There’s been a bunch of debate over the last few years in the U.S. about President Obama’s characterization of the U.S. government’s massive, ongoing spending binge as an “investment” in our future as a nation. This brings to mind an experience I had in my first couple years as a business coach, one that holds a profound lesson for those in business coach training.
When do you advise a client to classify an expenditure as an “investment,” versus an unnecessary cost to be cut?
Here’s what happened to me…
One of the very first clients I landed in 2001 was the owner of a restaurant bringing in about $1 Million USD in revenue per year. The poor guy had been losing money for several years running and had “invested” almost his entire net worth, except for the last bit of equity in his home. He had done everything he could think of to no avail and saw business coaching as his golden ticket. So I began coaching him and we attacked the problem with a vengeance: we deployed strategies to incentivize the team to up-sell and add on-sell, eliminated waste in the kitchen, combined positions in the dish room to get more work out of fewer staff, created strategic partnerships with other businesses to bring in new customers, held team trainings to rally employees around a vision for growth, and more.
After a couple years of coaching, we had managed to stop the bleeding — but just barely. And it was like pulling teeth the entire way. “What went wrong?” I kept asking myself. “The things we did with this guy have produced MASSIVE results in other restaurants and retail businesses. What gives? Why no increase in profit? Why does this business stubbornly refuse to grow?”
Answer? The fundamentals of the business were hopelessly messed up on three counts:
(1) This was a 15-year-old family-style, meat and potatoes, vegetable-soup-serving establishment that had never adapted to the radical demographic shifts that had slowly taken place around them. They found themselves sitting in what had become a high-end, fast-paced retail shopping park that had driven away their main customers: senior citizens looking for a bargain meal.
(2) In their previous years, they had negotiated their way into an iron-clad commercial lease with rider provisions that made the rent go up irrespective of revenue — which put a deadly choke-hold on their profitability. No amount of money spent with attorneys could get them out, and it was destroying them.
(3) For reasons of their own, they were unwilling to sell alcohol and uninterested in creating the kind of high-margin business that the location demanded. Long before I arrived they had “invested” their entire business war-chest into propping up the existing business model, leaving them powerless to radically re-invent it and turn it into a destination dining location that would appeal to the kind of spenders they needed to support their overhead.
So, what did the coaching achieve? It kept their heads above water long enough to survive the term of their lease — after which we promptly closed the business down and they moved on to a brighter future.
Now, back to the question of “spending” versus “investment.” Was the hundreds of thousands in net-worth that ultimately produced NO RETURN for my client an “investment” or “spending?”
In some ways, it’s a game of semantics. But everyone agrees that a good investment is one that produces a positive return. If a client invests money in a fatally flawed business model with no realistic hope of a return it is a bad investment, at best, and a foolish gamble at worst.
Sometimes, it’s better to stop such “investments” and recognize them for what they are: worthless “spending” — throwing good money after bad. The difficulty can be getting the client to recognize the difference. “If I invest just a little bit more to keep going, I know I can turn this thing around!” they tell themselves.
Really? Are you sure?
Our job as business coaches is to help our clients honestly survey their situation and think critically about their expenditures, even if it means making painful, difficult choices.
Have you ever faced this situation in your business coaching practice? What have YOU done to help your clients in this situation? How have you advised them?
I have been a business owner for many years and co-own a consultancy that I worked part-time while...