I clicked “save” and closed Excel. I had finally finished a financial model I’d been slaving away on for a client. They were a large electric company with power plants all over the southeastern U.S.
My old job taught me a lot about how our country’s power grid works. It also taught me an important concept which I’ve had good success in applying to businesses I work with.
I’ll explain it to you here because it may help you too.
You see, in the energy industry, there is a type of power plant called a baseload plant. A coal-fired plant is an example. Other examples are nuclear plants and hydroelectric.
Regardless of the fuel source, the idea is that baseload plants provide consistent, reliable power to the power grid.
They literally keep the lights on. We owe a large part of our quality of life to baseload power because it’s what provides the steady stream of energy we need to power and heat our homes, hospitals, and businesses.
In short, baseload plants keep us protected and let us sleep well at night.
There is another type of power plant, however. These are called “peaker plants.” The most common type of peaker plant in the United States is a natural gas plant.
Peaker plants provide, as the name implies, “peaks” of power. They’re only turned on when needed, like on those insanely hot and humid summer days we got in Virginia.
Peaker plants are able to generate big surges of electricity, and do it quickly. When one of those insanely hot days arrives, the utility company flips a switch and the peaker plant springs to life. A surge of power races across the grid and into those hungry A/C units inside people’s homes.
This two-pronged approach to supplying power into the grid, using both baseload power and peaker power, is also a good strategy for marketing products.
In a business, you want both: baseload power and peaker power.
Baseload power represents your consistent cash flow. These are your daily, evergreen sales. It’s a stable and reliable flow of money. It’s what pays bills, pays salaries, pays taxes, and keeps the lights on.
You could grow on baseload alone, but, if you’re committed to growth, and also want an extra margin of error, then you also want to include peaker power.
In your business, peaker power represents quick surges in revenue. It’s the tall spikes on your monthly revenue chart. This is the world of product launches and promotions.
Look at the most successful companies and you’ll see this strategy at play. Target, for example, generates baseload power by selling its merchandise almost every day of the year. At the same time, the CEO would never decide to sit out on Black Friday. That’s peaker power. Companies count on those large spikes on the calendar for a healthy slice of their revenue.
Let’s do it with Apple. Baseload power represents the everyday sales of their MacBooks, tablets, phones, movies, and music. Their peaker power is the release of their latest iPhone.
Notice that peaker power is a form of novelty that reduces risk. It’s novelty in the sense that baseload power is the norm. When the peaker power comes in, it’s sudden. And different. It also reduces the risk by providing a backup. Similar to how a major league baseball team will use their star catcher most games of the year, but will always carry a backup.
My advice is to harness both. Not only will it boost your total revenue, but it will also add resiliency to your cash flow.