“Watch out for the bump in the road,” Grace blurted out.

Mike glanced down at the newly patched pothole, and braked his bicycle to a stop. Grace stopped beside him. Mike turned to her, “You know, I could take that two ways.”

Grace smiled. Mike had been her bicycling partner since college. In the distance, the Cambridge Reservoir presented a lovely early morning tableau. The maple trees were just turning blood red and yellow, and there was a slight mist rising from the water. “I thought your company was growing.”

Mike paused. “That’s the problem. Our revenues are rising, and our profits are falling. I’m working really hard, but it feels like I’m falling further and further behind.”

Grace visualized the changes she had managed over the past year as president of her distribution company. She understood Mike’s challenge – managing his fast-growing software company.

“I went through this last year, Mike. The good news is that you can grow your revenues and boost profitability at the same time.”

“I’d really like to hear about it. I’m pretty good at product development and selling. I thought we’d be profitable if I nailed these. I don’t know what else to do.”

Grace and Mike cycled over to a bench by the water, and Grace began to tell Mike about how she led her company’s profitability turnaround. Here’s her story:

Grace’s story

It all started about a year and a half ago. Grace was president of a $30 million distribution company that had the problem Mike’s company now faced: revenues were rising, and profits were falling. She was puzzled, so she went to a talk at MIT on profitability management.

The speaker outlined a four-step process for managing a profitability turnaround: (1) develop the right information, (2) institute the right priorities, (3) create the right processes, and (4) establish the right compensation.

Grace was surprised. The process seemed very straightforward and logical, but different from the way that she managed day-to-day operations and growth. She was also surprised that so many managers she met at the talk had the same problem – and reaction.

After the talk, Grace kept thinking about the speaker’s words at the end of the lecture. The first step is to develop the right information, which he called a “profit map,” which two managers could create in a month or two using standard desktop tools. “You’ll be amazed at what you see.”

This is the beginning of my new article, “The Profit Cycle: A Tale of One Business’s Turnaround,” which appears in FastCompany.com’s Leadership section. This article is based on my new book, Islands of Profit in a Sea of Red Ink. Here’s a link to my new article:

http://jlbyrnes.com/uploads/Main/The%20Profit%20Cycle.pdf>