Are Businesses Like Children?

Many people  have trouble being objective about their business.  In some ways it parallels how they treat their children.  I created each and I want the best for each and I am willing to put up with blemishes and I respect the effort put in even when there is little to show for it.  Patience.  Time will tell.

With a child this process is possibly okay but not necessarily right.  With a business objectivity is required.

The rule in business is quit quick.  If a plan has failed to materialize, give it up.  The sooner the better.  Most huge business failures are the result of people being wedded to the idea that they can make it work.  Think Edsel.  Think RCA computers.

Good managers do not make better decisions than bad managers, but they do quit doing stupid stuff sooner.

There are ways to build failure into the plan as an alternate exit strategy.  It is quite simple.  You need the answers to three questions.  How will I tell when it is working? How much is the most I will invest?  How long will I wait for validation?

If money or time runs out, quit.

I have seen a large company decide to invest in a new project.  $20 million and two years to reach a given cash flow goal.  Two years and a day later the business unit was for sale.  It is not true that it was  bad business but it is true that they had proven to themselves that the business was not as good as some of their other alternatives.  So redeploy the capital and the talent to something that hits their investment criteria.

Every day ask yourself, “Knowing what I know and knowing what capital needs to be invested, if I was not already in this business would I immediately get in?”

If the answer is no most of the time, it is time to get out.

The question is an interesting one because it equates two conditions that are not usually connected.  The decision to stay in at a given price is identical in analysis as the decision to get in at that price.  If I could sell for $X I will have no business and $X.  If I have $X and decide not to buy then I have no business and $X.  Same either way.  If I would not buy for $X but could sell for $X, I must sell.

Most people have trouble with selling their baby or part of it, so they never get quite this sanguine about it.  Sometimes they should.  For practice you can use the same method when looking at inventory. If you would not buy the piece for 50% of retail, then you should sell it willing at 50% of retail.  You have the piece or the money.  Which is better for you?

Women entrepreneurs frequently have more trouble with this than males.  Nurturing is wonderful characteristic in a mother.  Not so much for a business manager.

Both have trouble with the unwillingness to admit error.  Holding an error longer is not a good answer.  Errors are like parking tickets.  The longer you keep them, the more they cost to resolve.

The key to success in businesses, is to try many things, assess progress objectively, grow with the winners and quit losers as soon is there is evidence that it is a loser.

Do not do this at home.  it does not work with children

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.  |  Twitter @DonShaughnessy  |  Follow by email at moneyFYI

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