Successful Business Practices Tip #1

magnify_text_11295

Focus on Value Not Profit

Focus your daily decisions on the creation of value for your stakeholders not on profit for your business. This may seem counter-intuitive but the most profitable businesses focus on value not profits.

 A Profit Mindset Leads to Loss

If every decision, every action, and every direction that you choose is based solely on whether it makes more money than it costs, you will end up losing money. This value centered mindset is critical to success. I know this is counter-intuitive so let me explain it a bit using an example.

The Profit Paradox

Let’s say you have some money ($5,000) set aside for investing.  You want to invest it and make some money in the stock market because you have heard a lot of people say that you can make a lot of money in the stock market.

You are itching to put your $5,000 in to some stock. Finally you get a tip from a buddy that SUPERSTAR Company is a hot stock that is really going up. You should buy it now to get in on the big move upward.  You look at the stock for a few days and it has gone from $10 per share to $11 per share to $12 per share in the last three days.

The Greed Driven Buy

Greg L AlstonSo you get greedy and decide to put your whole $5,000 in to this stock today. Three days later, a story breaks on the news that the founder and owner of Superstar Company was lost in a plane crash in the Rocky Mountains on the way from Denver to Los Angeles. His plane is 6 hours overdue and he has not reported in.

The rumors start flying that Johnny Superstar may be dead. The market reacts in a panic because he is truly the energy that drives that corporation. He is the unrivaled guru in his industry.  The stock drops all the way to $5 per share within three days. 

 

The Fear Driven Loss

Since you bought the stock at $12 per share your $5,000 investment is now worth only $2083. You don’t know what to do. You have watched it go down every day. You aren’t sure whether it is going to keep going down. When it hits $4.00 per share you sell out and are left with only $1666 dollars, ten days after you invested $5,000.

The Whipsaw Event

Then a miracle happens on day 11.  It turns out Johnny Superstar is not dead. Instead of flying to Los Angeles he had secretly flown up to Canada to a remote lake to go fishing. In fact he had gone on this trip with Sammy Big, owner of his second largest rival company.

And when they reappeared in Vancouver they announced a merger of their two companies that will now make them the number one market share leader in their industry.

The market reacts hysterically and drives the stock price up to $13 per share. And now you feel like a real dope for not leaving your investment in place. You are kicking yourself for bailing out.

The Big Regret

You watch the stock everyday and it keeps going up on the news of this rumor. When it hits $16 per share you are convinced that it going to keep going so you take your remaining $1600 dollars and buy 100 shares.

Well guess what, the stock goes up to $16.50 then $17.50, and then $18.00 and the rumors are that it is going to double when the merger is complete. But then something happens. 

The Reversal

There seems to be a hang up with the financing, and now the FTC wants to review the merger for any antitrust violations. The rumor is that the merger is going to be called off and the stock plummets all the way back down to $10 per share.

You don’t want to make the same mistake you did last time so you watch the stock afraid to sell.  After six months there has been no merger and the stock has stayed between $9 and $10 per share so you finally sell out at $9.50 and your $5,000 investment has shrunk all the way down to $950.

Chasing Profits leads to Bad Decisions

Why did you have these disastrous results? You were greedy and wanted to make a profit without doing anything.

Then when it turned sour you wanted to stop losing money so you sold out. Then your greed kicked in again and you bought back in. Then reality set in and you sold back out.

If your goal every day is to make a profit you will chase profits until you have nothing left. And anyone who really believes they can make a lot of money without doing any real work is fooling themselves.

greg Mug Shot 2013Greg L. Alston  is an Author, Educator, Pharmacist and Entrepreneur with a unique resume of management success, in the chain drug industry, as an independent pharmacy owner and as an academic administrator. During the last 35 years he has been a pharmacy manager, corporate training manager, marketing manager, category manager,  regional pharmacy manager and owned and operated several successful  businesses including Halloween shops, Drug stores, medical supply, medical billing and internet marketing operations. He has  published in academic journals, authored textbooks and spoken at too many conferences to count. His latest book is, The Bosshole Effect. Follow him at Twitter or on Facebook or Linkedin