Dodo Loves Marketing

Now that we have examined some of the negatives of expansion from a very small business to a medium-sized small business, let’s give equal time to the potential benefits.

One of the most important components of gross profit is the degree to which you’re able to set your selling price. Your ability to set that price is largely a function of your control of the marketplace. At one extreme, you may have a patented product for which there is no substitute, and for which there is totally elastic demand (people will buy it at any cost). If that item costs you a dollar, you may be able to sell it for ten dollars, one hundred dollars, even one thousand dollars. At the other end of the spectrum, you may be selling wheat in Nebraska. In that case, it’s unlikely that you’ll be able to command one-tenth of one cent over the market price on the day you sell. ..more

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George has owned a small machine shop for about twenty years. He’s very good at what he does. He delivers precision parts at good prices on time. He is so good that his customers are always pushing him to expand his capacity. You see, George has maintained his on-time delivery reputation by having the audacity (and the discipline) to turn down work he knows he can’t deliver on time.

Five years ago George had eight employees. The business consisted of a bookkeeper, an estimator, a production supervisor, and five machine operators. George took home $90,000 a year and paid cash for each new machine. He owned the building free and clear. He had no bank debt. ..more

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