Whether you are running your own company or looking to invest in a promising start-up, be certain you keep your focus on when, how and how much money the company can make and what the expected returns will be to you.
My colleagues and I were engaged by the CEO of a middle-market business with more than 50 employees. The company had great product and personnel but was unprofitable. We were asked to help straighten out the situation and help the client gain access to the capital it needed to succeed.
We immediately saw that the client had a remarkable ability to burn through cash. Its product was on the cutting edge of technology, and there were so many cool potential applications and paths the technology could take that charting the technology path became management’s prime focus.
Management was not concentrating on how to increase sales, reduce cost of goods sold, expand distribution or take any other action to drive business. They lost sight of the purpose of their business.
Through much effort, we were successful in attracting significant market partners, reducing manufacturing costs and inducing or forcing management to concentrate on business basics. My colleagues and I were thrilled, as were we able to accomplish exactly what we were engaged to do.
The leaders of our client company were thrilled as well … for about one minute. They liked doing what they was doing, even though they were rapidly depleting their remaining cash.
Instead of implementing the needed changes, the leaders of our client company began second-guessing and nit-picking everything new. They questioned whether they really wanted to sell into certain markets that they had not originally considered. Then they questioned the terms of the capital that we lined up. They questioned and challenged everything, while continuing to spend money exploring the cool stuff.
The client forgot about what should be the primary goal of business — to make money. We are still trying to save it from pulling defeat out of the jaws of victory, but I don’t know if we will be successful.
