Getting to First Base: Why Profit is a Vanity Metric and Cash is Vital
Today’s topic comes courtesy of a very unlikely source for great business advice for entrepreneurs – the movie Moneyball. It’s the real life story of Billy Beane, the general manager of a major league baseball team that finds itself at the bottom of the ladder – the Oakland A’s.
Crushed by the big budgets and big name players of teams like the New York Yankees and the Cleveland Indians, Beane is forced to take a risk and do something no team has done before – abandon traditional recruiting methods and employ computer-generated analysis to acquire and trade players. You see, they didn’t have money to attract the MVPs who could hit home runs so they created a formula to predict which players would just be able to consistently hit the ball and get to first base.
And in doing so, Beane changed the face and landscape of the game forever.
One of the quotes from the movie that really summarizes just how big this shift in perspective was is when Beane says to one of his special assistants:
“You’re not solving the problem. You’re not even looking at the problem.”
Beane understood that in baseball (which is not that different from dealing with your financial issues), it’s easy to get distracted by all the issues and rhetoric swirling around the actual problem. The more you have personally invested in the status quo, the more you will be prevented from seeing the real problem for what it truly is. That’s why it’s vital to seek advice and perspective from people outside your industry — those inside will be emotionally attached to the way things have always been done and thus, they have become part of the problem.
Which brings me to why I have invited my good friend Dr Reginald Tomas Lee to the program today...
Reginald Tomas Lee, PhD, is an educator, author, international and TEDx speaker, and corporate advisor in the areas of generating and managing cash, and capacity management. He is the author of four books, including Lies, Damned Lies, and Cost Accounting and Strategic Cost Transformation with three more, including Project Profitability, and Engagement Economics, under contract. He is a feature writer for the Journal of Corporate Accounting and Finance. Reginald has advised many major companies, including as Bristol Myers Squibb, Dell, Disney, DuPont, Lockheed-Martin, and Toyota.
Professionally, Reginald has worked for GM, IBM, EY, has been a professor of both engineering and business, and currently teaches in the business analytics dept at Xavier University in Cincinnati, OH. Reginald has a PhD in mechanical engineering from the University of Dayton.
Financial Foreplay Highlights:
1. Focus on cash – your prime objective is to bring in more cash
2. Are the tools you are using giving you the information and insights you need? Or are the tools leading to sub-optimization of cash flow?
3. Three vital questions that should be asked to ascertain whether a decision will improve cash flow - How much did I spend? What did I create? How much demand is there for what I created?Support the show