How to Throw Away Money in Your Business

Sep 16, 2014, Written by Sue Miley

About 15 years ago, I was working for a big company that wanted to expand into new geography.  Competition was fierce.  I mean the one on every corner type of fierce.  In the city we were targeting, our competitor had literally 50 locations.  We were small potatoes compared to this global giant.

So, in preparing the presentation for the expansion to our board of directors, I had been extra, extra thorough – no holds barred:

  • Number of locations we’d need in order to compete.The costly marketing blitz it’d take for anyone to even know we existed.
  • The true, complete cost of all this expansion, hiring, marketing – everything..
  • A realistic estimate of how long it would take for us to become profitable.
  • The harsh truth about how long we’d be continuing to invest – several years – before we made a profit.

And I concluded by emphasizing – in the strongest warning possible – our single biggest, flashing-red, total disaster risk:

“Okay board of directors.  We have an incredible product, a huge market share in our home territory, the financial means to invest, however:

  • If we can’t stomach sustaining this large of an investment…
  • If we’ll be stressed out losing money for a few years even though it is planned…
  • If we start, and then after we have put all of the herculean effort, spent the money, rallied the troops, we stop short of full execution of this plan….

We will absolutely maximize our loss.

We will have literally thrown our money away.

How Small Business Owner’s Throw Away Money

Turns out, this warning is always true – even for a small business.

When we invest in something, start something, or expand in some way, but then don’t have the stomach, perseverance, or means to see it through, we are maximizing our loss and literally throwing away our money.

And, keep in mind that to spend $1,000, that means you had to first earn $2,500 or more in revenue. So you’re really throwing away even more than you think.

Obviously, as small business owners, we don’t start out with the intention to see how much we can waste. And, I’m actually quite in favor of investing in your business. So, then, how does an investment end up getting thrown away?

Raise your hand if you’ve ever bought a piece of exercise equipment that is now sitting collecting dust. Why did you buy it? You had good intentions. You knew exercise was something you needed and would benefit you. It was a good investment, right?

The question is not whether it was a good investment.

The better question, the question we should be asking ourselves is “what will get me out of bed and onto that elliptical machine every morning even 6 months from now – even when I don’t feel like it.”

The question we should ask ourselves about every business investment is will I see it through? Will I really execute?

3 Ways to Know if You Can, and Will, See it Through

  • Sufficient Resources: Often we look at the hard cost of the investment, without looking at “total” cost. Do you have the cash flow to not only invest but also sustain the effort until the return and positive cash flow start to come in?
  • Realistic Planning: Develop an “execution plan” before you invest.  What specific actions must happen for you to persevere until you get a good return on your investment?  Do you have the resources, skills, people, time and energy to do all of these actions?
  • Personal GRIT: Even if you have considered the total cost and have mapped out all the actions and feel great about it still, be honest with yourself about your personal level of commitment – and your tolerance for risk. How will you feel 3 months in? Six months in? What will keep you from giving up when it is tough?

What do you need to get you out of bed and onto that stationary bike every morning? Pray about the decision once you have all of the information.  If it looks like a good decision on paper, pray that God will give you the personal motivation and perseverance to fully execute on the investment.

Know When to Stop

Even though lack of execution is usually the biggest reason we waste our invested dollars, there are times when it makes sense to stop throwing good money after bad. Only stop if you can look yourself in the mirror and say — we executed fully, we adjusted proactively along the way, but this plan just isn’t working.

Have an objective exit strategy.  Compare your performance and execution against the above plans.  If you are achieving the results you planned, even if that is to lose money, stay the course.

Decide in advance what it looks like if it is a plan that perfectly executed just isn’t working.  Adjust your plans or tweak them to see if you can improve performance.

We all have failures.  We just need to make sure it is a true failure – not one we caused by not executing and persevering.

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Sue Miley

Sue Miley MBA, MA, LPC helps small business owners build successful businesses on a foundation of Christian values. After 20 years in business, and 10 years as a Christian counselor, Sue uses a combination of faith, business and psychology to help clients in business and in life.

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