Articles about finance abound; and most of them contain a wealth of wisdom. Unfortunately, though, few deal honestly with money mistakes businesses make at the enterprise level. And, ironically, that’s exactly where the stakes are highest and the blunders most catastrophic.
Related: 6 Financial Mistakes Small Businesses Make All the Time
To right this wrong, I connected with 10 executives from companies that generate well above eight-to-nine-figures annually and asked them one question: “What’s the single biggest money mistake enterprise-level organizations make?” Here are their answers and exactly how you can avoid those same pitfalls.
1. Paying for talent vs. developing it internally
Russ Jones, CFO at Shopify: “Scaling our employee base without lowering the caliber is easily the biggest challenge we’ve faced. “When you have the capital, it’s tempting to want to just pay for ‘experts’ who are already established in their field. Instead, invest in people who are the right cultural fit and make their technical development part of your overall process.”
Takeaway: Rather than buying talent outright, center your team-building #strategy around individuals with the potential for growth, and develop training and mentorship programs to bring them up to speed. Not only does this approach cost less, it builds loyalty and trust within your organization.
2. Substituting office space for collaborative technology
Jeff Rodman, co-founder and chief evangelist at Polycom: “At the enterprise level — and especially for startups just making it big — the ‘big office’ mistake is a killer.
“It’s no longer a given that everyone has to be in the same place at the same time, and that means a lot of expensive real estate is being wasted. This makes the use of professional collaboration technology, whether rented or purchased, less expensive to the company than dedicated floor space in a commercial building.”
Takeaway: Remote working isn’t just preferred by employees, it’s also one of the most cost-effective ways to grow. Even if your ego isn’t tempted by the allure of a “big office,” physical space shouldn’t be the default choice for expanding in the 21st century.
3. Emphasizing customer acquisition vs. customer retention
Neil Patel, NeilPatel.com and four multi-million dollar SaaSs: “What usually gets companies to the enterprise level isn’t what keeps them there. While customer acquisition is the cornerstone of building an empire, customer retention is the key to keeping it.
“Whenever I’m consulting, one of the first steps I take is creating email sequences targeted at customers who have recently left. This isn’t just to earn back their business, it’s to identify why they left in the first place.”
Takeaway: The data on customer retention versus customer acquisition is clear. Not only do existing customers cost less, they’re your company’s most profitable source of ongoing revenue. Increasing customer lifetime value is the low-hanging fruit of sustainable growth . . . and ignoring the people who have already said “yes” is one the most detrimental money mistakes you can make.
4. Spending your way to success
Jennifer Cue, CEO of Jones Soda: “The worst mistake you can make is trying to spend your way to success. “When I came to Jones as CEO, we were a $17 million company spending $11 million before manufacturing costs and losing $7 million annually. Cuts were necessary across the board.
“Of course, the only thing worse than overspending is cutting back and not leading by example. In addition to reducing our spend on things like marketing and advertising, coming back, I chose to take a very low salary, offset by equity. Shortly after that, the entire board aligned themselves and agreed to take a major pay cut, too.
“Overspending sneaks up on the best of us, both professionally and personally. And the more capital you have, the easier it is to fall prey. Facing dire situations demands making cuts, but to truly lead by example, those cuts have to extend across the board.”
Takeaway: Jones Soda’s monumental turnaround was built on that principle, and if you’re in a similar situation — regardless of your overall size — the same approach should be adopted.
5. Abdicating responsibility vs. maintaining vigilant oversight
Ramit Sethi, CEO of GrowthLab and author of I Will Teach You To Be Rich: “Growth without oversight is catastrophic for a business.
“A few years ago, I hired someone to manage a crucial technology transition. He bungled the process and we lost $100,000 overnight. Early on — when I oversaw everything — that never would have happened. This doesn’t mean you shouldn’t trust your team. But it does mean — especially for crucial decisions and implementation — you can’t go hands off.”
Takeaway: Be as vigilant when you’re successful as you were when you started. This doesn’t mean becoming a bottleneck or micro manager, but it does mean that when it comes to critical decisions and initiatives, the buck always stops at the top.
6. Adopting a pay-first approach
Daniel Kushner, CEO at Oktopost: “Most large-scale companies neglect the promotional power of their employees to engage, attract traffic and help grow sales. Instead, they adopt a paid approach to online advertising, especially on social media.
“Business is inherently social. It all comes down to people dealing with people in one form or another. In our rush to scale, monetize and grow revenue, it is easy to lose sight of the fact that our teams are the key to satisfying our customers’ requirements and, ultimately, our success.”
Related: 5 Financial Mistakes Most Employees Make When Starting a New Job
Takeaway: As humans, we prefer to buy from people we know and trust. Your employees have intimate knowledge of your products or services. When they share their passion for your brand, they humanize it and make it more relatable and engaging — all without costing you a dime.
7. Following revenue instead of profits
Syed Balkhi, CEO of OptinMonster and WordPress Beginner: “During and after the fast-growth stage, it’s easy to get distracted by top-line revenue and lose sight of bottom-line profits. It sounds obvious, but it happens all the time.
“Hockey-curve growth is exciting. But it also makes you lose perspective, and you start carelessly spending money on every new tool, database and service that will help you continue to grow revenue. You add new employee perks, hand out raises and pile on incentives that simply are not proportional to what you’re actually bringing in after all those expenses.”
Takeaway: Revenue is a seductive metric. And yet, for all its allure, it’s profoundly empty. Much heartache can be avoided by staying as focused on the bottom line when you hit enterprise status as you did in the early days when the stakes were high . . . because the truth is: They still are.
8. Warehousing data instead of leveraging it
Amir Orad, CEO at Sisense: “Every company collects data as part of its business, but too many companies fail when it comes to ‘thinking outside the box’ and leveraging it for new and non-obvious purposes.
“At my first company, we managed authentication for dozens of firms. We used what was then the industry standard authentication method and recorded lots of information about each user. After years of just storing it, we realized that data was a potential gold mine and had an innovative idea: Use forward-looking analytical algorithms on this additional data to as see how ‘at risk’ the user was.”
Takeaway: Few organizations — especially enterprise organizations — put their data to work. This means squandering precious insights. Rather than siloing analytics, i.e., separating your collection sources, invest in integrating them and incentivizing creative uses.
9. Banking on creative inspiration
Chris Ferguson, CEO at Bridgeable: “As a successful company, it’s easy to overestimate the market’s desire for your products and services, particularly when you are working with creative people.
“Early on, we invested a lot of time and energy in speculative design work. After an initial conversation, we developed several new product ideas for a large manufacturer. Our enthusiasm got the best of us, and we spent over $250,000 creating concepts that we loved, but when we got into the room with the clients, they already had similar products in development.
“When you do speculative work, always put it in a real-world setting.”
Takeaway: On the heels of big wins, it’s common to underestimate the continued need to validate product-market fit. Egos get in the way and we simply assume, “We were right before. We’ll be right again.” But banking on creative inspiration is a sandy foundation and can quickly lead to waste.
10. Doing it all yourself instead of hiring support staff
Joshua Dorkin, founder and CEO BiggerPockets: “Do not be afraid to spend money on growing your own support team. When you find yourself putting in 60-, 80- or 100-hour work weeks, it’s time to let go of distractions and hire someone.
“A great hiring manager will take that time-consuming task from you, and an excellent assistant will help streamline your workflow and tackle little things that pop up. If it can’t be ignored but doesn’t need to be handled by you specifically, that task can be delegated to someone else.”
Takeaway: As leaders, we’re often tempted to “save the money” and keep doing the same old job by ourselves. But, in the end, spending funds on key hires to offset the work bogging you down allows you to focus on growing your business, building strategy and helping your team members become more successful at their jobs.
High stakes . . . big lessons
Whether or not your company has reached “enterprise” status doesn’t matter.
Related: Five Common Financial Mistakes Startups Make- And How To Avoid Them
The above mistakes have one thing: They describe companies that fell prey to the blinding light of success. But, big numbers don’t protect us from big mistakes; in fact, the exact opposite is true.The good news is, you don’t have to learn the hard way.