The Fifth Entrepreneurial Sin — Greed

Few small business owners identify with the bloated income of Wall Street Tycoons. To accuse an entrepreneur of Greed brings up memories of the Gordon Gekko 1980’s, when “Greed is Good” seemed to be the motto of 30-something Boomers focused on the quest for success. in reality, most owners work very hard for a modest income, and feel that a little more would be amply justified.

(If you are reading Awake for the first time, this series on “The Seven Deadly Sins of an Entrepreneur” starts here.)

wrench and dollar signGreed in your business isn’t the quest for material success. That’s presumably why you own a business in the first place. Greed is a trait that prevents success. Greed is a foolish quest for more without knowing what more is. It’s focusing your efforts on cost and savings in the belief that you never have quite enough…of anything.

You can’t afford to raise wages because you need a little more revenue first. You can’t upgrade your equipment until you have a little more margin. You could be more competitive or expand your presence if you just had a few more good employees.

Greed shows its ugly face in a company where no expenditure is made unless it is unavoidable.

  • Technology is only replaced when it breaks, and then with the cheapest equipment that is the minimum necessary to do the job.
  • The office décor is a tribute to the durability of faux wood paneling.
  • No one gets a raise unless they demand it
  • Your website looks like it was done by a 14 year old (and perhaps it was.)
  • Maintenance and repair expenses increase every year.

Greed comes when an owner doesn’t know how to measure success. He or she can’t identify the most profitable lines of business, calculate underutilized capacity, or estimate return on investment for new equipment.

We previously mentioned that the business virtues that counter the sins of Lust and Sloth are Planning and Benchmarking. These need to be in place before you can defeat Greed, because its countering virtue is Budgeting.

Budgeting is the system by which you determine what success looks like. It starts when you define success, so build your budget from the bottom up. Begin with profit. Profit isn’t what is left over after everything else is taken care of. It’s the entire reason for your company’s existence.

From a target profit, work up through the expenses that will make it possible. How many employees will it require? How much raw material? How many transactions? What will each one cost; and what margin will it contribute?

Now you are ready to project the necessary revenues. Not the revenue you merely wish for (like “Ten percent more than last year,” with no idea  of where it will come from.) It’s the revenue you’ll need to make the profit you want, attract the best employees, and grow your business on something other than a shoestring.

Perhaps the revenue you need seems out of reach. In that case, you can make it into a two year or three year budget. The idea is to understand, in a concrete way, what will actually deliver the business and lifestyle you want. It’s understanding how that revenue will be created, ands what it will take to do it.

If all you know is that it’s more than you have right now, with no idea of how you’ll get there, you are guilty of Greed.

Do you like Awake at 2 o’clock? Please pass it on to other business owners.

 

Categories: Building Value, Business Perspectives, Entrepreneurship, Strategy and Planning... Bookmark this post.

Leave a Reply

Your email address will not be published. Required fields are marked *