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December 16, 2013

Everything Has Overhead

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Entrepreneurs often deceive themselves about the real ongoing costs of new ventures. We think things will happen sooner than they really will, cost less than they really will and require less time and energy than will actually be required. Confidence, an indispensable characteristic for successful entrepreneurs, often leads us to bite off more than we can chew.

 

During the planning and dreaming stages we bypass one of the universal rules of all real deliverables and outputs – Everything has overhead costs.

Overhead is Inevitable…whether we acknowledge it or not

I was recently on a board call with a brilliant businessman and colleague who was making this exact case. Kirk doesn’t speak often, but when he does I always capture and reuse his thoughts and comments. In this particular instance, we were trying to assess the capacity of the organization’s leadership. In short, we were trying to determine if they had enough margin – time, focus, resources – to launch a new initiative while juggling all the things already in the air. Kirk gently reminded us that there is always overhead attached to our endeavors and if nothing else, there is an intellectual demand.

I was struck by the truth of this concept.

The overhead might be more mental or emotional than dollars and days, but there is an enterprise tax that must always be carried forward with dreaming leaders. Ouch… maybe I should have used a different image than taxes. I guess I was just thinking of the old adage of death and taxes as certain inevitabilities.

Oh well. When conceptually mapping a new idea or building the budget for what that idea will cost to launch or sustain into the future, I must always ask the question of overhead.

Evaluating Overhead – Shifting our Focus To get at overhead I might have to push my concentration away from the exciting vision itself and to the methodical build-out. Or, I might have to predetermine what swaps are going to be in play to add something new. Everything and everyone has a finite capacity. Every competitive sports team has a roster limit; every airplane we jump on has a seat and weight limit; every tabletop, every 24-hour day. An entrepreneurial leader has to account for overhead. And more times than not, to realize the dream around the corner it is going to require all kinds of investments that are difficult to totally quantify ahead of time.

One trick is to build a little more margin into the process. Yes, you heard me. Cook  some fat into the books with regard to the time, mental exercises, finances, and even the conversations needed to pull off your next big idea. Why? Because as Eileen Gunn's article points out, entrepreneurs regularly underestimate how much things will cost to launch and sustain. Whether it relates to employee payroll, startup costs, or even our own salaries, we tend toward optimism.

Now I fully understand that overhead can make a profitable, inspiring P&L look much less appealing. Gunn, in fact, acknowledges, “estimating higher costs, lower revenue and a longer time to viability might seem intimidating.” But some overhead is necessary. Without it there is never scale and sustainability.

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