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Beware the New FD (and anyone else trying to impress in the short term)

Sometimes my blogs write themselves. I was talking to a marketer recently. His firm has a new FD, determined to address the slightly iffy cash-flow of the firm.

 The FD has engaged in a ruthless cost-cutting exercise. Except for the partners’ drawings that is. These have consistently run at 100% of the profits earned for years. The result of that is that there has been no free cash for investment in growing the business (With a marketing budget, at 2.5% of turnover, it is a near miracle they’ve maintained their existing market share) or in the technology needed to produce cost efficiencies.

 Enter Mack the Knife, who wields the axe on the marketing budget.

Leaving aside the bits of that that are about maintaining strong local relationships, and bang goes £25,000 from the budget.

 Now, it is easy to waste a stack of money on marketing (rebranding exercises and SEO come to mind), but a firm that has stayed in the race with a 2.5% marketing budget clearly has a really good marketing manager. Really good.

 So, cutting their ability to produce silk purses from sows’ ears is, to my mind, a pretty stupid idea. Of course, it’ll look great at first, because the effort and cash put in last year will be still producing fruit next year and the year after. In about 2017 the ordure will hit the fan…but by then the FD may well have moved on, with their short-term profit improvement the key to getting the opportunity to ruin a bigger firm and the partners in this one wondering why profits are falling.

 Of course, the marketing manager won’t tell them. He won’t be there. He’s already looking for a new job.

 Short-termism should only have a place in business planning in a crisis.

Look up to see where strategy based on short-termism belongs.

First published June 2015



 
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