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How Not To Run A Business

So bad was a recent job I did that I have decided to write a piece on how not to run a business. It has to have been the worst run company in the history of capitalism.

Not that the business was a failure; on the contrary, it was generating a £1 million profit on a £3 million turnover, with a gross margin of 60%. The business was founded by a brilliant husband and wife team who sold it to a bunch of investors who installed their own managing director and sales director. I came in just after the change of ownership had taken place.

The company had the potential to be a great place to work and yet due to the appalling man-management of the new MD it was a miserable experience. Eventually, after 2 and a half years my patience ran out and my intransigence got me sacked. However, I had the last laugh when I got a new job within weeks on more money and working shorter hours.

Lesson 1: Don't become obsessed with the figures to the exclusion of everything else.

I have to admit learning something positive from the experience. The MD was obsessed with the figures and I appreciated the importance of cost cutting even if a business is highly profitable. This lesson could have been learned by Local Authorities who should have been cutting costs in the good years so they can cope better today with the swinging cuts.

But he took this to a new level. Among my respsonsibilities was maintaining the budget. This started out as a simple spreadsheet that grew and grew into a leviathon with over 10,000 formulas. I asked if we could buy a cheap budgeting software programme but that was rejected. The budget was updated every day and saved as a new file. I would get a call every day and had to spend an hour discussing the latest tweaks and variances. So much effort devoted to such minor changes was a frustrating and useless waste of time. It achieved nothing other than satisfying the ego of the MD. He was an accountant so enjoyed the figures side but neglected the operational side.

A good example of this concerned a nearby tyre supplier. The company carried out work at customers sites and teams would go out each day in vans. The company therefore bought a lot of tyres. There was a garage 200 yards away that was reliable and cheap. It was the only one nearby. They insisted on payment of invoices 30 days after the date of the invoice. However, the MD insisted that ALL suppliers must be paid on 45 days month-end to match our debtor days. There were no exceptions. As a result the tyre company kept putting us on stop. They said they had plenty of other customers who were preparted to pay on time and weren't bothered about turning us away. The MD wouldn't budge thinking that we are big enough not to be pushed around by a small garage business, but he was wrong. We ended up having to drive the vans 15 miles away to the nearest comparable tyre supplier.

Huge amounts were spent on petrol and considerable staff time to get new tyres just because the MD wouldn't pay this supplier on 30 days. The whole charade was to keep the figures in check. If there is any sense to it at all it might be that he could easily hide the extra petrol cost in the accounts but the creditor days were seen as a key metric. For a business with no cash flow problems at all this was somewhere between the sublime and the ridiculous.

The business was bought with the expection of significant sales growth which was not materialising. Someone commented that he changed the budget as often as he changed his pants. I remember saying to myself, and outloud, that perhaps he should spend less time faffing about with the figures and more time drumming up new sales. The figures are important, of course, but not to the extent taken here. The MD was mad about the Balanced Scorecard but he seemed to forget the word 'balance'.

Lesson 2: Staff morale is important.

The business could have been such a great place to work but owing to the lack of sales growth there was no pay rise in year one of the new regime. In additional, the presence of new people at the top (the MD, the new sales director, and a chairman) left a huge gap between the senior management and the rest of the workforce. Given that there were no noticable changes, other than no pay rise for the first time in 15 years, the presence of large numbers of people coming in at the top was confusing and frustrating for those going out and actually doing the work.

The company applied for the Investors in People award and I was put in charge of administering it. The company failed to achieve it. The assessor said that he had carried out 200 assessments in the last few years and had never met such a miserable bunch of staff. I got the blame for the failure to achieve IiP. The MD didn't believe in IiP, he just wanted it as a badge to put on the door. No lessons were learnt and the subject was quietly dropped.

I was sceptical of IiP before this as I once worked for an organisation that achieved IiP despite being an unhappy place to work, but this failure to achieve it restored my faith in the validity of the award. IiP is a clever way of asking staff how they feel about their managers' without asking the question directly, and hence deriving an honest answer of out them. Man management is the most important element in staff morale. This business took staff morale to new levels of despair. Bad behaviour by staff at the customers' sites started to increase, and who could blame them.

Lesson 3: Praise Flows Upwards, Shit Flows Downwards.

This was a mantra trotted out by a colleague who was happy to have his face metophorically slapped each day by the MD but carried on regardless. It is the natural tendency for praise to go to management and blame to go to their subordinates. One should be on the lookout for managers who blame everyone else for failures but take credit themselves for successes. It is largely because managers often get where they are by being good at bullshitting. The MD of this company was a genuis at convincing people about him that he was brilliant whilst being the most useless and awful manager to everyone below.

The company had an annual meeting for all the staff and the chairman of the company stated at these that we had a very very good managing director. This was amazing to hear. Here we had an aloof chairman, used to people kissing his arse and sucking up to him, who was totally oblivious to the feelings of the workforce. The owner of a business should always look out for their senior and middle management who exhibit this tendency. Blame should be assigned to the person in charge and they should be held responsible.

Lesson 4: Flat Organisation = No Organisation

A recent management fad has been the "flat organisation" whereby there is no formal structure and people supposedly work together. This company adopted this system and it was a total failure. All the boring jobs, such as filing, were done by the most concientious staff whereas the lazy people just ignored any requests for help. No one was sure just who was in charge of any particular task. It was often those who shouted the loudest. It also meant responsibility for certain tasks fell to people well below the pay grade appropriate. I wonder if it was a cunning plan by the MD to abdicate responsibility for tasks he was unsure of? Such a system may work for a small software/internet start up company but in any sizable organisation people work best when they know their responsibilities, are comfortable with them and levels of seniority are not just determined by people's personalities.

Lesson 5: Management time should be spent wisely

I was tasked with purchasing a plumbed-in water cooler for the office. I got 3 quotes and then negotiated a slight discount plus a pack of free plastic cups every month. I thought I had achieved a good deal. The cost was £3.83 a week for 5 years. The owner/manager of the water cooler company came in to install it and all I needed was a signature from the MD.

I asked him to sign the purchase order and was greeted with , "what? £3.83? I'm not just signing that off". There then ensued a stand-off between the MD and the owner of the water cooler provider for 3 hours where the MD managed to push down the price to £3.74 a week - a saving of 9 pence a week. So 3 hours of senior management time resulted in a saving of 9 pence a week.

Sure enough, a saving to the company was achieved, but (we all asked) at what cost to our credibility? Would the water cooler company give us any priority if there was a leak or a fault?

For a company making £1 million free cash flow but was not achieving the sales growth targets this was a ridiculous waste of senior management time. It was all a big game to the MD. He would never be seen cold-calling potential customers, going out on site with staff but enjoyed the thrill of "pushing down on suppliers". Management time should be something included in the analysis of costs within a business and if not being utilised effectively then rules should be imposed on their specific remit. In my experience leaving senior management to do as they please is likely to lead to their bullshitting side coming out and no-one knowing what purpose they have or what value they deliver.

Lesson 6: Avoid becoming "busy fools"

Sometimes less is more. Forever fussing over details in the figures, and spending time relentlessly "pushing down on suppliers" can be a waste of time. Time is limited, and all staff have to deliver value. Time should be directed towards the most valuable activities.

Lesson 7: The Three "B's" of Business

Bullshitting, Blagging and Bullying. If you're good at those you'll probably do well.