Like all living things, organizations need to take in fuel in order to produce energy; organizations need to convert people, ideas and profits into energy to go down the road and fulfill their mission. There is a big difference between fuel and energy. Food is fuel. Food is potential energy. Food is converted into energy by the digestive system. Gasoline is fuel. Gasoline is potential energy. Gasoline is converted from potential energy to kinetic energy using a spark plug. In both humans and automobiles, complex systems break down fuels into base building blocks to provide the kinetic energy both our bodies and BMWs need to move. These systems are, as I said, complex, or put another way, not simple. It’s not like a firepit where you just throw wood on a fire and you get heat and light, and good stories and smores. It’s possible to provide too much fuel. It’s possible to eat too much, and it’s possible to flood an engine with too much gasoline. But is it possible to flood an organization with too much cash?
I think an organization can have too many people. I think an organization can have too many ideas. But can an organization have too much money? As a CEO, there’s no way I can say no to that. To a CEO there are very few problems that can’t seemingly be solved or improved with more money. I think money is easier to process than people and ideas. It takes a lot less heavy lifting. Like in our personal budget at home, you don’t need to try to spend money. The burn rate doesn’t stop. I recently reread a grant proposal I wrote over two years ago in which I had noted, “We currently have a very sustainable burn rate of $500/month.” I thought it was a typo when I first read it. Then I thought back to a time when we had no paid staff and my own expense was the gas I put in my car to drive all over western Canada trying to sell a product that didn’t really exist. Those were the good old days. Now with a team of 12 and a product that needs to be nurtured like a newborn, our Head of Operations is constantly reminding me of how much money we don’t have.
But there is a significant difference between burning money, and turning money into fuel to accomplish the mission. And, not surprisingly, knowing the difference has a lot of to do with having and knowing and remembering our mission – knowing where you are going, and why you are going there is the guiding principle for understanding not only how to spend money, but how much money you need at any given time. That might sound stupid. But the truth is, the correct answer to the question “How much money do we need right now?” is not, “As much as we can get.”
In Alberta, where I’m from, the vast majority of our economy has been built on oil and gas for the past 50 years. That’s changing now, but only because the price of oil over the last six years has become too low to profit from. The number of companies and the senior executives who woke up one day to $120/barrel oil and massive hundred million dollar contracts would astound you. When oil was high, there was more money than you can fathom. 16-year-old kids were dropping out of high school to make $120,000/year in the oil patch. Mom and Pop energy service companies were making hundreds of millions of dollars in profit and employing hundreds of people. Then, just as fast it came, it went. Those 16-year-olds are now 21, broke and without a high school diploma. The Mom and Pops are bankrupt. And you have a generation of executives who think they know how to run businesses, ignoring the fact that the only reason they were successful was because of the price of a commodity. Without a system in place to ensure that profit is consistent, sustainable, and purpose and mission-focused, you can flood your engine and stall out.
The same can be said for companies who strip their front-line workers down to the bare minimum in order to provide larger dividends to shareholders. This is starving key resources and infrastructure of the resources they need to accomplish the mission. That is, of course, unless the mission was actually to deliver bigger dividend cheques to shareholders, and that thing you put in vinyl on the wall was just BS.
Why does it matter? Does it matter if you’re making a profit? Isn’t that the point of a capitalist society? The American dream?
There’s absolutely nothing wrong with making a profit. I’m just saying that unless it’s sustainable, unless it’s convertible, and unless it’s reliable your organization will stall out. And I can’t guarantee where you’ll be when that happens. Too much too soon, you’ll flood you’re engine. Too much pooling at the top, you’ll stall your engine. Make sure your organization’s engine has the systems it needs to sustain you on your way to your mission.
– Chad Verity, CEO, Hölmetrics