Well, of course it’s important, but how? I’ve learned a lot about fundraising over the past few months, and my current perspective is that every young person I know has an idea for an app and wants a million dollars to implement it.
If we were to get these aforementioned young people the money, a year later nine out of ten of these young people would be a million dollars in the red and have very little idea why. So here’s why: money is a lagging indicator of business success; it’s how you keep score. Of course it’s important, but money is not the main way you make money over the long term. If you don’t know how to create the effective leading indicators of that success (product, people, and processes), you’ll always lose the money.
Even in my travels in the C-Suites of existing businesses, a lot of senior leaders want to talk mostly about money. Well, that makes good sense on the surface, but too often they mostly want to talk about how we move the money here or how we can save some overhead there so we’ll have more money. Sure, this is important stuff, but it’s not where the big money is made.
This is a good example of “the tail wagging the dog.” Yes, obviously moving the money around is important, but leaders give it too high a priority in their discussions of how to create sustainable financial success.
What do I mean by this? I know lots of leaders who can count the money and who can tell us how to move it around. I know far fewer leaders who know how to create long term sustainable financial success. So, what do you need to have a successful business and make a lot of money; e.g., what do investors look for when evaluating whether they want to invest in a business?
- An idea for a product/service that people are willing to pay for, and
- A leader who can execute this idea, which includes creating effective processes (people and processes, like human resources, marketing, sales, etc.)
I’ve heard it said that the #1 cause of business failure is under capitalization, but I disagree. I maintain that the #1 cause of business failure is ineffective leadership. If you have the right leader, then the business won’t be under capitalized in the first place, and you’ll always have plenty of money.
So what do you think? Under what circumstances would you give that young person, or any other leader, a million dollars?
- Know what the big rocks/strategic priorities are in your business. If you don’t get these right, then the little rocks won’t matter.
- Make sure you have a product/service (or an idea for one) that people are willing to pay for.
- Make sure you have the right leader to execute this idea. Are you the right leader, or would you be wiser to engage someone else to play this role?
- Sure, it’s also wise to maximize financial efficiency and squeeze every bit of profit out of your business too.