For a seasonal business not yet profitable, the urge is to add off-season products. Mark Cuban advises against this, urging founders to use downtime to aggressively optimize supply chains and achieve core profitability first.
Overwhelmed entrepreneurs can clarify priorities by categorizing every issue as either a supply or demand constraint. A demand constraint is needing more leads and sales. A supply constraint is being unable to fulfill existing orders. This binary focus clarifies the company's single most important priority.
Avoid a fixed allocation of resources between core products and new initiatives. Instead, treat the investment mix as "seasonal." Periodically and purposefully reassess the balance based on the most pressing business needs—whether it's stabilizing the core for large customers or pushing aggressively into new markets for growth.
The founder of Randomals was tempted by animation deals while struggling with inventory. The advice was to ignore these 'sexy' but distracting opportunities. True scale comes from disciplined focus on strengthening the supply chain and mastering the single sales channel that's already proven successful, not from chasing scattershot growth.
Mark Cuban warns that the biggest mistake startups make is prioritizing revenue growth over profitability. Chasing sales often leads to burning cash on stocking fees and advertising, jeopardizing long-term survival.
Encilia Hair's founder intentionally kept marketing quiet for years. She feared that generating demand she couldn't meet would kill the brand. This disciplined patience, waiting until manufacturing was diversified and robust, is a crucial strategy to avoid collapsing under the weight of unexpected success.
Province of Canada intentionally built an 'anti-fashion' brand by focusing on timeless basics rather than seasonal collections. This simplifies inventory, creates dependable products for customers, and allowed them to avoid the high-pressure, discount-driven wholesale cycle, leading to a more stable business.
When a business is struggling with multiple revenue streams, the best strategy is to simplify. By cutting underperforming or noisy channels, you can amplify your focus on the one or two profitable areas. This distillation creates the clarity needed to stabilize and eventually rebuild the business.
When at equilibrium, you must choose what to sacrifice for growth: profit or reputation. Increasing demand first strains your team, damaging quality and reputation. Increasing supply first costs money and hurts short-term profit but builds capacity, protecting reputation and enabling sustainable growth.
The strategy of eliminating the "worst 20%" applies across the business. Beyond firing unprofitable customers, analyze your product lines and even your team. Discontinuing low-margin, high-hassle products or removing toxic employees can free up immense resources and improve overall business health just as effectively.
Many founders believe growing top-line revenue will solve their bottom-line profit issues. However, if the underlying business model is unprofitable, scaling revenue simply scales the losses. The focus should be on fixing profitability at the current size before pursuing growth.