Penny Pincher’s Almanac, Philadelphia Business Journal – by Gene Marks

Circuit City is kaput. Gee, what a surprise.

My son and I needed to kill some time last spring between games at a soccer tournament so we strolled into a Circuit City. And here’s what we found: lots of empty space. And indifferent employees with empty heads occupying that empty space. We saw tons of flat screen TVs blaring at us, but few people that knew anything about them. We saw messy aisles and even messier bathrooms (although some of that was caused by my son). It wasn’t all that bad though — we did manage to send a few prank text messages from some of the cell phones on display, so that was pretty fun. And we mooned one of the video cameras too which caused a little stir. Ah, good times. At least for us. But not for Circuit City.

Here’s a company that had bankruptcy written all over it. And, like others in the same industry (Crazy Eddie’s, Nobody Beats The Wiz and Tweeter), this chain looked like it would ultimately implode onto itself in a cloud of mismanagement and bad decision-making.

Why is it that some of these large companies suffer so much when the economy turns south? Why, at the hint of recession, do we hear of the Circuit Citys, Linens & Things, and Value Citys going down for the count? A lot of it has to do with growth. Too much growth.

As a person who stands barely five foot six inches tall I’m the last person who should be talking about growth. I actually find economy airline seats to be comfortable. I think Tom Cruise is normal size. People balance their drinks on my head at cocktail parties. I could do with a little growth. But not in my business. There, growth is overrated.

I employ X number of people. In 10 years my plans are to … employ the same X number of people. I don’t want to be a 1,000-person organization. I don’t want to triple my revenue by the next quarter. I don’t need to show more profits to Wall Street. There are a few things about me that could be a lot bigger, but my company is not one of them.

And I’m not alone. Good penny pinchers know that it’s not about growth. It’s about profits. Growth is overrated. The companies that grow too much usually run into trouble at some point. Then they have to retract. People are fired. And money is lost. Starbucks found this out. So did Office Depot. And Sears. Hopefully they’ll adjust in time and not go down the road of Circuit City. Especially Starbucks, even though their Pike Place brew continues to stunt my growth.

Penny pinchers focus on making money. Consistently. They sock it away and feed on some of those acorns when business dips down. They don’t wildly expand. They don’t overspend. They don’t try to beat last week’s sales numbers if it means selling less profitable stuff. They don’t go on hiring binges.

If you’re a public company, then that’s a different story. Like the federal budget, Wall Street expects and measures everything, by percentage growth. They want to see more “same store sales” quarter to quarter. They want to see more profits, regardless of how they’re being achieved. There’s tremendous pressure to outperform the last performance. Running a public company means you’re only as good as the last thing you did. Those guys running Circuit City and Linens & Things aren’t stupid. They just weren’t smart enough to succeed in this environment.

Good penny pinchers know our limitations. I’m happy playing softball on Sunday mornings with broken-down middle-aged men. I have no desire to enter a more competitive league and get my butt kicked. I’m also happy running a profitable business, small as it may be. We’re slowly building equity. I’m generating enough cash to stick my kids in a separate cabin on next year’s cruise. I thank God for that. And I’m thankful that I’m not part of the growth myth that obsesses so many CEOs.

So don’t worry about growth. Worry about net income. And keeping it consistently coming in.

Gene Marks, CPA, is the author of “The Streetwise Small Business Book of Lists” and three other books on small business. He heads The Marks Group which provides technology and financial consulting in Bala Cynwyd. Marks was a senior manager with KPMG in Philadelphia for nine years.

Philadelphia Business Journal