Blue Elevator Blog

Three-Legged Step Stool

What comes to mind when you think of a three-legged step stool?

Many, many years ago I found myself in a very challenging scenario in business.

Without a lot of background information, and to save the reader a lot of time, I learned a very important lesson.  Or, rather, three simultaneous lessons.

Here’s what I learned: no matter what line of business you are in and no matter the size of your business or organization, the equivalent of a three-legged step stool is the minimum for stability.

What is the Three-Legged Step Stool for Business?

Now, I don’t know about you, but the idea of climbing on top of a three-legged stool isn’t that comforting.  Much less, the complete absence of stability for a two-legged stool or a one-legged stool.  But, you need at least three legs on a stool for minimum stability.

• For an airplane to fly, it needs fuel, wind, speed, and lift.  Without any of these three, there is no flight.
• To make fire, you need fuel, oxygen, and a spark.
• In business, you need working capital, volume, and profitability.  These are the three legs of the business step stool.

Working Capital

It is important to have a bit of a war chest.  You must have wood stacked and stocked for rainy days – even a long winter.  As the saying goes, “it takes money to make money.”  However you think about it, you should have some rainy day money.

It is quite alright to bootstrap.  Meaning, it is great trying to build a business by spending the least amount possible.  This is smart business.  Spend as little as possible.

But, the farmer who wants a big harvest has to buy seed and plant it.  Without it, there is no harvest.  If you are starting and growing a business, it is important to maintain a margin of working capital.  Not only to plant, so to speak, but it may be necessary to dip into it during tough seasons.

Here is a trustworthy saying:

Suppose one of you wants to build a tower.  Won’t you first sit down and estimate the cost to see if you have enough money to complete it? – Luke 14:28

So, be encouraged to obtain and maintain adequate working capital.

Volume

As an airplane needs wind speed, a business needs volume.  This means that your phone needs to ring with people who want to buy your goods and services.  If no one wants your product, it is hard to make a sale.  If people aren’t clicking the “buy” button on your website, then it will be hard to generate any income.  To, in essence, create demand, there are a whole host of things a business owner needs to do.

At Blue Elevator™, God-willing, we help our Member clients create demand by helping them define and/or refine their Deliverable.  We discuss this in the article Build a Deliverable.  This is a matter in and of itself, but the point here is that there has to be a demand for your product.

Profitability

As an airplane needs lift, a business needs profitability.  The volume must generate profit on each and every sale.  The airplane’s lift allows it to climb higher and higher.

In like form, a properly priced good or service will help the business climb higher and higher (e.g., scale).  We discuss this in the article Proper Pricing Principles.

Each sale must contribute to the bottom line.  And, this assessment is two-dimensional.  First, each sale must have its own relative amount of contribution margin (e.g., gross profit).  But additionally, each sale’s contribution margin must be adequate enough to allow the business to scale.

It’s possible for each sale to, itself, have some element of profit.  However, the profit must also be substantial enough for the business to grow or scale.

Believe it or not, it is possible to have margin on a product sale – but still lose money, overall.  This is a very counter-intuitive concept for a lot of business owners and C-level executives to grasp.

There You Have It

Every business must have the minimum of a three-legged stool of working capital, volume, and profitability.  I won’t tell you it’s impossible to survive if you only have two legs, one leg, or no legs.  I have personally observed God do miracles in the business world – literally.

Be encouraged to plan and pursue the three-legged stool for your business or organization.  The savvy business or organization will want to plan accordingly.

Here’s to seeing you “fly the friendly skies” (the tag line for United Airlines).  So, make sure you are fueled up and that you have enough wind speed so you can get the necessary lift before you run out of runway.

We’d love to hear how things are going.  Contact us here.