What do you do when costs rise faster than sales? Don’t ask MEC.

There is a saying: you never know what you have until it’s gone. This couldn’t be more true for entrepreneurs that grew their business on the expectation that sales would continue into the future as they had been in the past. The funny thing about a growing business without a plan is that you never really know how much money your business needs so you incur expenses and hope everything works out. At some point your sales drop but your expenses stay the same and then you find yourself out of money.

To say entrepreneurs fly by the seat of their pants would be an understatement. Many entrepreneurs start a business based on an idea and a measure of optimism. Throw in a heap of passion and all of the sudden a business emerges out of nowhere. If the entrepreneur happens to start a business in a good market they may think they have the magic touch…until the market changes and they are left wondering what happened. Their cash flow gets tight, they have to make tough decisions that often includes letting people from the team go as well as downsizing while they attempt to save their business. It doesn’t occur to many entrepreneurs that a plan would have helped guide their efforts. A plan that included real time feedback to let them know whether they were on track or off track, may have helped them avoid disaster. There is nothing easy about starting or running a business of any size.

In 1971, Mountain Equipment Co-op, or MEC as it is known today, was launched to supply outdoor clothing and recreation gear to consumers while doing so in an environmentally friendly manner. Since 1971, MEC has opened 22 stores across Canada and recently announced that their costs have been rising 2.5X faster than their sales. This is a recipe for disaster for any business and MEC is no exception. Competition from online retailers like Amazon, supply chain problems and high inventory levels have made it difficult for MEC to turn a profit. Sales have slowed and little has been done to reverse the trend. There are many different reasons why MEC has founds itself in a tough position and it will be interesting to see what strategies they employ to get back on solid ground. From the news that was reported, it doesn’t appear that MEC has figured out their strategy yet which could mean more difficult moments lie ahead.

For entrepreneurs that find themselves struggling to understand or keep up with the costs of their business, it helps to go back to the basics. What does problem does your business solve? Is your business doing an excellent job of solving that problem or has your business allowed itself to become distracted with tasks and activities that are not producing a meaningful result? Going back to the basics and getting rid of anything that doesn’t contribute meaningfully to your bottom line could be the difference between surviving and failing.

Leave a Reply