We Can't Afford.....

We can’t afford………When you hear these words what do you think?

If you are an employee who has asked for a raise, you think: “Oh well, it was worth trying.” Or, maybe, “That’s the last time I asked, I’m going somewhere else.”

If you are a business owner listening to the CFO, you think: “Maybe he is right, we can’t overextend ourselves.” Or, maybe, “Who is the boss here, it’s my money.”

If you are a vendor trying to sell an upgrade of an existing software system to a CIO, you think: “Is he just playing hardball or is he just too cheap?” Or, maybe, “Is he going somewhere else with his business?”

If you are a CEO asking his Board for approval of a capital investment project, you think: “Oh boy, I did not make my case clear enough.” Or, maybe, “I think I need a new Board.”

Either way, these are dreaded and fateful words. And, while there are instances where these words reflect the reality, more often than not the opposite is true. This is particularly the case in hiring situations. It comes up when, in the interview process for the filling of a key position, one candidate stands out head and shoulders above the rest of the pack, but is already making more than the salary offered for the job and seeking to improve. To illustrate: you have budgeted $60,000 in total annual compensation for this position, but the stand-out candidate is already making $65,000 and wants to make at least the same in base compensation plus some incentive compensation. You may be short $15,000 to $20,000.

I submit that, in this situation, the question is not if you can afford to hire this candidate, but, rather, if you can afford not to. I realize this is only true if the position needs to be filled for the business to be running on all cylinders and if the pool of candidates has been properly vetted. But if these basics have not been addressed, the company can probably not afford to be in business!

What you can afford is not a function of the room you have in your budget, nor a function of the disposable income earned in the past. What you can afford is a function of the value added, in this case by the hiring of the individual. The hiring of key people for an organization is not a zero sum game. 

If the owner reasons: “Everything I pay this candidate is coming out of my pocket” he/she makes a critical mistake. In staffing the company, the owner needs to hire the people with the competencies required to drive the business, not the people that fit within the pay-scales that may have been set in different times under different circumstances. The owner should not hire at all if cash flow does not permit it or if the hiring cannot be projected to support and enhance profits down the road.

The same holds good for investment in assets other than personnel.

Changes in markets, in popular preferences and in technology dictate the investment in new tools, technologies and systems, whether the existing assets that need to be replaced have been fully amortized or not and whether the capital investment budget contains funds allocated for these investments or not. The force behind this is called “creative destruction”. It is one of the most powerful keys to success in American business: the practice of destroying the economic viability of a product or service by replacing it with a new and improved one before the existing product or service is completely obsolete.

Dave Sullivan, who for a long time was the Executive in Residence at Aileron (www.Aileron.org) the Dayton, OH based training institute for small business owners, will tell you that one of the primary causes for business failure is the fear of investing. This fear causes a business owner to hold on to sub-par talent or outdated technology for too long. If you want to be an entrepreneur, then you can’t save your way to prosperity; entrepreneurship is all about putting capital at risk.

When you hear the words “we can’t afford”, or when these words cross your mind while you are pondering a new hiring or a significant capital investment, seriously ask yourself the question “Can I afford not to be spending this money?”