Accountants have a purpose – to record your sales figures and hopefully also find nice ways of reducing your tax. But they are non-innovative. They make money from cost cutting – not from wealth creation. Systematically choking the life out of a business. Don’t get me wrong – they are needed and useful – just not in a position of management.
I have seen this happen many times – as part of the natural cycle of business growth, a business gets too big for the original creator to know about everything that is going on. They now have employees working in areas doing their own things, making their own sales, and the proprietor begin to worry. So they look for help and advice and they turn to their accountant! Within a year or so, one f two things will have happened. Either the business will have gone bust, unable to grow with the changes. Or the proprietor will have adapted a new philosophy, sacked the account from the management role and taken their business by the reins again.
Usually there are three distinct stages for business growth, and a different leader is needed in each stage. The first stage – small business – requires exactly the same mind set as what kills the third, large business, stage. Initially, the business is run from a single mind – a person who has their finger on the pulse and knows exactly what is happening everywhere. As the business grows, they need to be able to hand over control of parts of the business – they no longer do the work but instead manage others. They still know what is happening and what deals are going down, but do not have direct involvement. Finally, the business grows such that there is business being done that the directors at the top only get a summary about. Their job is to dictate trends and business attitudes – not to do the work or even to facilitate it.
An article I just read illustrates some of these concepts – Peggy Noonan On Steve Jobs And Why Big Companies Die. Its worth a read and adds quite a few points to my argument. There is also a nice fact about the life span of Fortune 500 businesses. It talks about a business as it changes from an innovative business to a sales business milking its cash cow..
Fifty years ago, “milking the cash cow” could go on for many decades. What’s different today is that globalization and the shift in power in the marketplace from buyer to seller is dramatically shortening the life expectancy of firms that are merely milking their cash cows. Half a century ago, the life expectancy of a firm in the Fortune 500 was around 75 years. Now it’s less than 15 years and declining even further.