Hide the sketches?

Norm Brodsky is rapidly becoming one of my favorite magazine writers.  This specific post I was talking about today with Ralph and wanted to share it with everyone.

Every business faces temptations, and there is none greater than the temptation to go for the easy sale. Of course, the easiest way to sell anything is simply to cut your price, but most businesspeople are smart enough to realize they can’t do much of that without getting into serious trouble.

There is one form of price cutting, however, that even experienced businesspeople fall victim to. I’ve seen it wreck entire industries and bring down established companies. I’m talking about the practice of selling unused capacity at a discount in order to make sure it doesn’t go to waste. I call it the capacity trap. Why is it a trap? Because at first glance, it looks as though you’re making a sound business decision. In fact, you’re putting yourself on the road to bankruptcy.

I’ll give you the classic example of the guy who leases a truck, hires a couple of workers, and goes into the freight-hauling business. He charges the standard rate — say, $45 an hour — and books three days a week of business. Then he hits a dry spell. He can’t find anyone else who wants to buy his service at that price. Finally, a customer shows up and offers $25 an hour for the other two days. The guy thinks, “Why not? I have to pay for leasing the truck anyway. I might as well get some income out of it.”

Definitely check out the full article: The Capacity Trap