Me First is Rarely Good for Business

"Me First" Is Rarely Good for Business Click for MP3 version

Shortly after I published my last article, How to Ride an Upturn, CNNMoney.com published Battling Back After Business Drops. The authors' focus was on the business owner and their advice on protecting his assets while waiting for the upturn.

With all due respect to authors Keegan and Cheney, I strongly disagree with their advice on both ethical and practical grounds. For the ethical issues, please see my blog posting, On the Ethics of Bosses' Pay in Hard Times. In this article, I challenge the business advice they give, as well.

The gist of their advice is this: a business owner should pay him/herself first, even if that means layoffs. Quoting a financial counselor, the authors state:

Joe is making a mistake common among small-business owners, says Collins, by paying himself last. Instead, he should pay himself the same salary he would pay someone else to do his job. If that creates red ink, he may have to lay someone off. "If you can't pay your own personal bills, that's a road to ruin," says Collins. "As hard as it is to let good people go, you've got to do it."

We are given very little information about the company – just that it is an architectural firm projecting 60 projects, an increase of 50% over last year. We don't know the sales volume, margins, or number and breakdown of employees. We don't know if the projects are residential or commercial, and if the latter, what industry they are operating in.

Challenge #1: Don't make decisions when you don't know the facts. Presumably, the authors and the financial counselor do know the facts and have chosen not to share them for the sake of brevity and simplicity, but we don't know them. Theysituation is probably far from simple and we should, therefore, be suspicious of simple answers.

Beyond Challenge #1, however, there are more practical issues that make this advice wrong. The long term viability of the company is important, and the financial and emotional health of the owner are key to that goal, but even more important is the morale of the company as a whole. Maintaining personal salary and benefits sufficient to support the lifestyle “Joe” has chosen while laying off employees is bound to have a negative effect on the future of the company, and even on its ability to weather the next couple of years.

Challenge #2: Don't distance your leadership from the employees. If we have learned anything from the corporate debacles of late, it is that appearances count. Few people believe that leaders should be paid nothing, but owners/CEOs who appear to be living large quickly earn the disdain of their employees and stakeholders. Joe may very well be making a mistake of keeping on too many employees for too long, but the reason for layoffs had better not appear to be to maintain his vacation home!

The financial counselor suggests Joe lay off employees, and Joe, himself suggested he is reluctant to lay off. This is one area in which I agree with the article – to an extent. Joe's responsibility as leader is to strategically shape the company to the economy. This is a hard task, as any business owner knows. Lay off too soon, and you may cripple your ability to deliver on customer expectations. Lay off too late, and you may cripple your cash flow. Lay off the wrong people and you may be hampering the company's ability to work their way back out of the downturn. Lay off at the wrong time and you risk your competitors picking up the very people you will need to get back on line. Where I disagree with the article's advice is stated in:

Challenge #3: Don't make any financial or operational changes that are not supported by a well-crafted strategic plan. A personal financial planner has one objective, and that is to maximize the client's long-term financial future. (I would suggest that this financial planner is responding more to the client's short-term concerns having to do with the vacation home, but even if I am wrong about that, Joe's most important asset is not his home, vacation home or 401K. It is his business.) While his financial adviser's advice is an important part of his future planning, it is not the essence of a strategic plan for the business. Joe and his leadership team ought to have been (or failing that, ought to be) diligent about identifying the critical success factors in running the business. They ought to have written plans in place that identify priority goals and strategies to keep the company on the most mission-critical path. That includes identifying key functions and employees.

The “me first” nature of the advice in the CNNMoney.com article is all too common, and all too harmful. The very character of a business owner ought to be defined by a strategy for owning a successful business. If Joe is more concerned with his personal net worth, I suggest he ought to be working for someone else – someone who understands the bigger picture of entrepreneurship. Someone who plans and executes for the long term.

Note: Surround yourself with business owners who truly understand and live the essentials of business ownership. E-mail or call 612-965-2253 about joining The Alternative Board, and get started now on creating a strategic plan that looks to the health of both the business and the business owner – the only combination that can work in the long term.

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