess. You keep calling the revenue a vanity number.

Obviously, we've talked about that in the past and previous episodes, but it is the number everybody leads with. Make the case that it's lying to us. Alright, so revenue is sexy, right? It tells you how much money passed through your business, right, but it tells you nothing about how it stayed or how hard it was to get or whether you can do it again, right? It's such a liar, but it's such a thing that we talk about, you know, I did $10 million last year, you know, I took it over from my old man or my mom, it was $3 million, now we're at $3.2 million.

It's a sense of pride, right? So let's take an example of two businesses that do $5 million in annual sales, right? One keeps $1 million. It's saying it's repeatable. It's monthly recurring. The other one keeps 150. And it's exhausted and lucky, right? Which one would you rather buy? The one that keeps a million bucks or the one that keeps 150? So revenue is what you took in, profit is what you keep, cash is what you actually use.

And that's the thing, revenue is just the noise it makes on the way through, right? The profit needs revenue first point is true, but it's beside the point. I'm not saying ignore revenue, but I'm saying just don't celebrate it alone. There are other things there, right? So what really needs to belong on that banner isn't just the revenue target. It's margin or profit by customer or cash generated or revenue by employee or customer retention.

Those are the numbers that matter. Those are the numbers that turn you $150,000 bottom line business to $1 million and on the same amount of revenue. Got it. Understood. Okay, let's track those other metrics, not just revenue, but so isn't there some collateral damage if we are just chasing revenue the whole time? What is the actual damage? What is a revenue chasing best year really cost us besides just thin margin?

It costs you one bad, slow month that your business could go under, right? If your margins are so deteriorated that you've discounted just for that, it burns out your team. Usually you're attracting the wrong type of customer. So now they're talking about pricing, not quality, right? There's a whole slew of stuff, but it's gonna show up in your bank account, right? You're gonna be the lowest paid person in the employee because your margins are so thin and stretched out that you have to pay everybody first and you last.

And most of the time, there's no money for you. Gotcha. So yeah, I mean, keep going on that. But what is the true cost of just going after the trophy? I think it's burnout. Turnover. Not only just your employees, but also your customers are going to turn over like crazy. You're going to probably need to add debt to make next week's payroll. Obviously, it's a huge cash stream.

And so you're going to have that 20-year-old van that you can never replace, right? That just looks bad and worse and worse and worse. And then, God forbid, something happen, right? Where are you gonna get the money? And then you're gonna get those complainers, those two star, one star reviews, because they can't give you zero, because someone else sold the same product and gave you same service for $50 cheaper, right?

And I think also is you're setting yourself up for a trap of expectation, right? Is that we've got to hit this number at all costs. What happens if you have a record sales year, but you don't hit your number? You're off by 2%. You just completely deflated the entire morale of the company or yourself over $50,000, $100,000, whatever that might be. So I think that when you start setting these expectations based upon sales, it promotes just a negative cycle throughout the entire organization.

Yep. That is so true and I've been part of so many organizations, especially on the sales and marketing side, right? Like that's the number. We want one big number to chase up on the scoreboard, get after it, right? And it's not just about the miss, you know? I think you're quite right. It sets the tone for everything in the organization that the only thing that matters is revenue. Not quality, right? Not looking after your people, not making sure that your product is deep and that you've got evolving products coming out, right?

There's so many other things to focus on as well. So I've been part of a number of organizations that are sales first and that's never good. Yeah, I think we're going to roll across through to the marketing tip of the week which I thought I'd change the name of it from M-TAL. M-TAL doesn't have that much of a ring. What about Jon's two cents? What do you think, Ryan? Or is it $1.40 Canadian?

Well, two cents is $1.40 Canadian. Well, two cents Canadian, $1.40 US. Got my exchange rate wrong there. Well, do not let this guy near your numbers, folks. All right, my one cent 40 US. All right, time for marketing tip of the week. We're gonna change the name of it, Ryan. It's gonna be Jon's two cents. Yep. It's a Canadian, so it's discounted. Yeah, that's right. I love it.

One cent 40, something like that. Tip of the week, it's the antidote to flying blind, which is what this whole episode is about. Track your lead source. Every single lead, you gotta understand where it came from. You can ask them, how did you hear about us? It's the most valuable question most businesses forget to ask. Without it, you have no idea which marketing channel actually works. So you pour your money into channels on a hunch and you call it a strategy.

It's the same disease as celebrating revenue, measuring the loud thing instead of the true thing. You are 100% right. 90 days of real lead source data going after it meticulously is going to tell you precisely where to spend and where to stop spending. So one step this week, add one required field to your intake form or your phone script that captures how every new lead found you.

Start this week, in 90 days the data is going to start helping you make decisions. Good stuff. That was worth a solid two cents, not the discounted one. Oh, that's kind of you. Thanks. Yeah, I mean, I'm not going to say all of them are going to be like that, so. No, no, no. Well, you know, they'll vary. It's hit and miss, 100 monkeys and a typewriter.

You know, you've only used that expression about 10 times. I use it every day. Yeah, we need more material. Yeah, okay. I'll call that. Excellent. One more word about our sponsor, Esther's Coffeehouse in Massena, New York. This whole episode is a warning against running yourself into the ground for a number on a banner. And the antidote is almost embarrassingly simple. Sometimes you just need to stop and sit down with a good cup of coffee.

And Esther's is built for exactly that. Downtown gathering spot, they roast their own, they want you to actually stay a while, not just grab and sprint back to the grind. That's what Dunkin' Donuts is for. That's right. Grab a bag of beans on your way out so you can slow down at home too, plus the swag, which again is genuinely nice. I don't say that about most coffee shop merch.

You've got a version of this. I can feel it. As a Canadian, I came from a place where the entire culture is basically built around somewhere warm to drink a hot beverage and complain about the weather with people you like. A good coffeehouse is civic infrastructure where I'm from. That's my one and I stand by it. That's your one and honestly a heartfelt one. Esther's Coffeehouse or coffeehouses. It should be pronounced, Jon.

20 Andrew Street, Massena, New York, estherscoffeehouse.com. Go find the good scoreboard and a good latte. The number is 555-555-5555. Remember that one they used to put that on there, 555? I have no idea what you're talking about. Oh my God. You never saw like the Brady Bunch? Every area code was 555 because it doesn't exist in the US? No. No. No Brady Bunch for me. I grew up in England.

Well, okay. Benny Hill, 555, uh, no? Yeah, that works. That works. And the music. Perfect. Well, whatever you say, seeing as you're a celebrated author now. Right? Let's get in there. Oh, yeah. Oh, yeah. Everybody, all five listeners, Ryan is actually published and you can go buy his book. It's fantastic. Yeah, coming out March something. That's some year. Nothing like accuracy, right? Yeah, the publishing process is longer than the actual writing of the book.

That takes some doing then. Good stuff. Well, we'll share the link, share more information. We'll get a short code, something like that, so people can go out and actually buy the book. Help Ryan become a celebrated award-winning author. It's great content. We're going through it all on these podcasts, really. All right, so let's make sure we don't leave people scared of growing. This is about engineering a scenario that actually creates what you need.

So how do you build that? How do you create a best year that's actually good and the kind that you wanna repeat? So you've gotta grow the right number on purpose, right? I get choked up about it. Oh, come on. It's an emotional moment, folks. Best year worth having, you know, it grows profit and cash and it's just not revenue anymore, right? Like you have the same energy but now we're actually, I mean, I want to see an extra zero in my bank account, I don't know about you, right?

So, it's getting weird now. Right? So, you know, I love, so we actually had some fan mail about the cheapest episode and, you know, about should I match the person's price. Right? So and, and I've had this conversation a lot with other business owners is that they think that more sales will get them out of all their problems. And as the listeners know, that's not the case. And we're talking about that exact thing here. It's got to be intentional sales. Sales that you don't discount. Sales that you don't price match. Sales that you don't sacrifice your margin, right?

Don't incentivize your salespeople on sales metrics, incentivize them on gross profit metrics, right? So that they can't discount things so low that actually costs you money for that sale, right? So make sure that you have safeguards in place, like gross margin, right? We wanna make sure that we have a 40% gross profitability, period, you cannot discount below this mark to get the sale, right? Or make that sale intentional.

So sure, I'll discount this to you, but that means that I'm gonna have a, you're a repeat customer or you're a customer that if I get this project, it's gonna lead to something that's 10 times bigger. Right. Yeah. Right. So that, you know, you have to keep those things in mind. Create a lead in, or I mean, the first case, they're having a pro forma review of each individual project, right? Then you sit down as a team and you analyze it, make sure the numbers are actually there before you get the deal in front of people. Exactly. Exactly. And, you know, we don't want to discount our way so that that's what the people expect, right? Is that we'll fall into that trap. So you've got to protect your margin. You also have to protect your capacity, right? We want to use our folks for profitable work. We don't want to have to pay 10 months of overtime making 4% margin, right?

I'd rather have my folks work 35 hours a day on something that's going to get them 40% margin. It's far more profitable and I can keep up with everybody else and give them competitive wages and a good work-life balance. Also, you've got to focus on growing your best work, not all work. Pick your highest margin, best customers, that's the stuff you should be growing, right? The small margin stuff maybe get somebody in the door but then we're getting them over to something that's more profitable, right? Recurring those kind of things and make it repeatable. Grow your systems, right? Make sure that a junior person can do senior level work, right? This growth isn't necessarily slower, right, than chasing dollar after dollar, but it's more profitable, right?

It's gonna help you in the long run so that you'll be around three years from now not having to worry about payroll like you're doing now, right? So focus on those things, that will be your best year ever. Awesome. Okay, someone's driving home, they're sitting there, they're realizing last year's record year nearly broke them. What is the one thing they can do this week? Ask yourself three questions.

Was it profitable? Was it durable? And was it repeatable? And write down the honest answer to each. If it passes all three, congratulations. It's real. Now go engineer it. Go get another one on purpose. If not, it was a trap, right? If you're still trying to chase that, this revenue or this year, right, this perfect year, change your metric. Change your metric on the wall. Revenue fine, but gross profitability, net income, number of employees, revenue by employee, ideal customers.

Growing the things that's actually going to make it your best year, not just the highest sales number. And I think along with that is pick something that's really going to reflect if it was your best year or not. So did you maintain or increase your profit margin or simply this, your bank accounts, or were you able to reduce your debt instead of add to it? That is a year worth chasing.

Got it. And back to your earlier references, get those other metrics on the banner, margin, profit per customer, cash generated, revenue per employee, customer retention, et cetera, et cetera. Those things are key for being able to understand the progress you're making. Well said, sir. That's worth three cents. Well, I just repeated. That's excellent. I get three cents for repeating something you said earlier. Right. There you go. But with the Canadian discount, so it's really worth two.

Yeah, I'll put that into renaming a lake that we used to have naming rights to. Recover the lake fund. All right, let's take away, Ryan. A best year measured only in revenue can be the most dangerous thing that happens to your business. Revenue is a vanity scorecard. It tells you what passed through but not what you kept, not how hard it was, not how much you burnt out your team.

A record built on discounting, bad work, it's not achievable. It's horrible and the payment doesn't necessarily come due right then and there. It takes its toll later on. But a real best year passes a few tests. Profitability, durability, repeatability, if that's a word. You missed one of those and you had an expensive year, not a great one. Instead of putting revenue on that banner, put profit, put cash, put the least amount of — zero accidents in the last 365 days.

Those are the things that really will build a year that you can grow upon. Stop chasing the top number and start winning in your own business. Awesome. Great advice. Now, if we could just go ahead and do it. If it was that easy, right? Yeah, you know, it's all, there's a lot of nuances in everything that we, all the advice we give, right? Like it's easy to give the top line on it.

The real execution is a thing, execution and consistency across all of our advice points, right? That is the challenge. But I think you got to know where you're headed and people can then start to put these things in place. Absolutely, and you know you hit a bump in the road. Okay, keep going. Yeah, right. It's never — nothing's ever perfect and nothing's a linear line, but if you start focusing on the right things. You know, our listeners, they have great business acumen. Focus on the right things. Boy, sky's the limit. Yeah. 100% right. And it's complimenting the teams as well, like you know, they know what they're good at, right? You guys listening, you know what you're good at, you know, get the team members that complement what you do so you can build an award winning kind of roster of players on your team and away you go. Just keep working at it. Keep going.

That's all you can do. You are the engine. That's it. Excellent. I think I might be in the hot seat next week. Yeah. And then thank you for giving everybody a forewarning. So if you want to take next week off, you'll know ahead of time. Yeah, yeah, it'll just be my immediate family that I get to chat with. We're going to talk about branding, the importance of branding.

Right, we're not talking tattoos, right? Whatever it takes to get your business out there, like if it takes tattoos, fair enough. So if I have to put Synergy on my forehead, then I will. I thought that's why you're wearing your hat, because you... That's right, Esther's Coffeehouse. Come in and get yourself tattooed. Sorry, love it. Good stuff, that's a wrap. Alright, hasta luego. Yep, peace out.

That's it for this episode of From Burnt Out to Bought Out. If there's something we said today hit home, don't just nod in agreement. Pick one thing, the number you've been avoiding, the process that only lives in your head, the conversation you've been putting off for six months. Do that one thing this week. That's how it starts. And if you're not sure which one thing to pick, drop us a line. We'll happily point you in the right direction. New episodes drop every week. Until next time, stop running the treadmill and start building something you can actually sell.