I Know an Old Woman Who Swallowed an Investment Strategy

Businesses are lot like nursery rhymes. For every over-worked, shoe-dwelling old woman, there’s another who’s prepared to eat cats, dogs, and horses (whole, presumably) in order to catch a fly. Apparently this second old lady didn’t hear that honey is the thing you need to catch flies.

Strange as it may sound, there’s a business lesson to be learned from the old woman who swallowed a fly, though. Namely, if your solutions to a problem (any problem, from customer acquisition to which hand dryer to install in the rest rooms) are purely reactive, you’ll end up like the old woman: Dead, of course.

Once upon a time in Redmond…
When I read that Microsoft had narrowly beaten Google and Facebook to Skype, for the bargain price of $8.5 billion, my first instinct was that neither Google nor Facebook need Skype, and that they were just in the bidding to push up the price Microsoft were going to end up paying.

It sounded to me like Microsoft thought they were going to be left behind, that the opportunity cost of not buying Skype would be tens of billions of dollars…and so they swallowed the spider to catch the fly. I don’t know why. I’m sure that Gates and Ballmer will let us know in time.

If Microsoft’s motivation in buying Skype was an expensive game of keep-away with Facebook and Google, it may be one of the costliest errors in the computing era.

But to say that only large businesses make this kind of mistake would be a grave insult to the thousands of small business owners make this same mistake every year. Whether it’s  a poorly researched software solution, or short-sighted mis-investment in company vehicle maintenance, or remodeling the conference room months before the company decides to move premises, small businesses definitely know how to keep up with the Joneses. And sure, these are all easy to spot in hindsight, but if you think about it, they’re not too much harder to spot in the moment.

How to Not Have to Eat a Horse
Document the ROI and cost/benefit analysis of every purchase you make. Not kidding about that. You should also explore multiple alternative solutions, not just competing versions of the same solution. Even if the documentation is on the back of a napkin, the simple act of examining how this expenditure will help you improve customer experience, or make your company more efficient, will make you a more informed buyer.

If your business is moving too fast for you to step back and take a look at how to fix a problem, that’s your problem. If the issue you’re trying to solve is out of your area of expertise, ask an expert. Paying $400 for an hour of IT consulting and $200 for a new network storage device is a better investment than the $200 upgrade you think will take care of your server problem. You’re not an expert, and when your fix doesn’t work and snowballs into $1000 of hardware and software changes and three days of lost productivity from two of your employees, the cost runs to five figures.

And it’s not just purchases, it’s investments of time and resources, too. Before you assign resources to develop video podcasts for your Website, ask if you need podcasts. Just because your main competitor is doing it doesn’t mean they’re doing it well, or even that it’s having a noticeable effect on their revenue.

Living Happily Ever After…
If you feel like you should invest in something, invest in patience. It’s unlikely that one of your competitors is going to be an early adopter of some ground-breaking technology that takes away all your customers. Be patient, look at your business, and if you need to reinvent it from the ground up, do that. You wouldn’t hope to build a race car by bolting together the best parts of exciting looking vehicles over a three year period. In the same way, tacking the latest must-have project or application to your business will make your product cumbersome, and unintuitive.

And then you’ll be left wondering if those magic beans would have actually been a good trade for the family cow after all.

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