Results of Using and Ignoring Guardrails – Zig Zag Principle #59

January 26th, 2012 by Rich Christiansen

 

Results of Using and Ignoring GuardrailsEating Our Own Cooking

In our current test business, Curtis and I received a request from a client that wanted to place a large order for high end, specialty products.  We went to the manufacturer of these products and were able to open an account.  However, when it came time to sign the contract with the vendor, it contained language prohibiting our operating a business model that was identical to our business model.  The order we were trying to fill was worth a large sum of money.  And the likelihood of the vendor ever figuring out we were in violation of the contract was minimal.  In our zeal to land this account, Curtis and I conveniently forgot to pay close attention to this clause in the contract.  However, Koral, who is one of my trusted gatekeepers, reminded us that signing the contract would run counter to our values.  As lucrative as this deal would have been to our company, we passed on the order.  It just seemed that if we were going to lose sleep, it would be better to lose it over the loss of revenue rather than the violation of our code of conduct.

In a previous business Curtis and I founded, we did not follow our own guardrails.  We had put a financial guardrail in place stating that we would always keep a $100,000, three-month buffer in place to protect us if the business took a downturn.  We also agreed that if things went south, we would reduce expenses, rather than dip into our reserve, in order to maintain a positive cash flow.

After several years of mind-blowing success, the business did suffer a downturn.  It wasn’t long before we saw ourselves dipping below the $100,000 threshold.  At the time we had a team we felt loyal to, and we did not want to have to cut back.  So we lowered our threshold to $50,000.  In making that decision, we broke our rule and crashed through our guardrail.  But we felt justified in doing so because of our previous success.  Before we knew it, we had crashed through the guardrail again and spent that last $50,000.  At this point, instead of cutting our losses, we decided to create another business plan.  Unfortunately, our team was not a good match for our new venture.  Ultimately, with no cash left, we had to lay off the entire team we had been trying to protect.  We also had to terminate what had been a very productive partnership and part ways.

We would have all been so much better off if we had reduced our expenses and stayed within that first guardrail.  Yes, we would have had to lay off one or two employees or cut back on expenses in some other way.  As painful as that sounds, it would have been so much better than having to kill the whole business.  We could have saved our most valuable employees and avoided a lot of pain and heartache. 

Our blunder led to Curtis and me parting ways for almost four years.  Now we are working together again and building a successful business.  And we’re hoping we will have the good sense not to forget our need to stay within the guardrails we’ve established. 

Summary

As you are traveling toward your beacon in the fog, you will need guardrails to keep you from heading over a cliff or wandering out into the weeds.  For each of your zigs, you should establish a financial number, an allocation of time, a duration of time, and a financial target to control the resources and energy you are going to put into that particular zig.  You then need to create a list of the other guardrails that will keep you out of the weeds.  Finally, remember the need to establish a network of trusted associates who will keep you from heading out of bounds network or drifting toward the edge of a cliff.  These guardrails will grow out of and be aligned with the values you defined in Chapter 3.  They will then have the power to keep you on target as you zigzag toward your beacon in the fog.

 

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