Do you know how your business makes money?

  • Saturday, March 22, 2008 8:05pm

Near our office is an industrial park that, thanks to a group of dedicated community activists, was built with the emphasis on the “park” rather than the “industrial.” Its centerpiece is a creek with a still-active salmon run, and there are walking paths, wildlife, ball fields and, of course, office buildings and laboratories where high-tech workers labor on scientific projects.

The other day, as I was walking along a path and keeping an eye out for a blue heron that fishes there, I began to overtake a young man.

He was clearly a techie from one of the nearby firms since he had his ID badge hanging from his neck on a chain. He was singing a song, and although I could not understand the words, the rhythm of it sounded East African. (This wasn’t at all surprising; the high-tech companies hire people from all over the world.)

It was a lonely song, suggesting to me that he was thinking about his homeland. Then, still ahead of me, just after he finished the last note, he turned right — onto another path.

Walking away from me now, and apparently still unaware of my presence, he began another song. Although his accent gave a non-twangy lilt to the lyrics, I recognized the words this time: “Goin’ down to South Park; gonna have myself a time.” Somehow, it seems, he had managed to get through the immigrant adjustment process and was “fully acclimatized” to our culture.

The television program “South Park” is, of course, an icon of the iconoclastic young. It is an all-purpose, equal-opportunity comedy show that uses animated characters to poke fun at anything and everything.

From a management perspective, there is one particular “South Park” episode that is insightful as well as funny. Even though its main theme deals with how giant corporations crowd out small, local businesses — by delivering better products and services, the unscrupulous rats — the episode is known by its unforgettable subplot involving “The Underpants Gnomes” and their now-famous three-phase business plan.

Having been caught stealing underpants, and tracked back to their headquarters, the gnomes, who turn out to work for some gnomic corporation, use visual aids to explain their business plan to the South Park boys, and it looks like this:

1. Collect underpants

2. ?

3. Profit

The business plan was a perfect send-up of the dot-com era, when investors threw billions of dollars at start-up companies having little more than a hip-sounding idea. But it turns out to have a continuing relevance, not only to start-ups but also to more mature businesses.

The question of how a business makes money is not a trivial one. Because the answer seems obvious to those involved in the day-to-day operations of a business, though, it isn’t asked very often — because it sounds silly, or dumb.

Imagine the reaction if the boss started off the Monday morning team meeting with, “How does our business make money?” Almost everyone there would assume that medications either were involved or should be.

The Underpants Gnomes themselves were quite comfortable not knowing anything about the missing Step 2 — how profits would be made. They each and all assumed that someone else in the corporation had figured that out. And in the same way in our businesses, workers and managers get so involved in the demands of what they are doing that the picture of how it contributes to profit isn’t clearly visible.

In our current business environment, where your company’s financing sources can go from secure to uncertain in a Wall Street minute, when global forces, resource markets and consumer preferences shift with little warning, management cannot afford to ignore how a business makes its money. And how will it make its money next year?

Essentially, these questions test the stability of your market, your product or service life cycle and the productivity of your operations. Each of these elements has to be considered in the light of its sensitivity to technological change.

If you own or manage a business, then “Where do the profits come from?” is a question you should ask, but it can be helpful to have someone else ask it. Management consultants are good at this, but if you wish to save money, often your accountant or your banker will come in and do it for free. A successful, well-managed company doesn’t have a question mark in Step 2 of its business plan.

James McCusker, a Bothell economist, educator and small-business consultant, can be reached by sending e-mail to otisrep@aol.com.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.