There are three things that you need to know about building a business.
First, there is only one way to grow an organisation without taking risks and that is to grow organically—finance your growth from the excesses you achieve between income and expenditure: plough back your profits instead of giving yourself a pay rise or declaring them as dividends.
Of course all this assumes that you have some capital in the first place to start your business. This means taking a risk. Are you willing to “gamble” the money you have on your success? Is this money that you can afford to gamble? What is the impact of losing this investment on your family and dependents? These are the questions you need to ask yourself before starting a business.
As soon as you need capital that you have not got, then you are inviting someone else take a risk—they are placing a bet on your success. What is the price you are going to pay for this investment? Can your business afford this price? If you borrow the money, how much interest will you have to pay? Investing is a sophisticated form of gambling where the odds of being successful exist only as beliefs. You can be sure that your investors will want their money back and more. You are now accountable to them as well as to yourself. Is this level of responsibility something you can handle?
Second, you have to pay constant attention to cash flow. When you start a business, the first question you need to ask is how quickly can I get into a state where the income from my business exceeds my expenditure plus the money I need to pay my investors and the interest and principal I need to pay off my loans?
In difficult economic times, such as those we experienced in 2008-2009, cash will always be king. If your business is not generating cash then you are potentially on the road to failure.
Third, it is an absolute folly to sacrifice long-term sustainability for short-term gains. It is the road to disaster. The pressures of the gambling casino we call the stock exchange are life depleting for businesses and executives alike. Growth that is driven by the short-term needs of investors is the growth that can kill you. It creates states of internal instability that stress life in every part of the organism. The stress increases exponentially when you compound the risks of focusing on short-term gains with the risks of borrowing money, and the risks of drawing down your cash reserves.
It goes without saying, although it needs to be said, that the health and safety of your employees is non-negotiable when it comes to running a business. If you are not prepared to pay the costs of protecting your employees from work-related health and safety hazards, you are taking a huge financial risk with your business.
Chapter 19: Organisational Mastery