Hiya! Hope you are having a great weekend.
Yesterday evening I came across someone who was talking about why speed is dangerous to someone who is moving in the wrong direction. The combination of speed and wrong direction components was a bit humorous to me, though the whole thing makes a lot of sense anyway. You can just imagine someone driving at a terrific speed across cities thinking he or she is heading to a meeting venue, only to be informed that he needs to get back across miles, before actually starting the journey in the right direction. Hey! You can imagine the rest!
Now, I then thought it good to shoot an article regarding this phenomenon. Something that can provide some learning points for entrepreneurs. This is the gist of my blog today – six situations where speed can be dangerous to an entrepreneur moving in the wrong direction. Don’t blame me for this somehow weird way of looking at issues. There are points or scenarios here I’m going to jot down, to illustrate this whole idea. Come on, let’s get going pal.
Just take a look at these.
- When you can hardly cover or cannot cover your variable costs. I call this step one of your PnL. Don’t mind my lingo – the PnL simply means your profit and loss figures. What I mean is that when you consider your profit and loss account, or your statement of income and expenditure, whatever you call it, your revenues should first and mandatorily cover your variable costs and also that part of your fixed costs related to production. I’m talking about gross margin or mark-up here. Am I being too much of an accountant here? If you are having trouble with these costs then you had better read my earlier article on costs, where I explained some of these aspects. What I’m saying is this; it is very dangerous for an entrepreneur to continue producing and trading when he cannot cover his variable costs. Look at it this way, if it takes you 1,000 cedis (Ghanaian currency) in direct and variable costs to produce an item, and you are selling this at 800 cedis each, it means you are losing (say bleeding) 200 cedis per item. Now imagine the accelerated losses you are incurring by raving up your speed of producing and trading in that item! Do you get the idea? I leave it to you. Talk about the danger of speed in the wrong direction.
- When you cannot cover your overheads or indirect costs. I call this step two of your PnL. If you are able to make good step one above – in other words your gross margin is positive – then your next consideration is step two. I’m talking about overheads or costs that are generally fixed in nature in your enterprise. These costs glare at you whether you are producing, trading, manufacturing or not. They will follow you even if you run and hide. Do you get me? Don’t try to be an evasive entrepreneur who literally hides from your enterprise because you cannot pay some of these fixed bills. Try and be a man or lady of honour. OK? The strategy here is that your enterprise should make enough gain, not only for gross margin (step one above), but also to cover all the overheads and make some profit. This sometimes takes a while for some new businesses, and especially those with long gestation period. Now, the danger of speed in the wrong direction comes when for one reason or another you choose to be rapidly increasing these overheads, in a way that it simply continues running out of cover. Don’t laugh here! It is a possibility. I have come across some entrepreneurs who simply do this – and cry foul later, blaming everybody. They simply don’t have the discipline of keeping costs down.
- When you are producing a defective product or service. This word defective is dangerous for an enterprise and the entrepreneurs behind that enterprise. Of course I know many businesses worldwide continue to roll out zillions of unworthy products into the market, and take undue advantage of people. That is not entrepreneurship. Business has to be done with the right conscience and attitude. That aside – imagine an enterprise increasing output of an item that will be rejected by the market, or probably ordered for confiscation or recall by the authorities. Do you get what I mean here? Where is the advantage of speed when you are doing the wrong thing that probably will come back biting you in a short while? Of course there are those who intend to rapidly do wrong and then get running quickly after they have made their money. It’s not a pleasant idea – not for me, and I believe not for real entrepreneurs who desire to serve humanity by creating and delivering value. Can you recall some of the recent product recalls internationally? Do you have an idea of the financial costs on the enterprises?
- When you are rapidly expanding a loss making operation without proper analysis. Again, a situation where your enterprise is making significant losses already, and yet you are running helter skelter with rapid expansion of operations, most likely is a dangerous speed in the wrong direction unless otherwise. Don’t argue with me here. Of course there are strategic expansion plans that can oftentimes bring back the fortunes of an enterprise. I’m not stopping you. I’m simply saying – watch your back, and be careful with your rapid expansions. I have seen some enterprises make these silly moves and then run back just as swiftly as they first ran forward expanding. Talk about the dangers of speed when you are moving in the wrong direction.
- When you have significant elements of illegality in your operations. Now, most laws and regulations are meant for good, though sometimes you come across a few exceptions. This said, there are people – and entrepreneurs, who enjoy being on the wrong side of the law. An entrepreneur who rapidly constructs a permanent structure in a wetland, a restricted or prohibited area, can be likened to someone speeding up in the wrong direction. A manufacturer who revs up production of contrabands can be likened to someone speeding up in the wrong direction. Mr. Entrepreneur, why don’t you slow down and sort out your illegalities before proceeding? You might actually minimize your losses by this approach, and move on with dignity. Don’t you think so? Slowness might be wisdom in some cases, but you can choose to speed in the wrong direction if you like. It’s up to you!
- When your procurement and accumulation of productive resources is wrong. This could be another classical case of dangers of speeding up in the wrong direction. Imagine you are rapidly stockpiling the wrong raw materials. Your reasons might be good though, possibly market news of oncoming shortages or something. Imagine rapidly hiring the wrong staffs in your enterprise, in the name of quickly filling human resource gaps in the interest of the business. Imagine quickly mobilizing debt refinancing with facilities having worse terms and conditions that what you are already struggling with. I leave the rest to you Mr. Entrepreneur.
The above are simply examples of situations where an entrepreneur could speed up in the wrong direction. Can you think of other scenarios? Nevertheless, I don’t think anyone likes speeding up in the wrong direction – I mean serious people. When you get someone who enjoys that, you had better be watchful. Do you understand?
Cheers! Enjoy your weekend, and thanks for reading.
The Wise Entrepreneur