The way to profit in EIPP is Systems and Quality

I was reading the postings of another blogger the other day, regarding EIPP. Quick note; For most people EIPP is a re-branding of the most basic of EDI, the supplier sends an invoice. We're great in IT at making up new acronyms or names for old processes in the hope of selling more.

Anyway back to the subject of the post. The blogger in question was bemoaning the fact that whilst there is a lot of interest and "new" players in EIPP, few if any make a profit. One company in question has a turnover of £3.5 Million but loses approximately £7 million per annum. Its P&L account reserve is -£27 million. Another has turnover of £1 Million and loses of £3 million, P&L reserve of -£23 million.

Now here I show my limited knowledge of the practice of Venture Capital and high finance. Both these organisations are backed by VC's and so they are NOT insolvent. But... when are the investors going to get their money back? Or to put it more accurately when are the VC's going to get a return on their investment of other peoples money? I make it that break even is 200% of current turnover, assuming costs do not rise with increased turnover. To get the £27 million pounds back at current growth rate you are looking at a minimum of 10 years. Given that the turnover of the smaller company above went down slightly last year it and that costs increased ahead of turnover at the larger company it could take longer. This is almost "Dot Com" optimism.

So much for high finance.

I think there is a different approach that can lead to a profitably growing company. It may grow slower but note the word profit. That way is to concentrate of quality and systems. Quality because that leads to better systems requiring less resource to manage the processes. Quality because it leads to fewer remedial actions, which always cost more. Get it right first time and it's always cheaper. Quality because any business must concentrate of delighting it's customers. Delighted customers lead to higher retention rates and easier new business sales because of customer referral. My other point is systems. Quality systems. If you can systematise a process rather than having to add more support staff for each new customer then you gain a much bigger return on the investment and, sorry to say, but the fewer humans involved in a process the lower the error rate so the higher quality.

The only downside to the quality and systems approach is that you cannot make a quick "land grab" for a market. But it a lot less stressful for you and your trading partners.

Here's an interesting question for you. If a new customer came to you and asked for 30 days credit, with their company finances in the state described above, would you extend them credit? If not then why would you put important business relationships between you and your business partners in their hands.

Far better to put it in the hands of a company making a profit and dedicated to a quality implementation. Preferably one with a recognised accreditation for quality. Business relationships are hard won and even something as seemingly simple as sending invoices to your customers or receiving invoices from your suppliers deservers to be handled in a quality manor that does not put the relationship at risk.