WHY I wrote Outbound Air –
I watch organizations struggle. It is normal, uncomfortable, but normal. This organizational discomfort causes the founder to look for answers, in all the wrong places.
Go-Go is the most fun stage for any business. There is energy and enthusiasm. With a sustained momentum of sales, there arises a new feeling, invincibility. The entrepreneur says, “We faced the odds against us and we didn’t die. Our customers love us. We have a superb business model. Flawless execution of a brilliant business plan. We could take our business model and conquer any industry.”
This organization bounces inside its geography, opportunistic in its behavior. Its organizational challenge is focus. It cannot figure out if they are in the real estate business or the shoe business, because they believe they could make a fortune in both.
The momentum of sales has turned the negative cash flow of infancy into revenue streams of Go-Go. With a credit facility for expenses, this organization is on top of the world. The customer is happy and promises to buy more. But a subtle inspection in the wake of this organization produces body bags and friction. It is a wonder there is not more collateral damage. Efficiency is elusive. Profit is fleeting (in spite of the appearance of cash).
All of this is normal, but the entrepreneur is stumped, wondering why the organization does not run more smoothly and why it staggers in inefficiency. There are many who would provide answers, but most would be wrong.
This is the beginning of WHY I wrote Outbound Air. Tomorrow, the next stage.
Tom,
Is it in this stage or is it later when the greed factor takes effect? Let me explain. I have worked in small business organization most of my working career and I have noticed that at some point every organization that I have worked for the owner’s greed takes over at some point and is never relinquished. I understand that the owner is taking the risk for the operation but to an extend so are the employees. If one is only interested in their own objectives the organization will always struggle. At what point does the objectives of one or the other take precedence over the other? When does it become acceptable to take as much money as you can out of the operation for your own use and expect that others who work equally as hard or harder need to cutback on expenses to leave more money in the organization for the owner’s personal use?
I realize these are concepts and can’t be clearly defined. It just seems to happen all the time.
Dennis, there is no specific stage where greed sets in. Greed is one of two things. It is either a character flaw or a short sighted entrepreneur. Indeed, some owners starve their companies of the cash they need to grow and flourish. They may take short-term profits without realizing that, should the organization grow, their return on investment would be many times over.
That said, there may be underlying expenses that are not visible to the company at large. If an organization is profitable, there are taxes that must be paid. In an 1120s or LLC structure, those taxes pass through to the owner who must pay at a tax rate up to 40 percent. And often, cash flow lags behind profits. It is not unusual for owners to have drain cash reserves or even borrow to pay those taxes. In growing companies, even profitable companies, investment in inventory, capital equipment, carry costs on accounts receivable and work in progress eat more cash. Don’t automatically assume that negative cash flow is caused by a nefarious owner. Sometimes the risk and liability is not visible.