Is Too Much Money Worse than Too Little?

An old friend of mine who has run a small construction company for decades reflected back on his career as he nears retirement, “If I’d been rich I think I would have done many bad things.” He was probably talking about horses, drink and so forth but his comment struck me as very insightful and sincere. I was reminded of this in a different way recently when reading technology marketing guru Guy Kawasaki’s thought-provoking article about entrepreneurship titled Why Too Much Money is Worse than Too Little. Kawasaki writes:

“Many entrepreneurs believe that the lack of capital is their primary problem. If only they had a fat bank balance, they could kick butt.”

As a bootstrapping entrepreneur I can certainly relate to that statement. Guy Kawasaki outlined 6 points why he felt this was true and gave brief explanations. Here is how these ideas relate to lean management:
1. Expenses expand to the level of funding.
Kawasaki says of the typical entrepreneur with cash, “The availability of money makes them think of ways to spend it”. Taiichi Ohno said, “Costs don’t exist to be calculated. Costs exist to be reduced.” He would reject capital expenditure requests for his factory, demanding that they remove a zero from the budget amount.
Happy planning is the type of planning that requires few difficult decisions and all good ideas are funded. It starts from abundance but ends with scarcity as ultimately no amount of resource is enough to fill the demands of creativity without constraint. On the other hand the lean management approach of hoshin planning starts with a vital few ideas with focused resources and ends with abundant results.
2. Money creates a false sense of security.
Taiichi Ohno said, “Your wits don’t work until you feel the squeeze.” The lean management paradigm switch is to treat inventory buffers not as assets but as liabilities. Inventories, particularly work in process, create a false sense of security. In fact work in process blurs the true picture of the business by covering up problems. Having extra money to throw at problems will likewise cover them up rather than requiring the disciplined root cause analysis and process-building so necessary for start up ventures to mature into lasting brands.
The following three points related to how having too much money allows people to make poor decisions about how people are hired and developed (or not developed).
3. Money makes companies hire “proven” people.


4. Money makes companies buy people with salaries.


5. Money causes dependence on experts and vendors.

Kawasaki says “proven people are over-rated” and encourages the entrepreneur to not hire the seasoned executive from successful companies but people with potential and the right. Lean thinking places value on developing people slowly through problem solving, working towards challenging goals and learning from failure. These are essential values for entrepreneurs. When making the make-or-buy decision of leadership, the cash poor may make better decisions.
6. Money makes entrepreneurship look like a serial process.
Kawasaki writes, “Companies that work in a serial method are doomed because most markets move too fast for that approach.” Having plenty of cash allows a start up to leave slack in the process of designing, building, launching, delivering and collecting payment for products or services. When there is enough cash to continue paying for salaries, development costs, and correction loops it is too easy to accept these as an inevitable part of the creative process. When backs are up against the wall, cash has run out and all options are on the table people find ways to make information flow faster, work in parallel and meet or beat deadlines.
In conclusion Kawasaki writes, “If your company is short of money, I hope that you feel better now.” Somehow not, but thanks for trying.
The lean management approach is to use creativity instead of cash to solve whenever possible. Ironically, according to lean thinking even if lack of capital is the main problem, it is not capital that will solve this problem. What do you think? Is too much money worse than too little?

7 Comments

  1. Ronak

    September 24, 2010 - 11:14 pm

    It is definately true that too much money is worse than too little.
    If you are told to solve a problem at any cost. you will endup with a solution that is very expensive from management’s point of view. If the same problem was to be solved at limited cost, your brain will start working and will find a solution which is less costly. This will increase individuals competence level also.
    Regards
    Ronak

  2. John Santomer

    September 25, 2010 - 7:48 am

    Dear Jon,
    Too much of everything is bad whether its too much or too little. But I think if the utilization of “just enough ” capital has been invested in the right “priorities” and if the “bought” people have the right sense to look forward to long term results instead of just making a name for themselves to be known to the business’ investors; the company will go far and stay longer in the market until it grows into sustainable and profitable levels.
    But then all these are just “ideal” situations. And “proven” people, most of the times have a way of pushing results to serve their own purposes. It’s something that business owners and entrepreneurs need to be keen in recognizing to assure a successful business and not condone “toxic” results drivers which no matter how good an entrepreneur or business owner builds on a foundation for their business will slowly but surely degenerate the company over time.

  3. Mike

    September 27, 2010 - 4:52 am

    But it is all just theory, as none of us has ever had too much money–as entrepreneurs, problem-solvers, managers, or personally.

  4. Matt Wrye

    September 27, 2010 - 7:42 am

    Too much capital can definitely be a bad thing. I have worked for companies that have been fortunate enough to do very well. Because of this, they do not understand how to become creative with investments and improvements. When times got tight, it was much harder for them to cope. Eventually, they learned but it was a painful lesson.

  5. John Santomer

    September 29, 2010 - 8:27 am

    To Matt Wrye,
    Wouldn’t it just be neat if everyone would have all the money a person needs? Perhaps it will make more people be lesser competitive and less agitating? I personally noticed that owners of businesses are more forgiving than those who just work for them. Is it because owners are content that theirs is a company working and performing above their own expectations? Don’t you think it is up to the “responsible” staff to point out efficient ways to come up with better ROIs as an owner would tend to overlook such options due to the fact that business has been doing well than expected/projected? Not that al owners are contented with such but most are also passion driven in their own fields.
    And on that same idea, these staff tend to be more competitive and agitated “protecting their own castles” so to speak.

  6. Henry Zhuang

    October 14, 2010 - 12:11 am

    Lot of Chinese companies had invested money in 5S or Lean, when they feel rich, particularly the private company, and their effects in vain.
    First, because management team thinks that the boss/company have money, just let them spend it!
    Second, when the company is rich, there is enough budget to spend money for training. What kind of outcomes and results of Lean or 5S training becomes not important!
    Third, the performance evaluation system is mainly designed for promote more sales and more output of products, more advance production line, instead of saving cost and controlling of investment!

  7. sharma

    October 18, 2010 - 3:28 am

    This reminds me of the much acclaimed “games theory”. the lesser resources you have more creative ways you will find to solve your problem.
    Also, the TPS was born out of shortage of capital, small market size, people with low buying power, multi products on the same assembly line, etc.
    But i also feel that shortage of capital gives results but it takes a longer time. Time, which sometimes is wasted too much as a trade-off to capital.
    Thanks!
    sharma