Financial Statements/Assets: ‘You Can't Get There from Here!'
by Mike Manes
We've all enjoyed this scene: A local “hayseed” becomes frustrated in his effort to provide directions to a tourist and ends the inquiry with the simple statement, “you can't get there from here.” The humor of this scene lies in its absurdity. Of course, if you know where you are and where you're going, there's always a way to get there. In this document, Mike Manes explains that the secret is in the right directions — the right map.
As we journey, a good map is one of the secrets to success. To reinforce the reality of this statement, consider the danger, frustration, and risk that would accompany a trip today from Shreveport to New Orleans, if you used an old map. Considering that New Orleans, Baton Rouge, and Shreveport are where they've been for nearly two centuries, tradition would seem to dictate that even an old map would do.
The reality, however, is that a pre-Interstate map would expose the driver to unnecessary risks on the trip: Two-lane and gravel roads, potholes, speed traps, and “bad parts of town.” A new map, post I-10 and I-49, results in an easy, safe, and relaxed journey. Common sense dictates a reality check of our map before the journey begins.
Every businessperson is now preparing for a trip into the future. We're overwhelmed by a sense of excitement about the opportunities that await us, but still anxious about the perils that we'll face “on the road.” This trip will be to a new place and its pace will be much faster than we've ever moved before.
Unfortunately, most of us are using no map, an old map, or the advice of a local “hayseed” that can't help us get there. The maps currently available are our plans and our financial statements. Some have them, some don't. Unfortunately our maps are out of date.
Our advisers (CPAs, bankers, and attorneys) are locals who've never been there either. They're the writers and keepers of old maps. They're invested in the status quo. They're not about the future, the new, the risk, or the opportunities of tomorrow.
Their most valuable traditional map, the balance sheet, is out of date. It's no more a tool for tomorrow than a 1950 map is the best way to get from Shreveport to New Orleans.
Analysis of this traditional document shows your assets (the things you use in business), your liabilities (the interests of those who own the things you use), and stockholder's equity (the difference between assets and liabilities).
Your assets — buildings, receivables, inventory, and equipment — are things that you own or acquire, and can insure and use. In tomorrow's world, the “virtual corporation” might not include office buildings. “Real time” deliveries might eliminate the need for warehousing. Technological change can make your equipment and systems obsolete before they're delivered. Tomorrow' s success or failure won't depend on any traditional asset. A balance sheet that starts with these assets is obsolete — which means that every other category is based on a flawed premise. So forget it and get a new map.
Tomorrow's world will include more small businesses and cottage industries. These will be knowledge driven, rather than capital intensive. More than 90% of businesses will have fewer than 50 employees. Probably less than 2% will be “big” (with more than 200 employees). What was important yesterday won't be as important tomorrow. Tomorrow's business will focus on innovation, flexibility, and market passion.
The essential assets businesses will need for tomorrow include four key items:
1. Relationships
2. Knowledge/expertise/innovation
3. Profit
4. Leadership
Although some businesses will need other assets, these four will be the minimum standard.
Relationships are about people — employees, customers and stakeholders. If we have quality people working for us as employees and supporting our efforts as vendors and suppliers, we're starting with a strong base. “Quality” must include knowledge, teamwork, commitment, integrity, customer passion, and trust.
We must know and understand our customers intimately. Who are they? What do they want and need? How can we satisfy these needs? We must keep our finger on their pulse. We must not only know them today — we must anticipate what they will want to be. We must provide answers to their questions. Unless they value us, we'll lose them.
Our “stakeholders” are people with an investment in who we are and what we do. These include our stockholders, the communities we serve, and any other group or individual that we “touch” significantly. All of these are assets — “things” that we use in our business. The quality of these assets will have a great impact on our success.
Knowledge, expertise, and innovation are our next assets. This is the collective energy of our team. This is what we do. It's our drive and passion. Although it can't be measured, it mustn't be discounted. It's the drive of our company — but it can't be licensed or insured. It must keep changing, evolving, and growing.
Profit is an essential asset . Although it's perceived to be the goal of business, In reality it's far more important than that. To quote Peter Drucker, profit is our “seed corn.” It's the chip that allows us to bet on tomorrow. Without it, we can't stay in the game — we can't go for the gold.
Leadership might be our most important asset . If knowledge is the “brain” of our system and relationships lie at its “heart,” leadership is its “soul.” We're journeying into unknown waters as explorers and pioneers. Yesterday's world was about inventorying and managing our abundance. Tomorrow's world, including the most intense competition in history will be about conquest. Each day will focusing on “winning” the relationship, customer, process, and result — goals that will require leadership.
Leadership includes our Vision , Organizational Culture , Passion , Commitment , and Integrity . Leadership means defining reality and moving forward. The leader must act as an architect and environmental engineer.
As the architect, the leader sees the dream and focuses it in a Vision that everyone in the organization can embrace. They design the infrastructure and coordinate its construction. Leadership must establish a “sound” foundation as we reach for the stars that we call goals! Leadership brings “fire to the belly” of organizations.
The leader must make certain that the work environment is clean and safe. To maximize success, this environment must be free from toxins — and include the healthy elements of integrity and trust. Team members must be able to work free from dangers and distractions as they pursue the dream.
We don't own our Assets. We only focus them for the good of all. We must pay the owners of these Assets for our use of them. This creates our Accounts Payable — our Liabilities. We must fairly compensate and reward each Asset owner.
Our customers must be enthusiastic about our value in their lives. Our employees and “stakeholders” must feel rewarded for their investment in our future. They must feel that they're part of the “team” and its efforts. They must feel appreciated for real contributions. Their choices are unlimited. They can take their assets that we're using somewhere else. If we don't pay fair compensation, we lose them.
The operative word in tomorrow's Balance Sheet is “balance,” which results from Organizational Equity. If we select the right Assets and balance our use of these Assets with fair compensation/rewards to their owners, we will retain the relationship or asset — and prosper accordingly.
If we don't have balance, our organizational “see-saw” will crash. It must work for both sides. Yesterday's command and control world is history. Your associates (employees), customers, and stakeholders will have unlimited options and choices. You can't make them choose you — you must earn their confidence, commitment, and relationship. The paradigm has shifted. Tomorrow's world will operate in a win-win mode, rather than a “zero-sum” game with winners and losers.
Your journey is about to start. You've planned the trip. You've committed the dollars for the venture. The car is loaded. You've made all arrangements. Before you leave, make certain your map is current!
Michael G. Manes can be reached at Square One Consulting, 625 Weeks Street, New Iberia, LA 70560, 337-577-3885 (cell), e-mail [email protected] , or visit www.squareoneconsulting.com .