Don't Be Too Cautious...or Too Reckless

I always find it fascinating to see how different principals approach “margin of error” in running their firms. I know some who never want a client bigger than ten percent of their billings and who have a year of overhead set aside. Others sleep fine at night with a client that represents half their billings, and they have two months set aside. And then bounce from one huge client to the next for the entire firm’s existence.

If you have no margin of error, the smallest little hiccup in performance can inflict a blow so harmful that you need two years to recover, if you recover at all.

But too much margin and you “spend” money that can’t be used profitably elsewhere: it keeps you from reaching with that once in a lifetime employee, from acquiring that firm to beef up your service offerings, or worse: from yanking as much money out of the firm as you should, year over year, so that you’re not moving from the boardroom to the greeting line at Walmart.

We each have a different perspective on how far from danger we need to stay, but it’s useful to reexamine that belief…and then have the courage to stick with whatever you decide.

A Two-Part Philosophy

My beliefs about these issues are not the only way to go, but they are what I’m comfortable with and what gives me the best chances of a two-fold goal that’s always top of mind:

• Survive. And then
• Thrive.

If I don’t survive, I obviously won’t thrive, but if I just survive without thriving, I’ve fallen short of what is possible.

That two-part set of beliefs is pretty easy, obviously. It’s in the application of them that we get into trouble. So in the interest of trying to be “specifically helpful” in this week’s article, let me try and unpack this concept into something specific.

A “Survive | Thrive” Framework

We’re really trying to land somewhere in the juicy middle and avoid the extremes. If that doesn’t make sense, consider this:

• Too little money set aside and you make stupid decisions out of panic. But too much money set aside and that capital isn’t working for you and you might not make decisions quickly enough because there’s no urgency.
• Too little marketing and every sales opportunity invites over-investment, but too much marketing and you’ve been stealing from what would otherwise by billable time with client work.
• And on and on it goes.

So here’s what a “Survive | Thrive” framework might look like for you, but with addressing more than just money. I want to fold some philosophical things in here, too. And these are in order, from more to less important, building on each other to construct a healthy firm:

1. Always be deciding. Nothing works if you don’t make decisions, and efficiently. It’s easier to quickly correct bad decisions than to claw back all the wasted time overthinking them or even passing those “decision gates” that’ll never appear again.
2. Watch core financial metrics, and specifically what you pay yourself, your EBITDA after all expenses (including that one), and the cash cushion that remains. These are the three trusses (of eight) that hold up the bridge that the truck is about to cross in the illustration.
3. Employ an efficient marketing plan flywheel that’s always turning, focusing on elements that you Own rather than ones that are Paid or Earned or Shared and thus subject to an algorithm (referencing here the PESO model). The point is to create a scenario where your opportunity always exceeds your capacity.
4. Manage people actively and courageously, which means correcting your hiring mistakes, not living with anything because it’s temporarily easier, and leading with purpose. You want people to describe you as ruthlessly kind.
5. Make reasonably innovative bets in tech, people, pricing, and service offering design.
6. Build after-action reviews into your culture, learning what you can, and quickly, but then wasting no more effort on regret. Learn more here.

That’s it. This is how to run a firm that both survives and thrives. And not every day, but most days you should wake up and realize what a privileged life you live as captain of your own fate, always adjusting and learning and then thriving in this entrepreneurial life.