The Ego Driven Business

Looking at the difference between an ROI Lean Approach and something else entirely…

The best salesperson in the world can’t sell something the world isn’t ready to use. People don’t buy inventions. They don’t buy technology. They buy a solution to a perceived problem. More so, if you have the greatest solution in the world and people don’t perceive it as the answer to their problem, they are not going to buy it. In order to be competent, you must first understand why you perceive the things you do. 

Business owners particularly susceptible to being sold “solutions” to perceived problems. Sure,  running a business is tough; it’s downright painful at times. But spending money to avoid the pain isn’t usually a wise choice.  Unfortunately, some business owners end up spending money unnecessarily, thinking it will solve problems.  Often, they spend money in an effort to boost their own egos.

Undervaluing something you already have is a uniquely human trait. For example, I can carry around a notepad and pencil in my shirt pocket and it costs about a dollar. Why would I need a  $1000 iPad mini that fits into the same pocket?  Unless it materially enhances the task it’s money burned. Sure, there are things I can do with an iPad mini that I can’t do with a notepad and pencil. However the key is this — if all I’m doing is taking notes, then a notepad and pencil is a better choice, albeit not nearly as “cool” or impressive to those around you.

This simple example can scale to a whole business approach.  Bret, one of two owners in an architectural firm approached us for advisory services. He recently purchased an existing firm and within 14 months went on a spending spree — purchasing the following. Are these purchases justified? You be the judge:

 

               Purchases vs

     the Existing Solution

A building with a breakeven point somewhere between 18 and 20 years out.

Rented Office Space

$30K on new office software along with an exchange server and other computer upgrades

Utilizing Google Apps for business, and a different software solution that was just as good, but wasn’t as expensive.

A $10K inclusive package for a logo redesign, website and other branding services

Having a freelancer rebrand the logo and using WordPress for the site.

 Why did Bret spend all this money?  We tried to find out.  Bret had good sounding answers for each expenditure, but after a while a pattern seemed to emerge.   Bret was spending money to “keep up with the Jones” and trying to emulate the “big boys” in his field.  He was spending less time doing careful analysis and too much time relying on these “truisms:”

1. If it costs more it must be better

2. A unified “one source” solution is always better than a collection of specific tools

3.  Integration of technologies is always better, and should be pursued as an end in itself.

4. If the big firms do it, it must be the better.

5. “Solutions consultants” understand a business better than a hands-on owner.

6.  Consolidation of data into firm-wide data base systems is always more effective and efficient.

7. You have to spend money now to get a return later.

8. If you can visualize benefits (with the help of a sales person) you will always realize them.

We pointed out that Bret was blinded by the bright future he was promised by “solutions” salespeople.  The bottom line here is that he was carefully manipulated by skillful appeals to his logic and ego. In the end, ego made the decisions.

Bret had an ego-driven business.  It’s also dangerously low on cash and diverted by problems and hidden costs that come with making decisions based on imagined benefits.

If cash is the oxygen of your business, then less you have, the harder it is to breathe. I’m not saying that all of the purchases Bret made were unwarranted.  Throwing money at a problem without thinking about the return is symptomatic of a business owner that may be driven by ego rather than analysis.

As a CEA, your goal should be to empower your business clients to succeed. That means being analytical. Looking at costs, paypacks, return on investment, risks and probabilities of success and failure.  Each decision needs careful analysis of the plus’s and minuses, with the “ego” component carefully excluded.

Getting your own in-house exchange server sounds like the kind of one-stop, all inclusive solution a business owner loves.  Does it make sense if they have fewer than 15 people? There are all sorts of server maintenance costs and IT issues that could cause headaches. It often makes much more sense to utilize a service like Google Apps for business.

The purchase of a building is a sure ego booster.  However, it may not make sense to tie up capital in a depreciating asset. In an uncertain economy, it makes much more sense to rent and keep overhead low. As any building owner knows, there are all sorts of maintenance and liability issues involved with owning a building.

The objective of business is to make money.  Business owners need to keep their egos out of the equation. The CEA can help by bringing focus and clarity to the analysis. With simple SWOT analysis and Asset/Liability analysis CEAs can help business owners make wiser choices to realize higher ROI’s.

 

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