I have seen too many good food businesses failing because of reasons that have nothing to do with their products.
Whether they purposefully choose to avoid the nitty gritty of running a business due to lack of skills, motivation or mindset; most of all the entrepreneurs I supported over the last 17 years fall into the same category:
The “too busy to look at that”
One of my first project was in Milan, Italy. Circa 2002
The founder of a beautiful artisanal bakery said these words to me when I proposed a meeting to discuss my findings
“I am too busy working on the sales strategy for the next year I don’t have time to go through the details of the costs of sales. I am not an accountant I am the boss!”
Too bad for the Boss her company was running at a loss due to the costs of sales being too high.
This wasn’t evident; from a quick look the company was doing fine: Sales were going up, materials bought at a good price, happy staff, brand popularity growing…
I was brought in to manage the opening of a second branch in Verona. The first shop opened two years before and was doing fine. After a thorough check of the company books I spotted the issue.
Productions costs were eating-up margins.
Like with the Shakespearians characters the Veronese love story was not supposed to end well as the two opponent families of Profit and Costs were determine not to give their blessings to my client.
My insistence to discuss the details was perceived as lack of alignment to the company mission which was “We’ll produce excellent bakery products by delivering employee and customers value by the power of enthusiasm and positive thinking”.
Mentioning low margins due to high costs was not aligned of course. That was negative thoughts.
My client, founder and managing director of the company, decided that the solution to her problems was to push for more sales. After all more sales is better than less sales right?
Not always, not in this case. Because the profit-eating costs were direct costs; and those increased proportionally with the sales unlike running costs).
It was the Sword of Damocles hanging over my client’s head leading to the inevitable fate. Three months later the bakery closed down. Bankruptcy.
All the solutions implemented helped the company to reduce waste. Yet no food company can expect to operate on a zero wastage. Therefore, in addition to work towards reducing wastage, food companies must be able to manage the waste
The most valuable tool food companies can use to manage waste is to have a budget. A waste budget.
Usually defined in terms of a percentage of the total inventory value to be measured weekly or monthly. By checking our real wastage figures against the budget, we can spot any problem or trend before it becomes an issue.
Again, the secret is measure it, so it can be managed.
I still remember the smell of freshly made cakes and bread that could’ve been smelled approaching the shop not too far from the Duomo. The products were genuinely good. Nice shop with friendly staff and happy customers.
It is a shame that such a good business does not exist anymore. All because the wrong attitude. My client could have have hired an operations manager who would normally look at things like costs of sales. We could’ve worked together to find a solution; there are many ways of dealing with such things. Most are relatively easy and inexpensive. If an operations manager salary couldn’t have been squeezed in the budget, and this is true for most small businesses then the Boss should’ve found the time to look at that. It’s the Boss duty to:
- Ensure the company stay profitable.
- Deal with issues that threat the existence of the business.
- Make sure the staff keeps their jobs.
Most entrepreneurs fall in the category of the “Too busy to look at that”.
The problem with this way of thinking is that either we can afford to pay someone who can manage all the tasks we are not supposed to deal with or we will risk having our businesses failing because of reasons that have nothing to do with our products.