Acting emotionally can cost a fortune!
I see many business owners who let their emotions dominate and drive their business decisions and it is not a healthy practice. Business is all about making hard choices, and those choices should be based on facts and figures. Rationality and practicality are supposed to be two founding pillars of your business, however many business owners fail to acknowledge this and end broke. I want you to be confident, bold and sensible. Your prosperity is our strength.
I myself have done several such mistakes; some of them are worth mention here. I started my business with internet marketing and SEO services. The business was going good, good clients, good money, office parties, tours, and all good time. But the team I hired was technical graduates who wanted to become programmers (as every technical graduate in my state wants to be that). So, being a good human being, I decided to give some of them a chance. I hired one experienced programmer and held a programming test for those who want to switch their profile to programming. After the test, I picked 5-6 guys and made their programming team under newly hired programmer. By knowing this, you must be thinking that its all good; whats wrong in that?
The wrong was that… I made a programming team just because few people in my SEO team wanted to be programmers and NOT because this was need of my business. The consequences were obvious. Some of them were–
- I paid salaries to whole programming team (newly hired person + 5-6 SEOs who passed the programming test). That alone took all monthly savings (monthly profit)and left with little money for any business shakes. What a bad business decision!
- I hired new 5-6 freshers to replaced those SEOs who passed the test. They were freshers so their productivity was much poor than those who moved to the programming team. The moved SEOs were good in terms of talent and that’s why they passed the test. Hence, the best result producers were converted into liability and new guys were producing low-quality results.
- All this scenario mounted pressure on me to get programming projects so that programming team could earn money (at-least it become independent). This was completely a new venture for my business. I was having very minimal knowledge of programming; insufficient to beg programming projects. So, I hired a salesperson for that purpose. Again another liability.
- All that new change pulled my all attention from my good going SEO and Internet marketing service business to set up programming section. My lack of attention resulted in poor results for SEO clients and brought bad reputation among currently going clients. Many of them just left my company. A big punch I received when a major client left me saying you started doing very bad work. What a great loss that was!
- This resulted in a big chaos in my business. People started switching to other company. The very first people to leave me was those who were skilled as they quickly selected by other companies. Hence, I left with insufficient manpower to execute even an average workload. And whatever work executed was of low quality. Programmers switched to other company (the first one was the newly hired programmer; the experienced one; obviously).
- The final outcome was that… I wrapped up everything and moved to a new location (as my business premises was on rent) with a handful of guys (who were not good performers).
Another great emotional mistake I did was in continuation of the above mistake. Wow!!
When I said, I moved to a new location, you might be thinking that I moved to a small space. But actually, I moved to a place which was 5 times bigger than the previous one. Office rent was more than four times. The source of my this decision was my own desire to strike back. I wanted all losses to be recovered and wanted to set up even bigger business. Another reason for this decision was the most common excuse my people took to switch from my company to another company. Almost everyone said… my business (at the previous location) was not that attractive and does not give feeling a corporate office (some of them were honest and said they are not feeling secure anymore). This gave me a logic that good performers will not stay with me if I don’t have a nice good looking high profile corporate office, and I urgently need good performers (as I was left with average performers). This is a true logic. The logic is… good performers will like to be in a company where they get better satisfaction in terms of everything. Higher the employee’s satisfaction… better talent could be attracted.
So, the first thing I did was… moved to a place on a rent of more than FOUR times of the previous one. Next, when the new office is like high profile corporate looks than I have to put furniture, do interiors, equipment, power backup, and what not. This costs me several hundred thousand bucks. I borrowed money. What a great mistake I did.
Next, thing… obviously… I have to hire high-performance guys, experienced and high talent. This directly means… I have to pay higher salaries. AND above all…. to pay more than four times of rent, pay the borrowed money, and to pay these big salaries, I have to have a big team. And that team must have all required departments from sales & marketing (obviously) to the production team to peons & Clarks to utility vendors. And this big team means a BIG requirement of money TO SUPPORT IT UNTIL IT STARTS EARNING THRESHOLD MONEY. All new things… new place, new people, new environment and everything like BRAND NEW.
And TOP of ALL… a bad reputation (online) among clients on freelance portals. Wow!! What a great arrangement.
Everything was done, high salaried people were hired, new teams were set, and everything was done (only I know how difficult it was) where I have to pay the money i.e. the liabilities. New sales teams (super highly paid) failed to beg average projects. Someone I managed to beg few good projects, but the monthly finance was damn poor. I was working days and night, people were doing experiments and building portfolios with in-house projects (and in-house project were only fake one, just to create portfolio), and I monthly earned money was sometimes 1/4th, sometimes 1/2, sometimes almost NIL, and sometimes somewhere near that of the monthly expenditure. And all this went for more than 2 and a half year. Finally, I was tired enough to give up.
Another complete wrap up with the liability of TONS of borrowed money. All this happened just because of emotional decisions. Always remember… an entrepreneur who is honest, hardworking, self-motivated, and take emotional decisions is a SELF DESTRUCTIVE human bomb.
Understanding financial statements is essential
Make sure you check budget, credit accounts and other financial statements line by line and understand it thoroughly. If you fail to understand your own account then you’ve got a problem. Numeral problems can arise if your accounts and numbers are way out of your league. If you don’t understand them, they’ll haunt you and you’ll be scared to check them. Needless to mention, this will make you insecure. Your insecurity and your weakness will be used against you only.
So to avoid any such situation, sit down with your accountants and ask them to explain everything to you, every step of the way must be within your understanding. You don’t have to know complicated things; I mean it wouldn’t just make sense for you to understand such stuff, why are you paying your accountants then? All you got to do is keep yourself updated with basics like net profit, incoming cash flow and return on investments, just the bottom line.
Converting loss into profit
In case your statements are showing negative cash flow, zero profit or low return on investment you need to hold on and ask, “Hey where are we lagging behind?” “What hard decisions do we have to make in order to set things right?” You have to take proper actions to increase profit.
Because it’s not always about cutting costs, it may also happen that your investment is not optimized, maybe you’ve put way too much money in sales, in marketing are unable to generate sufficient income. Know your numbers and know them well. Track your returns on investment and results produced by the sales team or sales manager per se.
Reporting drives results
Proper reporting and on time reporting not only helps you to track your overall progress but also enables the entire team to play by their strengths and ultimately it contributes in making decisions that are good for your business. Vital information, if reported in time can save more than you imagine, so I advise not to undermine reporting process.
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