Stop Managing The Business You Had Two Years Ago

I’ve had the opportunity to look inside quite a few P&Ls this year, across different industries, business models, and stages of growth. There is a pattern emerging that I think is worth talking about: for a lot of small businesses, revenue is softer.

Not everywhere, and certainly not for everyone. Some companies are having phenomenal years. But I’ve seen enough businesses experiencing slower sales, longer buying cycles, or declining revenue that I don’t think we can dismiss it as an isolated problem anymore.

At the same time, I’m getting a little tired of the doom and gloom surrounding the economy. We seem to do this every election cycle, particularly as we head into the fall. There is always something we are told will be the thing that finally sends everything over the edge. Pick your poison. Fuel costs are rising. Food prices remain high. Consumers are stretched. Labor costs more. Insurance costs more. The political environment is uncertain.

All of those things can have very real consequences for businesses and the people who own them. But at some point, business owners have to stop talking about the environment as though we are standing outside of it.

We are part of the ecosystem.

Our vendors have raised their prices. Our software companies have raised their prices. The cost of labor has changed. The cost of moving goods has changed. Consumer behavior has changed. Meanwhile, I still talk to business owners who agonize over whether they can increase a price by $100 because they are terrified their customers will leave.

Maybe you do need to raise your prices. But I don't think “charge more” is a particularly sophisticated answer to what many businesses are experiencing right now.

You cannot price your way out of an inefficient business.

What worked two years ago may simply not work today, and I think that is the conversation business owners need to be willing to have.

Start With The P&L

When revenue is growing, businesses can carry a surprising amount of inefficiency without realizing it. There is enough money coming through the door that the $500 subscription nobody really uses doesn't seem particularly important. The marketing campaign that produces mediocre results continues running. An inefficient process gets handed from one employee to the next because fixing it never becomes urgent.

Growth covers a multitude of sins. A tighter market doesn't.

This is why I think business owners need to spend less time trying to predict what the economy will do next and more time interrogating their own businesses. Pull your year-to-date P&L and actually challenge what you see there.

Suppose your company pays Google $1,000 every month. That's $12,000 a year. What is that $12,000 actually doing for your business?

I don't mean how many people saw your ad. I don't mean how many impressions were generated or how many people clicked through to your website. Those numbers may be useful, but ultimately I want to know whether that investment is contributing to customers, revenue, or some other measurable business objective.

Maybe the answer is yes. If Google is consistently putting profitable customers into your business, fantastic. Keep writing the check. But maybe you've been spending that money for three years because that's simply what you've always done. Maybe nobody has stopped to ask whether $1,000 a month could work harder somewhere else.

Could some of it be invested in local advertising? Could you build a referral program? Develop strategic partnerships with complementary businesses? Sponsor an event attended by the exact people you want to reach? Invest in your existing customers and create more repeat business? Put your salespeople in a room with actual prospects?

There isn't a universally correct answer. That's the point.

The goal isn't necessarily to spend less. It's to demand more from what you spend.

Businesses Accumulate Baggage

As companies grow, they accumulate things. We add software to solve problems. We hire contractors because we need additional capacity. We subscribe to services, create processes, build offers and develop entire systems around whatever the business needed at that particular moment.

Then the business changes, but the infrastructure stays.

Three years later, nobody remembers why we're paying for two platforms that essentially do the same thing. An employee spends four hours every week completing a process that could now be automated. An agency continues producing a report nobody reads. An offer remains on the website even though customers rarely purchase it anymore.

None of these decisions were necessarily bad decisions when they were made. They may have been exactly what the company needed at the time.

But “this used to work” is not a compelling reason to keep doing something.

That applies to expenses, but it also applies to the way we sell, market, price, hire, communicate and deliver our services.

One of the most dangerous things a successful business owner can do is become emotionally attached to the strategy that made the company successful in the first place. Past success is useful information, but it is not a guarantee that the same formula will continue producing the same result.

The market gets a vote.

Your Customer May Have Changed, Too

This is the piece I think gets overlooked when we talk about economic contractions. We focus heavily on what things cost us without spending enough time thinking about what has changed for the customer.

If households are spending differently, your customer has changed. If companies are delaying investments, your customer has changed. If your industry has become more competitive, your customer has more choices. If technology has made something faster, cheaper or easier to obtain, your customer's expectations may have changed.

The offer that practically sold itself two years ago may require a different value proposition today.

That doesn't necessarily mean the offer is bad. It means you need to understand why people bought it then, why they're buying—or not buying—it now, and whether the problem you're solving still matters enough for someone to pay you to solve it.

Look at your sales conversations. Look at the objections you're hearing. Look at which services are getting easier to sell and which ones require more convincing. Look at where your best customers are coming from and which customers actually produce healthy margins.

Your business is constantly giving you information. The question is whether you're willing to listen when the information contradicts something you believed was true.

Cutting Your Way To Profitability Isn't The Answer Either

When revenue declines, the natural reaction is to start cutting expenses. Sometimes that's necessary, but indiscriminate cost cutting can damage a company just as quickly as uncontrolled spending.

There is an enormous difference between an expense and a bad expense.

A salesperson who consistently produces profitable business costs money. Good technology costs money. Skilled people cost money. Effective marketing costs money. Training, compliance, accounting, legal support, insurance and infrastructure all cost money.

The objective isn't to make the expense side of your P&L as small as humanly possible. You can cut a company straight into irrelevance that way.

The objective is to understand what each investment is doing for the organization.

Some expenditures generate revenue directly. Others protect the company from risk. Some create capacity. Some improve customer retention. Some allow highly compensated employees to stop spending their time on low-value administrative work.

Those investments may be worth every penny.

Others are simply there because nobody has questioned them lately. That's where management comes in.

Good Businesses Can Still Have Bad Years

I also think business owners deserve more honesty about this. You can make good decisions and still have a bad year. You can know your numbers, provide an excellent product, treat your customers well, manage your expenses responsibly and still lose a major client. Your industry can contract. A project can disappear. Consumer behavior can change faster than you anticipated. A competitor can enter your market with a better solution.

There is a particular strain of entrepreneurship content that implies every disappointing business result is evidence that the owner didn't work hard enough, wasn't disciplined enough, didn't post enough content or failed to discover the correct strategy.

I say more often than not, that's bullshit.

Business involves risk. Sometimes the market punches you in the mouth even when you've done a lot of things right. The goal isn't to create a business that can never be hurt. I'm not convinced such a business exists. The goal is to build a company capable of recognizing what is happening early enough to respond intelligently.

That's why contractions can be so revealing. Strong markets allow mediocre decisions to survive for a surprisingly long time. Tighter markets force us to find out what is actually working.

Manage The Business You Have Now

I don't know exactly what the economy will do over the next twelve months, and I'm increasingly uninterested in listening to people pretend that they do. Business owners have work to do regardless.

Know your numbers well enough to recognize when something changes. Understand your margins. Question recurring expenses instead of allowing them to become part of the furniture. Know what your marketing is producing. Understand what your customers value today. Protect the investments that are working and be willing to eliminate the ones that aren't.

Most importantly, be willing to question an assumption simply because it used to be true.

Stop managing the business you had two years ago.

The market has changed. Your costs have changed. Your customers have changed. Your competitors have changed. Some of the things that helped build your company may still be incredibly valuable, and some may have reached the end of their useful life.

Your responsibility as the owner is to know the difference.

The market does not owe any of us the business model that worked in 2024. We can spend the next year complaining that customers don't buy the way they used to, that marketing doesn't work the way it used to, and that everything costs more than it used to.

Or we can manage the company that exists today.

That's the job.