Healthcare Executives and the Mistakes They Make Regarding Decision-Making and Leadership

In April, Linda Henman and Deborah Perkins published a book entitled Healthy Decisions: Critical Thinking Skills for Healthcare Executives, which challenges the status quo, arguing that the success of healthcare organizations hinges not on abstract concepts like "culture" but on the concrete decisions executives make. Drawing from real-world experience with large systems like Mercy and Banner Health, specialty hospitals like Ranken Jordan Pediatric Bridge Hospital, insurance companies like Blue Cross Blue Shield, and nonprofit elder care systems, the authors provide a practical guide to help healthcare executives make the tough decisions they can’t afford to get wrong.

When I spoke with Linda this month, I asked her: "What are the biggest mistakes healthcare executives make regarding decision-making and leadership?" Here is her complete answer:

The single most catastrophic—and astonishingly common—mistake healthcare executives make is undervaluing their workforce. Not on paper, of course. On paper, they wax poetic about people being their greatest asset. In practice, they slash staffing, ignore burnout, and treat frontline engagement as optional.

Let’s look at the wreckage.

Hahnemann University Hospital collapsed under its own weight in 2019. Leaders gutted staffing and fiddled with spreadsheets while credibility—and then patients—walked out the door. This resulted in a full shutdown in a city that needed that hospital.

Ascension Health, one of the largest systems in the country, thought it could cut its way to profitability. That meant layoffs and razor-thin staffing, even in clinical settings. They didn’t get the results they intended. Instead, the decision caused lawsuits, strikes, and a shattered reputation.

Providence faced strikes and the massive exit of nurses because executives didn’t listen. Executives suspected burnout, but they ignored the warnings for too long. Travel nurse overreliance, plummeting morale, and public embarrassment resulted.

Even public systems like NYC Health + Hospitals remain hamstrung by hiring delays and morale freefall. If you can’t staff behavioral health in New York City, you don’t have a workforce problem; you have a leadership problem.

And then there’s MetroHealth, where the headlines address lawsuits, not life-saving care. When the executive team implodes, culture does too.

Some of these organizations have changed leadership and slowly started the recovery process, but others never will. In turbulent times, no one will recover from hiring mistakes, inaccurate strategic focus, or underdeveloped succession planning.

Executives don’t create culture at a board retreat. Culture forms when executives use advanced critical thinking skills to solve problems they’ve never faced before. They must first start by seeing their workforce not as overhead but as a leverage point. Underinvest there, and you’re not saving money—you’re setting a match to your margins.

Start with the best people delivering the best care. Ignore that, and you’ll join the list above—not as a cautionary tale, but as a case study in how to lose an empire by winning a spreadsheet.

What do you think of Linda's perspective? Do you agree with her regarding the mistakes made by these health providers? Have you worked in organizations that have made these mistakes?

The Toyota Production System (TPS) -- What Are the Misconceptions?

Earlier this month, Sarah K. Womack published a very interesting new book entitled Toyota's Improvement Thinking from the Inside: From Personal Transformation to Organizational Transformation, which describes how Toyota, through its coaches and leaders, develops its members’ capabilities through a series of continuous improvement (kaizen and problem-solving) activities. For many members of Toyota, this process results in a personal transformation that ultimately leads to organizational transformation.

When I spoke with Sarah this past week, I asked her: "What are the biggest misconceptions about Toyota’s continuous improvement methods and management system?” Here is her complete response:

The biggest misconception I personally had about Toyota’s continuous improvement methods and management system was a degree of personal development and deliberate challenge required to learn how to improve.  It was a journey of mastery of improvement tools, business needs, and how to work with members of your team to accomplish daily objectives.  For most members, that mastery was deeply personal and demanded humility and continuous reflection to transform our mindsets.  And, while there was some talk about Toyota’s philosophy of respect for people, respect is a social construct and difficult to understand from outside of the group.  Once I was inside, I saw how much emphasis there was on reducing team member burden towards the end of reducing waste and creating value for customers. 

More generally speaking of the field, I find many misconceptions about how the entire system works together.  Organizations tend to over-emphasize or de-emphasize the Toyota Production System (TPS) tools for improvement when a successful approach lands at a healthy balance.  The TPS tools are good entry points for people development and continuous improvement.  Value stream mapping, for example, is a tool to chart how material and information flows within a system, show waste, and tell a kaizen story (of waste reduction).  Even if a system is not very complex, learning it through deep study then articulating that learning visually is a special skill set developed over time.  You can feel confident in your skill set when you are able to use such a tool to tell the story of your improvement work.

Finally, I would highlight the misconception around standardization.  Many organizations, within and outside of manufacturing, think it is too rigid to work successfully.  However, Toyota and others have shown that by deeply studying processes and standardizing them, continuous improvements in safety, quality, and other performance outcomes are achievable.

What do you think about Sarah's experience? Has your company implemented a Lean initiative based on the Toyota Production System? Was is transformative?

Leadership Development -- What Is Lacking?

Back in January, Geoff Ribbens, Mark Abraham, and Alistair Cumming published a new book entitled Team Leadership: How to Define, Apply, and Measure It, which presents a unique, people-centric, and scientifically researched theory of leadership linked to an accurate data-based assessment and diagnostic product. For individual leaders looking to maximize personal development and results or for organizations wanting to analyze leadership and its effects across an entire structure or business, this book redefines understanding and development.

When I spoke with the authors this month, I asked them a series of questions starting with "What is currently lacking in leadership development?" Here are their responses:

In our book, we start by identifying four major errors that have held back leadership development and understanding for many years. No doubt all of us have made some, or all, of these errors in the past.

The first error is looking at the leader to understand leadership. Eminent social psychologists have stated that this "leader-centric" approach is “deeply flawed” and not at all useful. We expand on why it is so flawed in the book. We conclude that it is much more useful to concentrate on the perception of those being led.

The second error is to assume that the term "leadership" means the same in a multitude of different contexts such as political leadership, moral leadership, organizational leadership, and team leadership. Different contexts obviously require different definitions and approaches. This is why the book concentrates on the "leadership" of teams.

The third error is to assume that "business success" equates with leadership. This approach only states what the writer hopes leadership will deliver, not what it is. It also assumes that the only people who have leadership are senior managers and CEOs.

The fourth error is simple. Nowhere in our research do we find a definition of the term ‘leadership’ that was objective and measurable.

MS: “So what is the solution to all these myths, assumptions, and lack of definition?”

All the assumptions and errors above have been solved by our innovative approach called Emergent Team Leadership (ETL). We focus on the leadership of teams, whether it is the executive team or the team on the factory floor. We show that all team leaders at every level, have the potential to have "leadership" and it is now measurable.

ETL measures the degree to which team members "willingly and enthusiastically accept their team leader." By examining how team members perceive their leader we created a 12-point profile. The profile is created by the team members, it might not be how the leader perceives themselves or is perceived by the organization. The profile is a simple radar graph and is easy to understand.

MS: “So why focus on teams and team leaders?”

The relationship between the team and the team leader is fundamental to team and organizational performance. If team members "willingly and enthusiastically accept their leader’" then the team leader is more able to deliver positive results because the team supports them. Also, team and team leader well-being is achieved, and there is less disagreement and conflict.

MS: "I can see the improved well-being of the team and team leader but are there any other benefits?

The simple 12-point profile indicates to the team leader what they need to do to move from merely managing their team to the true leadership of that team. The profile is not based on the leader’s personality but on the team’s perception. What is important is that the leader can change that perception. The leader is not a ‘servant’ of the team but can increase their influence by understanding how their team perceives them.

There are many benefits for the team, the team leader, and the whole organization. One obvious benefit is that for the first time leadership training, coaching, or appraising can be tested and retested, and progress can be measured. Our research also found that team leaders themselves found the 12-point profile powerful and relevant, more relevant than other leadership assessment processes they had experienced. If an organization uses ETL this can have a profound positive effect on the organization’s whole team leadership culture.

What do you think of the authors' (Geoff Ribbens, Mark Abraham, and Alistair Cumming) view on the current state of leadership development? Do you agree with what the authors perceive as errors and their proposed solutions?

Mentorship Programs Within Organizations -- What Are the Benefits?

In December, Matthew Aslett published a book entitled Fundamentals of Effective Mentorship: How to Develop Intellectual Capacity and Healthy Workplace Culture, which discusses the facilitation of mentorship programs and the development of mentorship relationships based on experiences from a practitioner lens. The ability to encourage two-way learning relationships through mentorship can help organizations to improve effectiveness. A mentorship program can empower mentors, mentees, and program leaders to share best practices. The mentorship process is integral for promoting the professional and personal growth of stakeholders within an organization. 

When I spoke with Matthew this month, I asked him, “What are the prime benefits of mentorship and how can managers start mentorship programs within their companies?”  Here is his detailed answer:

The prime benefits of mentorship can be considered from three perspectives. First, mentees can establish new relationships with diverse individuals who may provide opportunities to accumulate knowledge, skills, and experiences. Mentees can increase self-belief with encouragement and personalized guidance from counterparts. Mentees can enhance goal-setting abilities with the exploration of priorities, specification of action plans, and co-construction of success strategies.

Second, mentors can develop communication skills in verbal and written domains to convey critical perspectives in understandable terms based on counterpart needs. Mentors can delve deeper into introspection with an awareness of novel viewpoints and personalized philosophies for decision-making. Mentors can engage in talent identification of candidates for prospective positions and opportunities through knowledge of unique abilities. Mentors can achieve self-actualization or personal fulfillment through participation in the vocation and bidirectional exchange of diverse best practices.

Third, communities can proceed with lifelong learning as individuals, teams, and organizations may explore perspectives in collaborative inquiry activities. Communities can improve equity and inclusivity, which represent fairness and belongingness, through active listening, examination of taken-for-granted assumptions, and recognition of improvements. Communities can cultivate intellectual abilities for engagement, productivity, and creativity when members participate in dialogue and pinpoint actionable recommendations.

A manager can start a mentorship program within the company using seven steps. First, initiative goals based on the values, vision, and assembled data can guide the focus. Second, selection criteria about mandatory or voluntary participation and manual or automated matching can influence planning. Third, resource strategy considers financial, human, intellectual, physical, and technological elements for implementation. Fourth, data collection mechanisms can capture quantitative and qualitative insights for decision-making. Fifth, an opening message can specify formal expectations and announce an orientation meeting. Sixth, an ideation session can explore aspirations and success factors. Seventh, interaction norms about frequency, relationship length, and modality can clarify learning preferences.

What do you think of Matthew's views on organizational mentorship programs? Does your company have one? Has it been effective in improving employee engagement and workplace culture? 

What are the biggest obstacles to an effective and sustained Lean initiative?

At the beginning of November, Bill Artzberger published a new book entitled Powering the Lean Enterprise: How to Streamline Operations, Improve Quality, and Gain Customer Loyalty, which introduces basic Lean rules and principles in a variety of simulated case studies drawn from the author’s professional experiences as a Lean coach, trainer, and manager. 

When I spoke with Bill this month, I asked him: “What are the biggest obstacles to an effective and sustained Lean initiative?” Here is his response:

While there are many things that can constitute an obstacle, here are three big ones to be wary of:

1. Rules before Tools! 

Lean tools are powerful aids to improvement. However, you must first understand Lean thinking and learn the key Lean principles before using the tools. This is the only way you will be able to select the correct tool (of the hundreds available) for your application and know how to correctly use the tool in your environment. Lean is not a tool or collection of tools, it is not a tactic or simple cost-reduction program; it is a way of thinking and acting for an entire organization. 

You must create an enterprise-wide customer-focused learning organization to be successful in creating a long-term, sustainable Lean organization. You don’t get “Lean” or get “Leaned out.” Lean is not a destination – Lean is a journey. The learning process is the key to process improvement and the key to Lean. This is the one thing you must know to be successful in your Lean journey. If you do not figure out how to do your job better, then your competitors will.

2. Intention/Action Disparity

Key systems or people can sometimes provide roadblocks to the success of the Lean program in an organization. Typically, this boils down to interpersonal issues. 

One example of this would be an organization where a handful of departments have adopted Lean methodology, but other areas have not. This can stymie the progress the Lean-oriented departments are striving towards. Another example of this might be an organization with political or leadership issues. If a leader at an organization acts in opposition to the Lean strategies or behaves in a way that builds roadblocks to the progress of those strategies, the Lean program will fail. 

The key to avoiding this obstacle is to ensure that all members of the organization are invested in the success of the Lean methods being implemented. This includes the organization’s leadership.

3. Sustaining Lean Methodologies

Even when organizations overcome the first two obstacles, it is very difficult to implement and sustain a culture change that spans the entirety of the organization. This obstacle might not be immediately evident, especially because many of the systems and processes might be running well. 

This obstacle most often affects organizations that decide to identify and train a few subject matter experts rather than investing in the whole organization to sustain the Lean culture. When a subject matter expert turns over, Lean systems start to break down. When organization leaders do not take the time to invest in developing the organization’s desire to improve, the Lean journey will start to lose momentum. 

This can be a constant battle for companies who make it to this point. It often leads to ebbs and flows in work management and system sustainability.

The only way to avoid this pitfall is for every member of the organization to feel invested in the Lean journey. This means accepting the fact that the Lean journey is a continuous development and learning process and embracing the work that comes with it. 

How long has your organization been involved in a Lean initiative? Is "Lean thinking" part of your workplace culture? Do you agree with Bill Artzberger's overview of the common barriers to success?

Can Business Leaders Learn to See the "Invisible"?

In October, Michael Bremer published a new book entitled Learn to See the Invisible: How to Unlock Your Potential as a Leader, which describes four key foundations and 25 different actions leaders can practice to become more effective in training their eyes to see things tomorrow that are currently invisible. It helps leaders and managers to become better observers of their current reality by practicing getting better at getting better. 

When I spoke with Michael this month, I asked him directly: “What does ‘learning to see the invisible’ mean regarding leadership, and how does it actually benefit leaders and their abilities?” Here is his complete answer:

Let me begin answering your question with a short story.  

You and your spouse go to a big box shopping center with a large parking lot.  Right after you exit your car, you trip over one of those concrete blocks intended to block car tires. Your spouse looks at you and asks, “Are you OK?”

What is your response?  If you are like me and the 1000s of other people with whom I’ve asked this question, you respond, “I’m OK!”  Even though your toe is killing you.  Why?  You feel like an idiot, and you are embarrassed.  Plus, a host of other emotions.

It’s a very similar challenge inside an organization when a leader asks, “How are things going?”  Even when our intentions are good, there are a variety of reasons that people do not openly share their thoughts.  If a leader truly wishes to better understand the actual reality of what is happening, it requires some effort.

"Learning to see the invisible" in leadership means developing the awareness and skills to recognize factors, patterns, and dynamics that are not immediately obvious but that profoundly influence team performance, organizational culture, and decision-making. These "invisible" aspects lay hidden due to assumptions, biases, unspoken issues, underlying motivations, and systemic inefficiencies that might be overlooked in the daily flow of work. Leaders can make more informed, empathetic, and effective choices by learning to see these hidden elements.

How Does "Seeing the Invisible" Benefit Leaders and Enhance Their Abilities?

1. Improved Decision-Making: Leaders who can see beyond the surface make more informed and nuanced decisions. They understand the broader context and implications of their choices, which leads to better outcomes for the organization and their team.

2. Greater Empathy and Connection: Leaders build stronger relationships by recognizing their team's true needs and motivations. Empathy fosters trust, increases engagement, and enhances collaboration, as team members feel understood and valued.

3. Increased Agility and Adaptability: Leaders who are aware of invisible factors are better prepared to adapt to change. They are attuned to internal and external shifting dynamics and can pivot strategies or approaches in response to new information or challenges.

4. Empowering and Developing Others: Leaders who understand the hidden potential in their team members can provide targeted support, coaching, and growth opportunities. This empowerment leads to a more capable, engaged workforce, with team members who are better equipped to take the initiative and contribute in a more meaningful way.

How Do You Unlock this Potential to Become a Better Leader?

When you look at professional athletes who become champions in their sport, how do they get there?  They get there through hours of practice and constantly strive to improve the way they play their sport.  If your profession is leadership, shouldn’t you also consciously practice getting better at what you do?  

Learning to See the Invisible lays out four foundational elements for leaders to practice:

Step 1: Reflection – Understand how you currently lead and identify your starting point. 

Step 2: Unifying Purpose – Create a meaningful purpose that motivates and guides change. 

Step 3: Build Relationships – Foster trust and open communication while empowering your team. 

Step 4: Visual Leadership – Implement visuals that inspire improvement and facilitate discussions about progress against the purpose you seek to accomplish.

The book lays out 28 different actions leaders can practice to get better at doing the above. 

Leaders who adopt this transformative mindset can improve their relationships and take decisive steps toward becoming a champions. They exhibit a vulnerability through their curiosity and willingness to learn.  That vulnerability creates space inside an organization where other people can feel more secure in responding to the questions they are asked. 

The world needs better leaders, and I genuinely hope readers embark on this journey.

What do you think of Michael's perspective on leadership awareness and its effect on decision-making and workplace culture? What is the state of leadership in your organization? Are they making choices based on assumption or "confirmation bias"? Or are they truly understanding some of the hidden aspects that might be driving the true workplace culture of their organization?  

Does the Decalogue Methodology Improve Management Effectiveness?

Back in September, Angela Montgomery published a book entitled The Human Constraint: How Business Leaders Can Embed Continuous Innovation, Conflict Resolution, and Problem Solving Into Daily Practice, which explores an increasingly complex, interdependent, and fast-changing world where companies must have a way to overcome obsolete mental models and embed continuous innovation in their operations with a coherent organizational model.

When I spoke with Angela recently, I asked her: “How does the Decalogue methodology improve management effectiveness?” Here is her complete response: 

Whether it’s a startup, a scaleup, SME or multinational, smoke stack or hi-tech, leaders, founders, managers, and investors face challenges today unlike before. Applying linear thinking and conventional management tools is no longer adequate or effective. Our new reality is a complex, highly nonlinear network of cause-effect relationships. Moreover, the digital age requires better decision-making, faster innovation, and flawless delivery of products and services. What’s needed is a new way of thinking and operating. 

The Decalogue method introduces leaders to a systemic approach to managing operations. It helps them connect dots they would not otherwise see and strategize, plan, and execute at a whole new level. Learning to behave as one cohesive system involves identifying a unique leverage point (constraint) to propel performance and achieve significant and sustainable growth. The method enables a company to develop a systemic value proposition for the market that competitors cannot imitate while improving performance company-wide to deliver their offer reliably. 

The Ten Steps of the Decalogue enhance all aspects of business, from production to marketing and sales, project management, new product development, supply chain, finance, and M&A. The steps give business owners and leaders a clear and focussed path to achieving maximum value with the resources available. A leap in overall performance is achieved by defining a clear goal and measurements, understanding variation to map effective processes and interdependencies, and identifying the one factor that determines the pace of throughput. 

A key part of the journey is embracing and implementing necessary change. Our human ambitions and emotions all have a role to play, and this is what I hope to emphasize in the book. The Decalogue introduces a set of systemic Thinking Processes that enable companies to overcome cognitive barriers to change and channel their energies in a positive direction towards a common goal. These processes embed into daily practice the ability to solve problems, resolve conflicts, and continuously develop breakthrough solutions that add high value. 

What do you think of Angela Montgomery's perspective? Do you have experience with the Decalogue method? Do you think it would be effective in your organization? 

Humility -- Does It Affect Leadership Effectiveness?

In August, Andrew J. DuBrin published a book entitled Leadership Humility: A Characteristic that Enhances Professional Effectiveness, which describes an opinion about the most relevant aspects of humility as it applies to leadership and professional effectiveness, yet the emphasis is on leadership. Humility as it relates to leadership and professional effectiveness is covered from many angles. Among these topics are the many meanings and components of humility and how leadership humility impacts group member performance and behavior.

When I spoke with Andrew this month, I asked him:  “How does humility actually increase leadership effectiveness?” Here is his complete answer:

An appropriate degree of humility is essential for leadership effectiveness because today’s effective leader is expected to demonstrate humility in addition to standard leadership attributes such as self-confidence, high-level cognitive skills, creativity, charisma, and the ability to articulate visions. Leadership effectiveness is enhanced when interspersed with other key leadership attributes including assertiveness, a sense of humor, and strategic thinking ability. Many brash, aggressive, and successful leaders would be even more successful if they sprinkled their leadership approach with humility.  

Another way in which humility increases leadership effectiveness is that being a little humble has an impact on performance. The performance, or results, could be at the individual, group, or organizational level. Leadership humility can improve a leader’s decision-making. Intellectually humble leaders are likely to gather multiple inputs before making a decision because they do not think they have all the answers. Leaders who express humility often enhance the creativity of group members because they set up a climate conducive to imaginative thinking. A humble leader will often create a psychologically safe environment, meaning that staff members feel safe to take the risk of making a mistake. The person who feels psychologically safe believes he or she will not be punished or humiliated for speaking up with ideas, questions, concerns, or mistakes.

A leader with humility helps establish a group climate in which people can learn and develop. A climate of this nature enables group members to invest more of themselves into their jobs, and therefore be engaged in their work. Leadership humility often has a big impact on team performance. The humble leader seeks the cooperation of all team members, shows openness toward their ideas, and encourages them to become actively involved in solving problems the team is tackling. One of the many ways in which leadership humility improves organizational performance stems from workers observing that their strengths are appreciated.

What do you think of Andrew's perspective on humility and leadership? What role does humility play in your company's leadership and management training?

Bioinspired Strategies -- Do They Help Companies Survive?

During this past July, Daniel J. Finkenstadt and Tojin T. Eapen published a book entitled Bioinspired Strategic Design: Nature-Inspired Principles for Dynamic Business Environments, which shows that the same three capabilities essential for the survival of living organisms in harsh environments – efficiency, resilience, and prominence – are also critical for organizations in their process of navigating through their own hostile environments.

I spoke with both authors shortly after the book's publication, and during our conversation, I asked them: "What are bioinspired strategies and how do they help companies survive?" Here is their complete answer:

The bioinspired strategies described in the book draw inspiration from adaptations and mechanisms found in living organisms to solve complex problems. These strategies can be analogically applied to identify survival strategies applicable to human organizations, including companies.

This approach of analogically associating nature with business problems also encourages viewing business operations and challenges as part of an interconnected system.

Bioinspired strategies help companies survive by improving their efficiency, resilience, and prominence (we call it "ERP" capabilities) in challenging environments.

The key lesson in the book can be described as follows:

"The effect of any action on survivability cannot be understood by merely looking at its impact on one of the three ERP factors, efficiency, resilience or prominence that it seeks to modify, but requires looking at indirect effects mediated by the other two factors."

This means that a company’s actions don't exist in isolation – they can have ripple effects across all three factors, which together determine the company's overall ability to survive and thrive.

Firstly, companies can optimize their efficiency (E) by studying how organisms efficiently manage limited resources through principles such as resting, reduction, and reuse.

For example, consider how certain desert plants, like cacti, have adapted to conserve water in arid environments. They have developed specialized structures to store water and minimize water loss through transpiration. This natural strategy can inspire businesses to find innovative ways to conserve and efficiently use their critical resources, especially in resource-scarce operating environments.

Secondly, nature's lessons in adaptation to external forces guide business on resilience (R). Specific principles found in nature such as replacement, repair, and reinforcement can help businesses become more adaptable to market changes and crises.

For example, consider the well-known case of how camels store fat in their humps for long journeys. The camel's hump illustrates the role of reservoirs and reinforcements in survival when faced with extreme unpredictable forces. This principle is also found in business environments, such as building up buffer stocks or cash reserves to manage uncertainty.

Thirdly, the concept of prominence (P), inspired by how organisms balance their visibility towards predators, prey, and mates, can be applied to managing complex relationships that involve both attracting and avoiding attention from observers.

In nature, prominence capability is apparent in the ability of various cephalopod (squid, cuttlefish, octopi) species to alter their appearance in the presence of different observers (predators, prey, or potential mates).

In the book, we show how cephalopods' strategies for managing visibility can be applied to startups dealing with various stakeholders like investors, competitors, and customers.

Nature-inspired strategies offer design principles such as combination, removal, and segmentation. These serve as practical guidelines for generating ideas and managing trade-offs in strategic decision-making. By looking to nature for inspiration, businesses can discover innovative solutions to complex challenges and enhance their chances of long-term survival and success.

What do you think of Daniel and Tojin's ideas? Has your company implemented any methods that use nature as inspiration to solve problems?

Small Business -- Can They Grow and Profit Without Taking on Staggering Debt?

This past June, Manny Skevofilax published a book entitled Ultimate Profit Management: Maximizing Profitability as You Grow Your Business, which details how small businesses can achieve reasonable, prudent growth while avoiding debt. He explains the readily available tools entrepreneurs can use to ensure that their businesses do not turn unprofitable as they grow them. He posits that it makes sense to resist the lure of the high-growth, no-profit strategy and instead embrace the approach of steady growth with profits.

When I spoke with Manny this month, I asked him: "How do you define prudent growth and how can small businesses avoid crushing debt?” Here is his full answer:

In my opinion, “prudent growth” is defined as growth that increases the net income of a business.  “Prudent growth” is usually accomplished slowly, with new revenue acquired at your business’s appropriate margin, in conjunction with the judicious use of debt.  In simpler terms, you do your best to increase the profit of your business without increasing the debt much.  For example, some businesses bring in new revenue (“growth”) that isn’t profitable for one reason or another.  If the business incurred marketing expenses to bring on this unprofitable revenue, how are these marketing expenses going to be paid?  Since there was no profit made from this revenue, there is no money to pay these marketing expenses.  The money needs to come from somewhere and it usually comes from taking on debt.  This scenario describes how a business can grow its revenue and make less profit overall.

If this scenario continues, a business will have poor cash flow and more debt than it can repay.  Sometimes, this scenario causes a business to turn unprofitable which can further aggravate its poor financial situation. Therefore, it is important to make sure that you are growing your business profitably and that you are taking on debt for the right reason.  If you see the need for short-term debt for a sound business reason, then determine what cash flow expectations or enhancements will occur to repay it in the short term. Otherwise, your debt continues accumulating, as do the interest payments, and your flexibility is continually reduced.

To avoid crushing debt, use a portion of the profits that you earn to reinvest in your business for growth. Use a bank line of credit to finance the carry of your accounts receivable and inventory. You grow best when you’re in a strong position, not when you have your hat in your hand in line at the bank. The takeaway here is to use borrowed funds judiciously! 

What are your thoughts regarding Manny Skevofilax's perspective? What are your experiences with growing a small business?