October 16, 2017

Hillstrom's Optimizer: Our Optimization Teachers Were Right!! (Or Were They?)

Here is our base case.

Then we optimized year one results - and the results were pretty darn good!! You can see year one below ... but just as important, I optimized all the way through year five. What did we learn?

We learn that optimization is good (mostly)!!!
  • Over five years, we generate $62.4 million in cumulative profit. That's a lot better than the $51.6 million generated in our base case. A lot better!
  • Top-line sales, however, are stuck.
  • And as top-line sales begin to decline in years 4/5, optimized profit also begins to decline in years 4/5.
In other words, the process of optimizing a company results in improved profit ... and eventually leads to a business that is stuck.

If we repeatedly optimize a business for current year results, we'll get good results ... but we'll also be left with a business that is stuck.

Then what?

You already know the answer.

Then we have to sub-optimize the business to get the business to grow once again.

The optimizers were partially right. We have to do two very opposite things.
  • We have to optimize a reasonable amount.
  • And we have to sub-optimize if we ever want to achieve our potential.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.

Mohawk Chevrolet

Here's a little bit of levity for a Monday morning (click here) . Going forward, you might think about how marketing efforts fit on this...