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?