Stupid Business Tricks

When I think of David Letterman, I think of stupid pet tricks, not to mention his great sense of humor.

I wonder if a segment for Stupid Business Tricks would have worked. Would it be watched? Would this be entertaining? Would these segments go viral through social media channels?

And would there be a common theme in these stupid business tricks?

More importantly, would you, as a CEO, be able to offer content to this segment?

Here Is My Short List of Stupid Business Tricks

I will keep my list short and my points brief. Hopefully, you do not see any of these decisions you’ve made in the past.

Acquiring a Business Without Performing Due Diligence

I’m reminded of the overly-confident owner who goes off on his own and makes a quick offer on a business without getting firm numbers or knowing anything about the customer base. I wish I had firm statistics on how often this actually happens because I’ve seen this up close.

For about every business I have bought for a client since 2001, between four and five do not accept our final offer. That’s because my client, his or her staff, and I follow a rigid due diligence process. We follow the same process, even if the business we want to buy generates less than $1 million in revenue.

And here’s the real insight. In spite of our due diligence efforts, we’ll never get it right. We’ll always find one or two warts we were not expecting post-acquisition. Imagine the issues a CEO takes on when no due diligence is performed.

If you do not want to be a contestant on Stupid Business Tricks, remember two key words in the world of acquisitions –due diligence.

Throwing Good Capital at Bad Investments

Being a Free Agent CFO™ means being a really good politician. Translated, that means keeping my mouth shut when I see good money being thrown at can’t-miss winners, risky real estate projects, or some other endeavor promising high returns.

Good business owners generate lots of cash. And there is no reason to keep that cash parked in the company where it’s not working (there’s a reason cash is not considered working capital). Accordingly, that cash needs to be diverted where it can work and generate more cash.

As a young auditor at KPMG Peat Marwick, I used to review many commercial loans as I was on a  banking track. I was shocked at the number of loan documents originated by physicians that were investing in high-risk real estate projects. Why were they doing this? And why not invest in businesses that were somewhat related to their expertise?

But I cannot just pick on physicians. The allure is there for business owners chomping at the bit to invest in a real estate deal that promises high returns. I get it. I’d be tempted, too, if I had excess cash reaching into the millions.

I will step out on a limb and state that most bad investments occur when there is a lack of familiarity with the underlying investment. In addition, I will guarantee that little, if any, analysis has been done on the investment. For any secondary investment, I was taught by Neil Anderson, a former mentor, and CFO, that every investor needs a clear exit strategy before money changes hands. And he is so right.

Know what you are getting into and do your homework.

Overall Indecision

I do my share of small business coaching, which means my role starts to shift toward company priest in those situations.

And in many of those coaching situations, indecision is a major stumbling block. Business paralysis may be the better term. Fear of making a decision, perhaps a wrong one, keeps this business from picking a goal and charging forward.

This stupid business trick may be akin to the sleeping dog that does nothing. Where’s the stupid business trick? So adding indecision is a stretch, but we still need to discuss it.

I’m type-A all the way. Just make a decision and do it. If you are wrong, start over and try again.

Those are easy words, and I’m never that direct. But Seth Godin says something similar in an interview with Jonathan Fields in this YouTube video. If you have time, start listening at 30:17 when Seth says, “Just pick something.”

Starting a Business

This could be number one on the list. I’ve never run into a young start-up entrepreneur with a bad idea.

When it comes to start-ups, I’m reminded of Jim Collins and his three intersecting circles (best in the world, deeply passionate, economic engine driver). I have taken his concept of disciplined thought and come up with my own three circles: Passion, Competence, and Value.

Passion. Never an issue. Sometimes, maybe there is too much, especially if you are dealing with brewmasters.

Competence is generally a strong point. True, there may be weaknesses in some necessary disciplines, such as marketing and administration, but the how-to-operate is generally part of their secret sauce.

The rub, therefore, lies in value, as in how will a potential customer base value the start-up’s product offering or service. This is where I find the biggest weakness of most start-ups. The very first question I ask every start-up is, “Where is your marketing plan, and may I review it?” The answer is either, “I’m still working on it,” or I’m provided a business plan template with boilerplate questions with little thought put into the answers.

Total addressable market. Serviceable addressable market. The data behind this analysis is difficult to ascertain, and the assumptions will never be right.

But if more thought had been put into this fundamental analysis, perhaps fewer start-ups would have bitten the dust (presumably).

Ten More Stupid Business Tricks

How about a few more? Perhaps we need a book. Here’s a shortlist of five more:

1. Hiring the wrong person, hiring too fast, or hiring too slow.
2. Buying the wrong inventory from the wrong vendor in the wrong season.
3. Paying loan fees of any kind (which probably means you did not get three loan commitments before signing your new loan agreement).
4. Using short-term lines of credit incorrectly and going overboard on all forms of debt.
5. Not executing a shareholder agreement and wishing you had when it’s time to boot a stakeholder.
6. Growing too fast without a plan and losing some great customers along the way.
7. Investing in a new ERP solution without reviewing three to four other competitor systems.
8. Buying excess inventory because the vendor discounts were too hard to pass up.
9. Using a legal template to save money on a contract instead of using an attorney.
10. Waiting far too long to hire both a COO and a controller once the business reaches $10 million in revenues.

Consider pulling out your Moleskin or opening your Evernote application, and jot down the most stupid business tricks you have ever performed. Hopefully, those tricks were way back in the past. More importantly, let’s hope those tricks are never repeated.