Business Owners need to understand themselves well enough to know where they have emotional reluctance for difficult decisions.
Difficult decisions are, well, difficult. But when there is an emotional attachment to a person, process or a historical element as part of the decision, then emotional reluctance can postpone that difficult decision, which can injure your business and/or employee relations both in the near-term and long-term.
For example, a father hires his daughter to run his business while he takes a few months for an extended vacation. She has been in the business for over five years and he’s confident she will make a capable owner. When he returns, he finds that she has a stack of customer quotes sitting on her desk that need her approval. Customer orders are down 30% because she hyper-focuses on minor aspects of the quotes and won’t approve them until additional support for the pricing is presented. He’s always had dreams about his daughter taking over the company but is faced with the reality that she might not be the right person to run it. His key employees, whom he trusts, are telling him she can’t make a decision and asks for redundant information as a way to make sure the quote is right. What everyone is realizing is that she is highly risk-adverse. He decides to leave her in her position, hoping she will change over time. Emotional reluctance is getting in the way of making a difficult decision. The longer he leaves her in her current position, the more damage he is doing to his company and the harder it will be to replace her.
A second example: an owner has developed a proprietary way to improve a manufacturing process which created his $7M business. Over the last 30 years, his product has been installed in hundreds of manufacturing lines. His son has been working in the business for the last several years and has come up with an idea which will improve this proprietary unit (that is sold for $300K) but only costs $180K to manufacture and install. His improvement will cut costs by $15K/unit. It will cost less than $100K to reconfigure their manufacturing line which produces this proprietary unit and it will change, significantly, the look of their unit. Amazingly, the owner has developed an emotional connection to how the unit looks – even incorporating that look into their company logo. He wants to show his son that he trusts him as the next leader of the company but can’t bring himself to change the branding of his company. Emotional reluctance is getting in the way of making a difficult decision.
A final example: this owner is third generation of a unique business, started in the early 1930’s. Like her father and grandfather, she has treated her employees like family. Her business was doing so well that six years ago, she increased the 401K match from 2% to 5%, then gave a $10K Christmas bonus to each employee, regardless of their compensation levels. In addition, she decided to create another year-end bonus based on a percentage of the profits of the company which were also distributed equally among each employee. Overall, her increases amounted to just over $26K/employee/year. For some employees, this equated to a 30%+ raise on an annual basis. Over the last six years, this $21M company has built up $4.5M of debt – which is an amount equal to the $26K/employee/year. In other words, she has been borrowing to make these bonus payments (though she didn’t see it that way). When she asked her bank (with whom they have been for over 10 years) to renew their $5M LOC, then bank declined, citing high debt which had incrementally been built up over the last six years, no plan or resources to rest the LOC and declining profits. When she was advised to take back the two year-end bonuses and cut the 401K back to 2%, she declined because “we are family here”. Emotional reluctance is getting in the way of making a difficult decision.
In all three of these examples, the owner allowed emotions to get in the way of making difficult, but a clearly correct decision. In nearly every turnaround of which I have been a part, the “turn” came from making anywhere between 2-5 decisions which the owner was not able to make on his own.
If you own a business, part of your role is to manage it in such a way that your emotions don’t drive your decisions. This is where an advisory board, a CEO peer group and a personal coach will help you make important, but emotionally difficult decisions. How well you make difficult decisions will have a direct correlation with your financial success and sustained growth. Never think that you can grow from $10M to $100M without having to make difficult, draining decisions. So gather your support team and get a personal coach. You’ll need them someday and you’ll be glad they were in your corner.
Bill English, Publisher
Bible and Business
