Business Leadership: Creating Profitable Opportunities

Business Leadership: Creating Profitable Opportunities

In truth, there is no such thing as a growth industry. There are only companies organized and operated to create and capitalize on growth opportunities. Industries that assume themselves to be riding some automatic growth escalator invariably descend into stagnation (1). - Theodore Levitt, Prof. at Harvard Business School

Even if you started a business in a so-called "growth industry" your success would still depend on how your business were run. Levitt devoted a lifetime to studying business and economics at Harvard Business School and he found that the only businesses that prosper are the ones that are organized to be profitable.

Business operations must be profitable. If not, then your "business" would really be nothing more than a non-profit organization. When you're profiting, it's a good sign that your business is going in the right direction. In other words, turning a profit is a good indication that you are creating real value for your customers or clients. Assessing profitability is simply measuring how much value is being created at all levels of your business.

In order to think with profit in mind, we must be aware of costs at all levels as well. Charles Koch reminds us of two types of costs that are often misunderstood by most businesspeople.

Sunk cost is an unrecoverable past expenditure...[that] should seldom be taken into account when determining what to do in the future...our test should be governed by the standard of opportunity cost...the value of the most valuable alternative that must be forgone to undertake a given act (2).

Simply put, we should be aware of the cost of missing opportunities, rather than reflecting on past expenses. Having the awareness of an abundance of opportunities will ensure that you're taking as many of them as possible.

Adapting to a Changing Market >>