Porter’s Points: Numbers Don’t Lie

March 3rd, 2009 by Sharon Larsen

Today we continue Rich’s discussion of trusting the numbers and learn the three rules Rich uses in his guidebook.

 

 

In the next chapter I’ll talk about making and living with rules. Include rules in your personal guidebook for dealing with numbers scenarios. Rules do not smother your creativity or stall your drive. You create them to guide you past the cliffs and landslides along the entrepreneurial path. For me, then, the answer—which has come the hard way—is threefold.

 

The first rule I have added to my guidebook is: don’t tweak the numbers to fit your emotional needs. Some people call that discipline. Believe what the numbers say and act accordingly.

 

Second, articulate the rules to your partner. If you don’t have a partner, then share your rules with your significant other, attorney, accountant, advisor, or somebody. This emphasizes the need not for a friend or a yes-man, but a partner! Articulate the rules to a person who will be up-front, frank, and direct, who will maintain a clear perspective when you start to chase rats down holes. Rehearse the rules with him or her. Your “rules partner” must be unafraid to ask the tough questions at the critical moment. And he or she must be willing to point out your departures from the established rules.

 

In a moment of cloudy temptation, you must be able to say, “Hey, didn’t we agree to not…?” and then stick with it. You made the rules when the temptation didn’t exist. Your partner will remind you that you made the rules when your heads were clear. You made the rules by considering situations just like the one that now tempts you. These exchanges with your partner are vital sanity checks.

 

With all of those hard-nosed rules, remember this third point: sometimes, things change. You may need to change the guidebook. If things do change, rework the rules based on fact, not emotion. Do it only when absolutely necessary. This is the tricky one of the three. You cannot change the rules to accommodate your emotional needs. No whims are allowed if you want the rules to guide you to the summit. Take time when changing any rules; there can be nothing haphazard here—and always, always remember, some rules should never be changed. Don’t ignore reality. The numbers may be telling you to look into other opportunities.

 

Porter’s Points: Numbers Don’t Lie

 

  • An honest pro forma is as much of a crystal ball as you will get. Make the effort to build it on accurate data. If the numbers don’t add up to a viable venture, it’s time to do the math: go after something else.
  • Set rules that specifically tie back to numbers. Make sure you and your partner hold each other accountable. Don’t let pride get in the way.
  • Set rules to govern your rules. If you have to, set rules to talk about your rules. This may seem tedious at first, but touching base in the beginning helps train your bootstrapping attitude for the end.

 

 

Tomorrow we begin a discussion of the various options for funding your small business.

 

No Comments »

No comments yet.

RSS feed for comments on this post. TrackBack URL

Leave a comment