What A Rogue!

MYOB 2011-05-23
Show #131
Release date: 23 May 2011

Notes

This Mind Your Own Business podcast features and interview with Chris Benjamin, aka Rogue CFO.

Chris offers outsourced Chief Financial Officer services to venture backed start-ups.

In this podcast he gives listeners some useful tips on managing their cash and developing a growing business.

The interview is followed by a studio discussion between Guy Kingston, John Richards and Christina Jones.

For Everything There Is A Time

The ancient Chinese sage Sun Tzu said that he who knows when to fight and when not to fight will always be victorious.

In the same way, the entrepreneur should know that there is a time to spend money and a time to save it. The trick is knowing the difference.

There are times when it is necessary to be positively lavish. When buying machinery, the cheap knock-off of the top of the range model is a false economy if it is always breaking down. When hiring employees, it is better to pay more for qualified people than to rely on cheap labour when it only takes one mistake to bring your whole operation to a halt. When marketing, it is essential to spend enough to get noticed: a big splash makes more impact that a lot of insignificant ripples.

Real entrepreneurs understand his – usually because they learnt it the hard way.

At the same time as learning when to be lavish, the entrepreneur has to learn to be mean. Indeed, it is essential to be mean if you are going to be lavish. Without proper financial control, a business will have no money left when it really needs to spend.

This too is a lesson usually learnt the hard way.

The depressing bottom line is that the occasions when one has to be lavish are far fewer than the occasions when one has to be mean. Financial control is a constant discipline. If one relaxes even for a moment, the whole system can be undermined very quickly indeed.

This goes against human nature. Most of us enjoy spending money. Scientists have identified that it is associated with a release of chemicals that stimulate our pleasure centres. Most of us also like to think of ourselves, or would like others to think of us, as generous, hospitable, and sophisticated. We like putting on a show. This goes back to some of our most basic biological instincts.

Those at the start of a business career are the most vulnerable to a desire for display. Those with access to start-up capital – the happy minority – often let it go to their heads. They equate being a businessman with acting like a businessman and looking like a businessman – or, rather, like their own media-influenced idea of a businessman.

So the basic rookie mistake is to waste money on a fancy office and an attractive secretary instead of on real necessities like marketing.

When confronted with the obvious stupidity of such a strategy, they usually try to hide behind one or both of two specious arguments. Defence Number One is the suggestion that the fancy office, the attractive secretary, the fast company car, or whatever is itself a legitimate marketing expenditure.

“If we look prosperous,” the argument runs, “then potential customers will assume that we are prosperous, and that we are prosperous because we are good at what we do.”

The problem with this argument is that it is now so familiar, at least in the business community, that a display of prosperity is itself enough to put all but the most inexperienced on their guard. We are all too well aware of fly-by-night operators who rent a prestigious address and are gone by the time the rent falls due. Whenever we see a new business acting like a well-established business, we become suspicious. We ask what there is to back up all this ostentation and, when we research it and discover there is nothing, we avoid that business altogether.

A new business that displays a little humility is more likely to be given some leeway.

Defence Number Two relies on implying not that there is past success but that there will be future success.

“Spending like you are a winner,” it is said, “is a sign of self-confidence, and self-confidence is what makes winners.”

The problem with this argument is that it is utter garbage. Self-confidence does not make winners. Winning makes self-confidence. Without actual wins behind it, excessive display is not self-confidence but arrogance.

There may be a time and a place for the office in a prestigious address and the executive toys, but only when you can show that you have earned them.