The twin killers of business: too much generosity, and too little
Running a successful business is a juggling act around generosity with partners, and the responsibility of making the sums add up. Yet many entrepreneurs excel on only one side of the equation, leading to the inevitability of joining the 9-out-of-10 club of businesses that fail.
For any business that is lopsided across the balance of building goodwill, while covering costs, will surely head into trouble.
As it is, the classic take on an unbalanced business, and one that is better understood (although still common enough), is the entrepreneur who loves to spend. Often brilliant at networking, maybe fine at drawing in business, he couldn’t organise cost efficiency if his life depended on it.
He’ll sign up for swanky offices in Westlands when his contracts are as flaky a base for high costs as could be conceivable. When a cheque lands his first thoughts will be of a team-building trip for everyone to the Rift Valley. Yet his rent won’t have been paid. Not that this will be top of mind, for his filing is weak, his paperwork non-existent, and a cashflow forecast, from the marketing man, you might never see.
He’ll surely have pushed hard for business, and he may even bring in a lot. He may or may not be able to organise its delivery. But, behind all, his costs will be a free-for-all. And, in the end, that will fell him – death not just from generosity, but also from lack of responsibility. For the problem is that in his mission to be big and beautiful, he sees no barrier in being generous with money he just doesn’t have.
And without the capacity to cover his costs, he is a moth circling a flame. His time is inevitably short.
However, this showman of business with his big talk and lack of control is not the only type who marches straight off into the ‘failed-club’. A much lesser-known model lies at the other extreme, in the businessman who counts every penny to the point of business destruction, his focus so entirely on not over-paying that he is barely noticing where and why business isn’t coming in.
Just lately, it is this lesser known extreme that has been dancing across my own radar screen. For sure, the business on my mind has suffered several times in the last two years, from a crash in the market it supplied - connected to holidays - from a natural disaster, and then with a change at the top replacing a strong entrepreneur with a weak one.
However, the thing that is most striking, as that business leader does absolutely nothing to address the way the market has changed, is the way that the deterioration of his business is making his mistakes greater rather than lesser. The worse things get, the worse he is making them.
For as his own financial woes deepen, so his sense of being cheated has grown, and he has become increasingly officious and even abusive with those who deal with him.
As it is, many months ago, in passing, this businessman told me that if he had one piece of advice for his own son in business it would be: read the contract. And he does. I watched his business sell a property where his insistence in the final days that the sale agreement on the land and two buildings did not include the footpaths, which he wanted extra for, or the free-standing security lighting, or even the generator switch, produced such a swell of bad will that the whole deal n the building sale caved in.
Yet when it comes to the contract, his points might have been valid. It did say all fixtures and fittings were included with the buildings, but is the path a fixture?
Which brings home with a thud that business isn’t done by lawyers.
When we draw up those contracts, which are built to stop all the worse things happening, achieving the best case isn't smething that happens through counting every bean, and looking for every conceivable element not covered.
When we count costs to this extreme, we only lose. Indeed, long ago, in another world, we used to call it ‘working to rule’ and it was a form of industrial action or striking. We stopped all the extra things we did - all of them, from answering the phone, if it wasn't in the contract, or staying 10 minutes if the next shift was late in, or the last task incomplete. If the machine would break unless we did something, but that something wasn't in our contract, we let the machine break.
In reality, it is not healthy in any joint endeavour among human beings that everyone demarcates what they will do to the letter. It is close to an act of aggression. What matters is to do what needs to be done to deliver the result. And if that requires an input that is not technically being paid for, then weigh whether it's worth losing the whole end-point over the decision not to give that little bit more.
Perhaps closest to the mark, for me, in understanding where the real balance lies came from my own uncle, who retired chairman of a FTSE 100 company and reckoned the trick was really a simple one: you input/give/spend where not doing so would be more costly still.
Business goodwill counts in that. It must. But being loved doesn’t.
So maybe the sale was worth leaving the footpath for. But the spender’s business might have lasted longer with a little less team-building.
Whichever way you look at it, a business that gives the most it can while retaining enough to stay alive, is a business that will still be giving tomorrow.
And one that isn’t giving at all is probably better off failed.
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