Are You a Consumer or an Executive

July 6, 2003

"This is the greatest thing since sliced bread." Bet you wish you had a dollar for every time you've heard or said that. Here's another one: "This is handier than a pocket on a shirt."

Both of these references are used to extol the virtues of some device or development that makes life easier, more productive, and more enjoyable, like a laptop personal computer, the beloved remote control, tire repair in a can, or Oreos with double cream filling. (You make your list -- I'll make mine.)

There are literally thousands of handy devices and developments available to make our small businesses more productive. Unlike our entrepreneurial forebears, who as recently as 25 years ago didn't even have fax machines let alone desktop computers, today we're blessed with many "bread slicers."

Not only do we have automated capability for almost every task, but also plenty of choices from multiple vendors, and at virtually every price point, including free, like shareware you can download over the Internet. In the 21^st century, if you want cool automation for your business, you can get it.

So our challenge with regard to acquiring capability is not can we have what we want, but rather, making sure we make good acquisition decisions. Anyone can buy automation. But it takes an executive, as our friend, Leslie Kossoff, writes about in her book, Executive Thinking, to properly integrate the acquisition of automation into your business, including financially and operationally.

In the world of small business there are two kinds of managers: Those who think like a consumer, and those who think like an executive. Before you spend precious capital on anything, including technology, ask yourself which kind of thinking you're using.

Why Are We Buying This?
Consumers buy technology for its own sake. Executives acquire technology because it fits their strategic plan. For example:

Consumers buy copiers; executives acquire the ability to reproduce and distribute
Consumers buy cell phones; executives acquire portable communication.
Consumers buy personal digital assistants (PDAs); executives acquire the ability to keep key information available wherever they are.
Consumers buy trucks; executives acquire the ability to deliver product and service to customers.

If you want to think like an executive, make sure every capital purchase passes the ROI (return on investment) test. Here's a low-tech executive rule-of-thumb ROI method that doesn't require any math:

Write down all the reasons you want to spend money on anything. Then look at each item on the list and see how many sound like: newer, faster, smaller, bigger, latest, or anything related to the concept of cool. These are features. Next, look for items on your list that sound like: saves time, saves money, increases sales, customers need it, the competition has it, or the competition doesn't have it -- yet. These are benefits.

Consumers buy features. Executives know that features cost money and occupy space, while benefits make money, save money, deliver value, and/or increase competitiveness. Executives make sure every purchase adds value to their operation and/or customer relationships.

Why are we buying this? Consumers say because, "I waaant it!" Executives say, "If this doesn't improve our operation and/or strengthen our position in the marketplace, we don't need it."

How Much Will It Cost?
We all know that going to a movie costs more than the $10 ticket -- there's the baby sitter, the popcorn, soft drink, and of course, the chocolate-covered raisins.

While consumers consider the purchase price of an asset, executives know that everything they buy for their business has a direct and an indirect cost associated with it, just like a movie.

Executives know that they not only have to acquire an asset (direct), but as our friend, Steve Martin, points out in his book, Creative Approaches for Developing a Cost-Effective Organization, they also have to pay for the operation, maintenance, and physical housing (indirect) of whatever they buy and put in service. Unfortunately, this total cost comes as a shock to a consumer, after it's too late.

Executives know that the only thing more expensive than an asset that doesn't do all the things you thought it would, is the one that you paid for but don't use. And even though you don't use it, you still have to store it, which means you would have been better off setting that money on fire.

Consumers know the prices of things. "Executives," Steve Martin says, "know what things really cost."

Who's Going To Use It?
Few machines operate themselves. Whether it's a computer or a truck, most technology requires an operator. Executives don't purchase technology without knowing who's going to use it and what is required for that person to be productive with it.

Consumers buy technology they think they can afford. Executives acquire technology when they believe they can afford the acquisition, plus the payroll, loss of production, and other expenses of the training and time invested in the learning curve.

Is This The Best Use Of Our Money (Or Credit) Right Now?
Consumers buy what they want -- right now! Executives prioritize capital purchases.

Consumers upgrade perfectly efficient computers because they "waaant it!" Executives check to make sure that the next purchase shouldn't be new tires for the delivery truck.
A consumer buys a PDA because everyone is getting one. An executive makes sure that the best use of those funds isn't upgrading to high-speed Internet to maximize the performance of the entire organization.
A consumer buys one of those really cool flat screen monitors because he can. An executive finds out whether the organization could benefit more by spending that money on a laptop computer for a salesperson.

Anyone who reads or listens to my words knows how much I preach the importance of small businesses increasing productivity by acquiring and implementing technology. But I also know that we have to take a holistic approach to committing our precious capital resources.

Write this on a rock... We can't think like a consumer when it comes to making capital purchases. We must be executive thinkers who manage the allocation of all assets, including cash and credit.