Every business has a thousand critics who think they know how it works, or how it should work. But unless someone grasps the money part—how it’s made and where it goes—they will never understand that business or be able to offer an intelligent critique.
Especially today, when the government and public opinion is dictating how businesses or industries ought to work, without understanding how they work. Health care is a perfect example. Everyone has an opinion about what doctors, hospitals, and insurance companies should do, but few grasp what they actually do, and why.
Do you want to understand a company, or an industry? Follow the money.
Businesses exist to make it. No one starts a lemonade stand, or lasts long selling lemonade, unless they know where the money comes from, how much of it there is, and where it goes. Everyone around the lemonade stand, even the other kids the owner hires to help him, will have an opinion about how it could be better. But at its core, everything revolves around revenue and returns. Money is blood in the veins of a business. It’s positive and negative qualities can usually be explained, and predicted, by the flow of its cash.
I have heard employees pound their chest and say that the owners don’t understand the business because they don’t know what it’s like to perform some function on the shop floor. But that employee and the job he does are like part of the body. The money that flows to and from that part is what explains why and how and how long that part will function within the body. The CEO may not know how to do your job, but if you don’t follow the money you will never understand his.
To be blunt: bosses or owners who don’t grasp the money part of the business won’t be bosses or owners for long.
Customers can and will take their business elsewhere. But when they can’t understand why the business won’t respond to their needs and wants, the answer almost always has to do with where the money comes from and goes.
To succeed in business, you must master the money part. An owner must always know where it is coming from, how much of it there is, and where it is going.
© Greg Smith, 2013