Company Core Value: Don't Spend Just for Show

You've probably heard the expression “all hat and no cattle.” It is an expression that is critical of people who are trying to pose as something they aren't.  In the real world, we know people like this.  They drive fancy cars they can’t afford, buy high-end clothes beyond their budget, and drop hints about how successful they are.  These folks have bought into one of the great lies of our society—that status and success are defined by how you look.  

Companies sometime do the same thing.  Here are some examples of how:  

1.  They create websites and social media activity that make them look big and important, when in reality they may only be a 2 or 3-man shop.  It just drives me nuts when I find a company website that doesn’t have a single name or address on it.  It looks like they are trying to say they are too big to say who they are or where they are.

2.  They have extravagant corporate headquarters separate from their real business.  This happens with small to large companies.  Here's a real life example that is close to me:

I purchased a business in 2009 that made this mistake many years earlier.  It was a sign-making business just like mine.  Nothing fancy about the business.  

Several years earlier the owner moved the offices to a high-rise building in Dallas.  He did it to project a successful, high-class image. I can't think of a single reason he did it except to appear big and successful.  There was no logistic or financial benefit to do this.

What did he accomplish?  Well, he made many people drive further to work.  He made it harder for an open line of communication between the office and production.  The production people remained in an industrial park, which made them feel like second-class citizens.  He increased his cost of rent.  He made sales, quality, and profitability second to appearance. 

Many people told me that this was the beginning of the downfall of the company, as they went through bankruptcy a few years later.

3.  They entertain customers and themselves in an outsized fashion, spending a lot of money that they need for other business purposes.

I made the mistake of investing in a private equity company that was guilty of this.  I invested a good bit of money.  Next thing you know, they hosted a banquet for their investors.  

Now, I wasn't expecting the Golden Corral Buffet.  I thought it would be nicer than that.  Even so, I was surprised at the opulence.  The over-the-top offerings of expensive wines and bourbons, and the entrees that were obviously the most expensive that could be offered.  It was a great meal, no doubt.  It was also the most expensive meal I have ever bought because I lost the entire investment.  Looking back on it, I really believe that the organizers of this fund thought that if they looked rich and successful they would be rich and successful.

I do think it is important to have a pleasant, safe, and nice-looking place to work. I'm not suggesting that you live and work in a van by the river. There is a balance.  A middle ground between being too frugal and too extravagant.

 However, if you are struggling simply to look nice, I think you are overreaching.  It is better to spend money to buy real things such as equipment and inventory. That's what really makes you successful.

If you do that, I think customers see that you are sincere and real.  They appreciate that, and it makes your life easier.

Golfing great and philosopher Lee Trevino was once asked, “Is it a lot of pressure when you are tied on the 18^th hole going for a victory?”  Trevino replied, “No.  Pressure is when you’re playing for $5 a hole with only $2 in your pocket."  The truth in Trevino’s humor is that there is great stress in trying to fake it.  If we are sincere and real and comfortable in our own skin, everything is easier.