Photo Credit iStock Photo
The plan
You had your annual budget meeting. You reviewed last year’s plan. You were going to make money on paper…a lot of money. But somehow the results came in differently. What went wrong. Why did you spend so much more than you planned to spend? We plan using our logic. We spend based on emotion. I used to think that this was true for our personal spending, but not for business. In business we are, well, all business. We think about profit margins and cost of sales and projections. But do we actually apply this when we spend? Often times we see our business as an extension of ourselves so our personal feelings, desires and drives play into our decision making much more than we would like to admit.
The breakdown
The reason behind everything we do is consciously or unconsciously trying to meet one of six basic needs in our life. This is an idea that has been popularized Tony Robbins and helps explain why some of the decisions we make may not seem, from an outsider, to be “logical”. My contention has been that all decisions that we make are logical. But not based on math type logic but rather based on what drove our decision in the first place. The problem is that many of these things we do unconsciously. We aren’t aware of what it is that is driving the decision. Therefore, we make “illogical” decisions. They aren’t the cold calculated decisions based on fact and reason, but rather attempting to meet one of our basic needs.
So what are these basic needs?
- Certainty – Assurance that you can avoid pain and gain pleasure. This is the idea that we know what is going to happen. It gives us the feeling of safety.
- Uncertainty/Variety – The need for the unknown, change and new stimuli. The feeling that things are different and new.
- Significance – The feeling of being important, special, unique or needed
- Love and connection – A strong feeling of closeness or union with someone or something
- Growth – An expansion of capacity, capability, or understanding
- Contribution – A sense of service and focus on helping, giving to and supporting others
Everything that we do in life, how we spend our time, how we spend our money is driven by trying to meet one or more of these needs. Everyone has one of these as their primary driver. But not everyone has the same primary driver.
There are healthy and unhealthy ways to try and meet each of these needs. The problems arise when you try to meet these needs in unhealthy ways. The allure of the unhealthy ways is that they are usually a quick “solution”.
If you have seen the show, The Profit, you can probably think about some examples that you have seen on the show that would demonstrate what I am saying. In a recent episode, the business was struggling (as is always the case), but yet the owners were desperately clinging to their BMW and boat. At the same time, employees were chipping in money to pay for inventory to keep the doors open. The owners’ need for significance was so strong that they wouldn’t accept how “illogical” this was. This seems crazy, but I can tell you that they aren’t the only business owners that have done something like this.
We can look at this and see how illogical this is…right? But if it is you in the situation, you may be acting very unconsciously about this decision and not even know why you have made it. You may think about all the things you have already given up, or how hard you have been working or that you “deserve” to have something to show for all your effort. Sound familiar? Maybe you haven’t made a decision this extreme but almost everyone has made a justification for a purchase based on “I deserve it” kind of logic.
Be aware
It takes a very conscious effort to move out of this place. Clearly these business owners knew that their business was in trouble. But they were clinging to those couple of assets to give them a feeling of significance. Marcus was trying to move their mindset to getting their significance from saving jobs and saving their business….a tall order emotionally.
So how do we guard against these types of problems? The first way is by simply being aware and thinking about what is really driving our choices. What needs are we trying to meet? Is there a better way to meet that need? Is this really helping my business?
Just the facts
The next step is the cold hard look at the numbers. If you stay in the emotion, and the need you are trying to fill is strong, you will probably find numerous ways to justify what you are doing. Not the least of which is the old standby “It’s an investment in the business” no matter how ridiculous that would sound to an outsider. A big clue to me that people have been dealing on the emotional side of the ledger is that their books are a mess or nonexistent. They make it impossible to tell from the numbers what the real state of the business is. You can’t keep lying to yourself when the numbers are staring you in the face.
Profit First
Finally, if you want to make logical, unemotional decisions, you need to set yourself up for a way to make this happen consistently and as automatically as you can. This is the reason that I teach businesses to use the Profit First system. They can use this system to establish structure and process around the spending decisions. The decisions are based on real revenue, with the goal of making the business consistently profitable. Now wouldn’t that make you feel significant if you could say that about your business?
Comments
Share this Post