February 9, 2010

Are You Swimming Naked?

My apologies for any unpleasant visuals that have just been created. However, there is a very important lesson in that analogy that needs to be “uncovered”. Warren Buffett (you’ve heard the name, I’m sure) has several insightful, impactful quotes. One of his quotes that struck me is the following: “Only when the tide goes out […]

My apologies for any unpleasant visuals that have just been created. However, there is a very important lesson in that analogy that needs to be “uncovered”.

Warren Buffett (you’ve heard the name, I’m sure) has several insightful, impactful quotes. One of his quotes that struck me is the following:

“Only when the tide goes out do you discover who’s been swimming naked.”

Hopefully, as unpleasant the thought of mass nude bodies at a public beach happens to be, the underlying theme should be evident; it is in times of rough business conditions that the thin under-belly of poor business practices can be most clearly evidenced .

During times of economic plenty, your life can be characterized by clients swarming your business, the phone ringing off the hook, and salespeople eager to generate commissions. If you are like the typical business owner who does not keep track of his KPIs (key performance indicators), you might be fooled into looking solely at the bottom line of your P&L and assuming that all is well. If you are not operating your business from a standpoint of solid core principles and procedures, ALL IS NOT WELL.

It is when times are tough, the client backlog dries up, the daily phone calls are reduced by 40%, and repeat customers tell you that they need to “hold off for a while” that you will truly understand how necessary it is to have structure in your business. Unfortunately, it is frequently the case that this realization sometimes comes too late for an owner to correct the flaws in time to “get dressed”.

Your organization should be “systems-dependent”, vs. “people-dependent”; an application of this maxim is that you need to be able to keep a finger on the KPIs of the business on a regular (I recommend weekly) basis. A constant comparison to the annual budget, as well as to the norms of your particular industry, should be the minimum expected standard. Your managers and other key employees should be aware of this, and do what they can every day to ensure that times of plenty do not fool the management team into relaxing the proper standards that should be a part of the way that your company does business.

Finally (**shameless plug alert**), do not be afraid to ask for professional assistance, whether with a particular issue (understanding an appropriate amount of payroll to use, for example), or with an overall assessment of your business.

May the receding tide find you fully clothed…

A few thoughts: