Cheating yourself in business

By Pedro Nueno

Cheating ourselves, also in business, is the result of an inadequate analysis of reality, of taking hasty decisions or overvaluing our abilities. To figure out his "Self cheating" is easy for other people, and its consequences are disastrous. Failure and loosing support are only two of them. Although this situations may occur in many aspects of life, we can find many examples in the business world: cheating with competitors, with accounting, company strategy, employees, our capabilities, etc. In Cheating Yourself in Business, the author analyzes many examples of self-cheating and explains how to stop and achieve better and more efficient business management.

• Language: English
• Publisher: Plataforma
• Release date: Nov 4, 2019
• ISBN: 9788410243156

Book preview

Introduction

Have we ever fooled ourselves? Have we decided something by somehow thinking that we might be able to do it but reality showed us that it was more difficult than we wanted to think? Have we ever embarked on a project that we were not capable of carrying out? Have we ever promised to give someone something in the future –a position, compensation, award– and then failed to deliver? And we could go on. These kinds of self-deception are the result of having insufficiently analyzed reality, of a hasty approach, of somewhat superficial perspectives or even of contaminating our decisions by having rather overrated our knowledge and our capabilities. There may be the odd case of pure lying, though these are few.

So it may be of interest to reflect a bit on these issues to avoid cheating ourselves. Cheating ourselves doesn’t just undermine us with its results. It is often relatively easily detected by people in our surroundings, and this implies a considerable loss of image and of what is associated with it: eroding interest in collaborating with us and in supporting our projects.

This book’s vision is aimed at businesspeople and company managers. Unfortunately cheating ourselves is a human problem and we can find lawyers, doctors, politicians, military officers and a long list of occupations in which people undoubtedly fall into self-deception. But our core expertise and our analysis are aimed at business management and this will be the field in which we conduct an in-depth examination of the problem of cheating ourselves.

We have used cases, all of them real, many with some changed names, as the basis for our analysis, since they give us insights into the problem of cheating ourselves in business.

As in other publications, we thank The New Yorker magazine for their permission to reproduce some of their jokes to give an added insight to this book.

1.

Cheating ourselves about our company vision

There are many cases of medium-size and small enterprises that have a good product and earn attractive returns. Some are family-owned companies and have a lengthy history behind them. Many have had the ability to continue innovating their product and keeping their customers satisfied. In his excellent work Hidden Champions of the 21ST Century, the author Hermann Simon examines the success of companies that, though small, have a significant share of a small market. Years later, Professor Simon himself confirmed that the phenomenon of globalization and the development and internationalization of countries such as China, India, Brazil and others have changed the situation and companies that used to be hidden champions for having dominated a small market have now turned into small companies in markets that have become much larger.

Obviously there are some hidden champions that have been able to grow at the fast pace at which their markets have expanded, but they are clearly in the minority. The problem arises when the management of a company chooses not to concern itself with this situation.

A German producer of automotive components manufactured by sheet steel stamping had sales of 68 million euros, with a net profit of 3.5 million in 2017. The company had grown by 8% between 2013 and 2016 after virtual stagnation between 2009 and 2013. The company was family-owned and had been founded in 1920 by the great-grandfather of the family shareholder who was the managing director. The company supplied mainly German car manufacturers and exported just under 20% of its sales. It was based in Hamburg but had offices in Paris, Barcelona and Chicago to promote its exports. After many years of relations with its suppliers, of giving them good service and excellent quality, the company maintained its relations with its German customers although in 2018 its sales accounted for a small fraction of stamped product purchases and they were competing with other suppliers, some of them more than a hundred times larger.

After organizing a small professional board for the company, the family accepted the recommendation to sell the company to one of its competitors, a successful enterprise ranked among the top producers of stamped steel parts. The family shareholders understood how difficult it was for such a small business to be viable in the long term. The quality of its product, its team and the excellence of its service led a competitor to understand that acquiring it would give it market share and above all value, and therefore paid around eight times its EBITDA, amounting to eighty million euros. It is very likely that such a small and largely local company competing with multinationals would at some point have been ruled out as a provider to simplify supply and it would have been very difficult for this small business to find an alternative customer.

Moreover, companies of a certain size sustain research and development activities that allow them to explore other materials, other production processes (with robotics, 3D printing), digitization of its activities, progression of the global market through the growth of new markets (China, Western Asia, Africa, et cetera). And all this entails a considerable cost and requires high-quality people and services that would hardly be sustainable for a small business.

2017 and 2018 were a good time to sell a company. There was plenty of cash flow, it was possible to borrow comfortably and a certain process of concentration of enterprises was taking place, leading, among other things, to obtaining very reasonable prices for these transactions. But countless companies that have no future due to the same circumstances we analyzed earlier will prefer to delude themselves and believe that they will continue to survive in good condition in an increasingly global environment and therefore with a far higher total sales volume, competing with larger companies than theirs, working in changing environments due to technological, and in some cases disruptive, advances. If we want to avoid this self-deception, we should conduct a sustained analysis of our sector’s progression, but above all of our market share and whether this share is relevant. Sometimes there are sectors with many relatively small markets in which, in turn, there can be several small businesses serving relevant portions of that relatively small specialized market.