It was a quiet day. The roads were deserted and everyone had the day off to vote at the election polls. Only a handful of people were in the office to get some work done. Sitting in the big office in the virtually empty warehouse, I plugged away at the profit and loss numbers trying to make sense of all… and I found out that I wasn’t alone. “Anthony, can you come to our office for a second, we need to talk.” One of the owners asked me.
They had invited a technical advisor who joined us over the last two weeks. He ultimately advised to close down shops and approach established independent shops to be dealers. Just before the conclusion of his time, we were in mildly heated debates trying to sift out the way forward. There were a lot of numbers that were thrown around. Spreadsheets, reports and ideas were overflowing my head. I had to play mental catch up as I split my attention between trying to think about each idea critically while trying to come up with some innovative idea to contribute to the discussion. In the end, we were advised that the way forward was to shut down the shops with the highest losses. We walked away from the discussion with a list.
Now, it was just the two business owners and I sitting in the small office, dazed, confused and exhausted from the last few days. “So, Anthony, we were just going over the numbers again and wanted to see what you thought of them.” I was glad to see that I wasn’t the only one who had growing doubts on the strategy we were convinced to pursue just a few days earlier. “If we shut down those shops, and redistribute the overhead, it just makes other shops go into loss.” “That’s what I was seeing too” I replied.
Detailed analysis revealed that each shop was still independently profitable as long as we removed the overhead costs of operations at headquarters, confirming what we assumed at the beginning of the placement. “I was looking at the analysis this morning, and the main problem is overhead costs. Primarily: wages, transportation, and rent.” After seeing agreement in their eyes, I continued to share my thoughts. “As of now, those costs are fixed and in my opinion underutilized. Do you think we can stand to cut wages, or transportation?” I threw the question out there. Fuel costs are on the way up and vehicles only get older. When thinking about everyone at headquarters, the sales manager, the warehouse manager, the accountant, the administrative staff, and the stock controllers, I couldn’t think of anyone that isn’t vital to the business. In times of trouble, with skyrocketing costs, stiff competition, and political uncertainty, these are the people to invest in, not cut. Feeling the tension that the question put to the room, I eventually got the answer I was looking for. “No, we need everyone. They’re all essential.”
I began to probe what they thought of the second recommendation given: to strike deals with other agricultural shops so they could stock our product while we close our own outlets. “For dealers… they make up about 20% of your business. Is there enough potential dealers to overcome the void created by closing our own outlets?” With little thought and a shared confirming glance, they both said “No. No we can’t. It’s just not possible. Not even with our most ambitious projections.”
All three of us in the room were circling around a strategy that I felt was returning to the forefront. “I feel that with the latest improvements at headquarters, you have the capacity to manage more shops. What happens to the profit margins if we relocate the lower performing shops and open more outlets in underserved areas?” They nodded and waited for another my next question. “You mentioned potentially opening an additional shop in the same city north of here. How long would it take before we see it perform? What’s the potential there?” “It, usually it takes 3 months for a shop to reach its potential and at that location, we should see volumes anywhere up to 50% of the shop already there.” “Can you sustain the initial losses?” After a few keystrokes and clicks by the mouse, the picture was shown to me. “We can do it.”
The air in the room was much lighter than it has been the last few weeks. Slight smiles could be seen on their faces. “So we’re clear, we’re going to open more outlets, and relocate shops that are underperforming… Good. Thanks Anthony.”
It was now clear that the original strategy to open more shops made more sense than closing them down. It grows the potential to reach more farmers, is in line with of all the work we’ve done so far to build the business’ capacity and, most importantly, takes advantage of the potential in the market.
Now that I’m entering the anchor leg of this placement, I’m again re-energized, excited and pushing forward to see this project through to the finish.