To profit or not to profit? - That is the question

"Enough talk! It's time for results," screams the cover of Fast Company's June issue, the widely read monthly magazine devoted to the New Economy of digital this and internet that. It seems as though the recent decline in dot com stocks has taught the New Economy companies some Old Economy lessons -- profits are not only good, they are required. Market valuation is great, profits are even better.

Now, we may think that this isn't a lesson at all. Any businessperson knows this intuitively. Yet reading a May 19, 1999 Wall Street Journal article, "Rethinking a Quaint Idea: Profits", we're regaled by stories of start-up firms being reprimanded by venture capitalists for showing a profit too soon. ". . .In a fast-paced world where the barriers to entry are very low, profits don't matter -- it becomes market share." What a difference a year makes!

In fact, the 12 months do make a difference. You see, most of these firms rely on a calculated rate of return based on the lifetime value of a customer. (Sounds familiar.) One can lose money on front-loaded technology and marketing costs, as long as it's made up by repeated purchases in a certain amount of time. But given the "fast-paced world where the barriers to entry are very low," market share and customer loyalty may be fleeting and profits non-existent.

Is there anything of value for the Old Economy companies to learn from the dot com debacle of late? Of course, there are always lessons.

				Be willing to invest in technology and marketing costs to attract and keep customers, but . . .
				Know the lifetime value of your customers. Constantly measure that against your acquisition costs and time horizons for cash flow and profit projections.
				Cut your losses on customer groups you determine will not be profitable any time soon.
				Don't underestimate the ability or likelihood of your competitors or the market intself to change the rules of the game.
				Understand the needs of your current and potential customers.
				Meet the ever-changing needs of the marketplace. Don't disappoint your customers by not meeting their needs and don't give them the slightest reason to buy elsewhere.
Building long-term business success is always the result of managing and maximizing a combination of variables. But by keeping the customer in mind and the calculator in hand, your answer to the title question should be, "TO PROFIT".
-- by Rosemary Walter

This & That

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