Are Your Coaches and Consultants Financially Literate?
Note From Rand
I’m a sucker for stories about people who beat the odds, or stories of redemption. My favorite movie, BY FAR, is Casablanca. Most critics agree it’s the greatest American movie and with good reason(s). It has the best dialogue of any film ever made. Quotable quotes galore. It was made during WWII before the outcome was certain, and projects a strong anti-Nazi sentiment that bleeds off the screen. It’s about two former lovers, Rick Blaine and Ilsa Lund, whose paths cross again amid very trying circumstances. Primarily though, it’s the story of Rick the saloon owner and his competing impulses. In the end, he rejects his cynical nature and does the right thing rather than the selfish thing.
I also like American Idol. Not the late rounds during which the most talented newcomers compete, but the early rounds – genetic mutants notwithstanding. The stories of young, talented people willing to put it all on the line to achieve their dreams is what gets to me.
The bottom line of all of this? It’s never too late to become the person that you want to be; it’s never advisable to relinquish your dreams (unless you’re 60 and want to become a rock star); it’s never acceptable to create excuses, to point fingers, to caste blame or to become a professional victim. Too many tools are available – CDs, DVDs, courses, books, professional organizations, mastermind groups, coaches – for anyone to give in or give up. Reflect, repent, re-plan, reboot, redouble, refine and resume. Own your life!!!
In reverse order, my second article this month examines what I call the “four-bagger”: how it runs our lives, and why it’s important to challenge your four-bagger when it gets in the way of your personal success. My first article is a rant. It proposes the following: In order for your external service providers to help you create value, they must have a reasonably high level of financial acumen.
The Super Bowl is Sunday. Go Saints! When you get my next issue, I’ll be in the middle of my annual two-week jaunt to Palm Beach in Aruba. Until then, get real, get tough and get going. Bon bini!
Are Your Coaches and Consultants Financially Literate?
I was attending a meeting at one of my client companies a couple of years ago. They regularly conducted sessions for the external executive coaches with whom their leaders worked, to provide updates on company results and strategy.
During one segment of the meeting, the presenter used the accounting term “goodwill.” The executive coach seated next to me leaned over to me and quietly asked: “What’s goodwill?” I was flabbergasted and wondered to myself: “How (or WHY!) could or would any company do business with external coaches or consultants who do not have a fundamental understanding of finance? If their balance sheet is a primary indicator of strategic success and their income and cash-flow statements are fundamental indicators of operating success, how can external experts support their business success without a fundamental working knowledge of these documents and their interrelationships?”
During a meeting at another client company, an external executive coach said the following to me: “I just don’t understand why companies treat people development as an ‘expense’ and not as an ‘investment’. Whenever expense reductions are required, training and development get cut.” My reaction – out loud this time: “People development is treated as an expense because it is. Maybe one day, accounting rules will allow training and development to be treated as a capital expense rather than as an operating expense. If that happens, an annual increment could be expensed as depreciation. I think that more accurately expresses how training and development ought to be booked, as the value of new knowledge and skills depreciates over time. What do you think?”
He said, “I agree,” but I know down to my socks that he had no idea what I was talking about.
I know a woman who makes hundreds of thousands of dollars a year selling HR solutions to large companies for a top three, international HR consulting firm. One day when we were discussing her investments, she said to me, “I generally sell a stock when it hits $100.” I looked at her incredulously and said, “I think you need professional help managing your investments,” while thinking, “How can she possibly help her clients create value if her investment acumen indicates her overall lack of financial literacy?”
Here’s my bottom line (pun intended) on this matter: If you are doing business with external experts, they need to have at least a working knowledge of finance. Otherwise, they cannot possibly understand how your company makes money. If they don’t understand how your company makes money, they cannot possibly appreciate how to help you create value for the buyers of your products and services. If the professional services you purchase do not, at some point, translate into value for your customers, YOU ARE WASTING YOUR MONEY!!!
What should you do about this? I’m happy you asked.
As part of your triage process, engage professional service providers in a discussion that enables you to subtly (or not so subtly) ask the following questions. These are issues and terms that are critical to a company’s success. Your consultants and coaches must have a basic understanding of them in order to create value for you:
• What is EBITDA and why is it important?
• What does “hurdle rate” mean, in the context of a company considering internal investments?
• What are “net present value” and “discounted cash flow”?
• How does the prospective valuation of “goodwill” affect the valuation of an acquisition candidate?
These are NOT complex concepts. An outside expert pitching you on his products or services ought to have at least a fundamental understanding of income statement and balance sheet issues if he is to be a partner in your success.
Win With Your “Four-Bagger”
Remember this: What you think about, believe about, feel about and act about comes about! I call it (in baseball parlance) the “four-bagger.” It’s true in all aspects of life. If you dwell on the inherent unfairness of the universe and how you have gotten a bad deal, get a check up from the neck up! The reason: You cannot be or become successful and fulfilled if you blame anyone or anything for your circumstances – ever! Let’s examine this concept a bit further.
By the time we’re in our teens, our beliefs and values have already begun to congeal. The things we were taught (primarily by example) early in life automatically find their way into our subconscious, without challenge. They become our facts, our rules for how the world works. Good or bad, our beliefs form the foundation of everything we do. Listen to your self-talk. It has its genesis in your belief system.
As adults, our beliefs inform our thoughts and feelings. We process events that we observe through this filter and have a tendency to view events that validate our beliefs as facts and events that contradict our beliefs as anomalies.
Our thinking about events evolves out of that filtering process, and we then develop feelings from that entire chain of events that inform our actions. We all think that the decisions and actions we make and take in our lives are based on objective reality, when there IS no objective reality. Even the test of “reasonable scientific certainty” often fails in this regard. “Reasonable,” in hindsight, is often shown to mean, “well…that’s what we thought at the time, but now we know that we were wrong.”
If you want to be successful in life, regardless of how you define and measure that, you must constantly and consistently subject your “four-bagger” to relentless scrutiny. A great place to start is with some reading that’ll help you consider these phenomena, and how they work in your life.
Some book suggestions:
Nudge by Richard H. Thaler and Cass R. Sunstein
Virus of the Mind by Richard Brodie
