The Art of Profitability by Adrian Slywotzky

Reviewed by Mary Anne Shew, Business Vitality LLC

For the Western NY Chapter of PDMA, www.wnypdma.org

Overview
Every business owner or CEO has the goal of making a profit. Even nonprofits want to
make a profit that they can reinvest in their efforts. But the farthest many of us get in thinking
about profit is that it equals income minus expenses. This fast-reading, 250-page book provides
fascinating examples of no fewer than twenty-three ways to make the money we are all looking
for.
Slywotzky has chosen to use teach these lessons in the form of a modern day fable. The
two main characters are David Zhao, “the man who understood how profit happens,” and a
young protégé, Steve Gardner, who worked hard to gain an audience with Zhao. They agree to
meet almost every Saturday morning from late September to May for precisely an hour. In-
between, Zhao expects Steve to spend at least four hours per week on assigned reading and other
homework. For this Zhao charges one thousand dollars per lesson. Of course, Steve cannot
afford such a fee. Zhao says Steve can pay the fee when he is able to—if he ever is. Zhao is wise
enough to know his student will eventually find a way to pay, as he chooses his students well.

Questions to Consider
The book opens with an Author’s Note in which he requests the reader read only one
chapter per week. Then think about what you read and let it stew. Being the impatient sort, I
blasted through the entire book in two or three hours, and now I’m going back through it more
slowly. Each profit model is covered in its own lesson. In the first chapter Zhao acknowledges
there are more models that can be reviewed, but these are the ones he considers especially
interesting and important. As a reader, I was grateful that they stuck to twenty-three as those
provide more than enough food for thought.
In that same note to readers Slywotzky lists several questions to ask yourself about each
profit model and its implications for your organization or business:
• Which of these profit models are at work in my business? Can I identify others?
• How does profit happen in my competitors’ businesses?
• What can I do in the next ninety days to intensify my organization’s focus on
profitability?
• Which profit models would enable us to maximize profit this year?
• Is my organization aligned to capitalize on the profit models in my business?
Throughout the lessons Zhao assigns real books and articles which are conveniently
compiled into a list at the back of the book. They range from Isaac Asimov’s Asimov on
Astronomy to James Webb Young’s A Technique for Producing Ideas. I randomly selected a few
titles and searched Amazon.com to test their availability. All those I tried were listed.

The Twenty-Three Models

As interesting as the profit models are, that is not to say they are easy to implement. As
Zhao postulates, “To succeed in business, you have to have a genuine, honest-to-goodness
interest in profitability. And most people don’t.” My interpretation of his statement is that you
can lead a horse to water but you can’t make him drink. Implementing a better profit model for
your business undoubtedly means change, which can be just as hard for an individual consultant
as it is for a multi-billion-dollar corporation.

©2007 Business Vitality LLC Page 1 www.bizvitality.com

mashew@bizvitality.com 585-787-1023
 The Art of Profitability by Adrian Slywotzky
Reviewed by Mary Anne Shew, Business Vitality LLC
For the Western NY Chapter of PDMA, www.wnypdma.org

Lesson 1: Customer Solution Profit

The basic idea is to invest a great deal of time and resources into “learning everything
possible about the customer—how they run their business, how their systems worked (and
didn’t), and what they really cared about.” Then develop customized products and services
tailored to the specific characteristics and economics of the account. So it means suffering
through several months of losses while melding everything to work in the customer’s
environment, with no real guarantees that this will pay off. Scary stuff! Then, once things begin
running smoothly, fewer resources are needed to operate, and changes and additional work can
be accomplished quickly and with few problems. Underneath all this is the assumption that
you’ve chosen your customers very wisely and were able to determine in advance that the later
profits would be possible.

Lesson 2: Pyramid Profit

Based on a solid understanding of current and potential customers, develop a system, a
pyramid of products. The lower-priced products are manufactured and sold with so much
efficiency that it’s virtually impossible for a competitor to seal market share by underpricing
you. The top products must be unique and designed for powerful profit generation. The book’s
example is Mattel’s Barbie doll, with the doll intended as toy at the bottom of the pyramid and
the doll intended as a collector item at the top.

Lesson 3: Multi-Component Profit

It’s based on the premise that different parts of a business can have wildly different
profitability. Also, the customer behaves differently on different purchase occasions with
different price sensitivities. The example used is Coca-Cola, which packages its products in a
variety of ways and sells it through many different types of outlets. An example relevant to
consultants is publishing a booklet containing valuable information targeted to potential and
existing clients. The booklet can be sold at any time at a profit (at classes, workshops and
presentations), and possibilities for licensing the content to other sources exist. (See Paulette
Ensign’s site, http://www.tipsbooklets.com/.)

The Remaining Lessons

Lesson 4: Switchboard Profit Lesson 14: Local Leadership Profit
Lesson 5: Time Profit Lesson 15: Transaction Scale Profit
Lesson 6: Blockbuster Profit Lesson 16: Value Chain Position Profit
Lesson 7: Profit-Multiplier Model Lesson 17: Cycle Profit
Lesson 8: Entrepreneurial Profit Lesson 18: After-Sale Profit
Lesson 9: Specialist Profit Lesson 19: New Product Profit
Lesson 10: Installed Base Profit Lesson 20: Relative Market Share Profit
Lesson 11: De Facto Standard Profit Lesson 21: Experience Curve Profit
Lesson 12: Brand Profit Lesson 22: Low-Cost Business Design
Lesson 13: Specialty Product Profit Profit
Lesson 23: Digital Profit

©2007 Business Vitality LLC Page 2 www.bizvitality.com

mashew@bizvitality.com 585-787-1023