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Kenneth W. Keller: Here’s what ‘It costs too much’ really means

Brain Food For Business People

Posted: January 12, 2010 10:06 p.m.
Updated: January 13, 2010 4:55 a.m.
 
In my time spent with owners of businesses, there is a phrase I hear often. I have come to loathe hearing it.

The phrase is, “It costs too much.”  

My observational research suggests owners use the word “cost” when they don’t want to spend money on something.

I understand the past few years might not be a reason to let loose with spending, but it goes beyond that.

Those in purchasing use this phrase when the seller hasn’t done a good enough job of qualifying the buyer.

The buyer uses this general catch-all phrase in an attempt to end the conversation with the seller. True selling professionals understand this is when the real selling starts; the inexperienced sales people walk away.  

When an owner makes the statement about something costing too much, he or she — almost universally — provides no background.

The unstated rationale is the owner of the business doesn’t want to spend money on something, so they say, “It costs too much.”

The owner rarely shares the logic or thinking behind the statement. “It costs too much,” is supposed to end the discussion and everyone involved is supposed to be happy with it.

From personal experience and observation, the only one happy with the statement is the owner. The rest of those involved in this kind of conversation are frustrated, disappointed and believe they are owed more of an explanation; some clue as to what is behind the decision.

While the owner may possess title to the shares of stock that state formally and legally who owns the business, people in management positions are stakeholders who deserve a more complete answer to the statement “It costs too much.”

There is no faster way to disengage management employees than by failing to provide an explanation to the decision as to why something costs too much.

If an owner expects a manager to read his or her mind and know the reasoning behind the statement, guess again. The manager doesn’t have a clue as to what the owner is thinking. Managers don’t read minds.

Many owners believe every penny spent comes directly out of their pockets. Thus, spending money means less for the owner.

The expenditures for goods and services come from the revenue generated by the company.

If the owner operates a one-person business, the statement is true. If anyone else is employed in the business the statement is false.

Yes, it is true, as one owner told me years ago, every employee on the payroll believes he or she has a license to spend money, especially money that is not their own.

Managers and employees will always present ways to spend money and it is the job of the owner to determine whether or not it is a worthwhile use of company resources to spend the money as suggested.

When an owner wants to spend money on something he or she wants or likes (not necessarily needs) it is not a cost, it magically becomes essential.

This decision-making process makes everyone around them wonder what cost truly means to the decision maker.

Is it a cost when the owner doesn’t want to spend the money and an expense for the business when they do? If so, how is this explained? What is the difference?  

The statement, “It costs too much,” is the phrase heard most often by young children from their parents.

Hearing it said in a business simply creates a parent/child relationship that is insulting to both parties.

The correct word is investment.

If something “costs too much” and the owner doesn’t want to spend the money, they have made a decision not to invest in that spending.

The problem with 99.9 percent of businesses is they have failed, and continue to fail, to do any basic financial analysis (return on investment, breakeven analysis, payback scenarios, etc.) on what has been spent in the past.

Therefore, when an opportunity comes up to review and determine new ways of doing something in a business, the owner operates almost exclusively from the perspective of “that will cost too much.”

This means the owner is nothing more than an uneducated purchasing agent who is told to buy something at the lowest possible price because they do not see and are not interested in the “value” of what could be purchased.  

Most businesses could use a solid dose of reality about better ways to invest for a better future.

It should begin with owners educating their managers about the decision-making process of how investments are made in the business.

Ken Keller is president of Renaissance Executive Forums, which brings business owners together in facilitated peer advisory boards. His column reflects his own views and not necessarily those of The Signal. “Brain Food for Business People” appears Wednesdays in The Signal.

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