Numbers Don’t Lie

March 2nd, 2009 by Sharon Larsen

In addition to letting logic manage emotions, Rich cautions entrepreneurs to pay attention to the numbers, because the numbers don’t lie.

 

 

At the end of 2006, my successful mortgage company was reaching the end of its wave. My partner and I were extremely fond of the team we had assembled, and we wanted to keep it together. In a desperate attempt to hang onto this talented, rag-tag team, we created a company named Everest Web Design.

 

We built a sophisticated pro forma model around the new business. As we reviewed the numbers, it became evident that this business was going to be a long shot, but we just couldn’t accept that. Because we were so emotionally tied to this little team, we ignored what the analysis told us. The team set about tweaking the numbers until the model showed us what we wanted to see. We began testing the business idea, knowing full well the numbers did not support success. The numbers were right: the tests failed. So did we shut down the business? No. We threw more money down the rat’s hole and tweaked the numbers some more.

 

The initial numbers told me the venture would not work unless we cut expense and reduced the size of the team or infused capital into the project to get it off the ground with the entire team’s weight. After a substantial financial loss, we ended up shutting down the entire project and letting the team go. We had become too emotionally invested in the team to accept the reality of the numbers. When the numbers tell you your bright idea won’t work, trust the numbers. Remember: logic has to manage emotion. If you have that mindset, your first step is to get used to the fact that the numbers don’t lie.

 

You may be considering how this reconciles with my mantra to “damn the torpedoes!” or “burn the bridges!” The answer is that you have to find the balance between persistence and reality. In the example above, I could have let half the team go, burned the bridges behind us, and perhaps made a run at success. I didn’t. I stuck with my emotions and persisted through insurmountable odds, but that wasn’t enough.

 

I love persistent, determined people. However, persistent, determined people who chase down rat holes amuse me—and, yes, I have amused myself more than once. So how do you avoid rat holes? How do you strike the balance between persistence and reality?

 

To be honest, this is an area I’ve failed at from time to time, and the cost has been more than financial. Usually, my failures came because we broke with our original intentions.

 

 

In order to strike a balance between persistence and reality, Rich uses three basic rules, which we’ll learn tomorrow. 

 

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