Biggest Business Myths

Some business sayings have worked their way into the DNA of “best business practice”.  There is a kernel of truth in each of them but dig beneath the surface and they all have the potential to be dangerously misleading.  Here are five examples that will explain what I mean:

1.  Your sales figure matters above all else

You can easily understand the thinking behind this.  Not enough sales and you don’t really have a business and it will soon run out of cash and fail.  The problem is that by concentrating on growing sales, you overlook two other essential ingredients of success:

  • Cash – higher sales are cash hungry.  They require you to hold more stock and have bigger debtor balances.  If you can’t access more funds, you will run out of cash and can’t buy more stock to feed the growing sales.  This is known as “over trading”.
  • Gross margin – the savvy reader of accounts often starts with this figure and its trend.  It is easy to sell more by dropping your price and enter a spiral of decline, needing to sell more and more to generate sufficient gross profit to cover your overheads and deliver a profit.
2.  Price is all customers care about

Again, sometimes this is true.  The public sector procurement process is notorious for this.  The low price enables them to squeeze it into this year’s budget and worry about the consequences of poor quality purchases when it comes to next year’s budgets.

Many service providers – accountants in particular – encounter potential customers who are incapable of distinguishing the differing quality of what is on offer.  They can, however, work out that one price is higher than another and take refuge in using price as the only yardstick.  Even when they slowly become aware that the service they are receiving is not what they expected, they are reluctant to own up to their mistake taking comfort in the low price.  Interestingly, those same people have no trouble in distinguishing Champagne over Cava, a Mercedes over a Megane, or sirloin over stewing steak.  Or as Oscar Wilde remarked, they “understand the price of everything, but the value of nothing”.

3.  The Customer is always right

Let’s turn this on its head.  There are some customers you simply don’t want:

  • They haggle you down on price
  • Always want a discount
  • Take extensive credit (and then demand more discount)
  • Always want to be at the head of the queue
  • Have more “returns” than any other customer
  • Simply aren’t very nice people to deal with

Are these people always “right”?

4.  Create a great product/service and it will sell

Absolutely right – it will sell, but will it sell enough – enough to cover initial development costs, to continue that development, to make a profit and to produce a decent rate of return for the “inventor”?  For some great ideas or great products, it just doesn’t happen.  It could be because existing alternatives are adequate and the improvement offered by the new “great product” isn’t quite enough to prompt a switch.  It could also be down to price or poor marketing with the inventor believing that his new product is so good, it shouldn’t need to be marketed aggressively (wrong I’m afraid). If you find yourself in this predicament, recognise the inevitable and move on to your next “great idea”.

5.  Outsourcing lets you get on with running your business

In some respects “yes” but it is not a universal truth.  Running a payroll is a highly complex, technical function where you should not have sufficient spare time to become a payroll expert.  Using a virtual assistant or the more routine aspects of your book-keeping (e.g. sales invoice generation) or maintaining an attractive and up to date website – these are frequently a cost effective option to outsource instead of either doing it yourself or adding to your own headcount.   

The one outsourcing that rarely pays off – and indeed sends you backwards – are those in business who outsource the whole of their accounting function. The downsides are:

  • They lose touch with their own business
  • They pass responsibility for their business performance to someone else
  • They don’t recognise quickly enough when the business is deteriorating and take remedial action

In summary, their mind set has become: “it’s nothing to do with me, ask the accountant”.

There are plenty more myths; teams deliver better results than individuals, under promise and over deliver guarantees happy customers, keep your cash – rent before buying.  And each contains an element of truth in some circumstances.  But to accept them as a universal truth and you have fallen for a myth.

Can you recognise them in your business approach?