Constructive Criticism: How to tell when the "haters" have a point.

To start, let's consider "American Idol".  (And while we're considering, please also think of a time when you made a terrible decision.)  The show "American Idol" has identified and produced many highly-talented musical acts.  However, it is almost more popular for its rejects, for those people who were so delusional about their abilities that they gain a short-term measure of infamy for their embarrassing auditions.

There is a running script shared amongst these rejected contestants where they disagree vehemently with the judges and reject their critiques, assuring the camera that they will achieve their dreams regardless of what any critics (frequently mislabelled as "haters" in these diatribes) say.

It is easy for us to find amusement at the expense of these failed performers.  However, how many of us have made equally bad decisions which, mercificully, were not recorded for the benefit of a nationwide audience?  Thinking back to a terrible decision you have made in your own life, were there people in your life who, at the time, advised you against that decision?  Did you listen, or were you dismissive of them as critics?

I'm asking about these things because, lately, I've seen some terrible business advice being shared across social media.  Particularly "inspirational" quotes such as

"Don't let the voice of critics paralyze you.  Believe in yourself.  You can do anything you set your mind to!"

On the surface, that sounds like great advice.  "Nothing ventured, nothing gained," and all that.

However, the problem comes when entrepreneurs cannot accept any criticism, and instead write off unpleasant truths as the sour grapes of "haters".

So, how can you gauge when criticism is constructive and when it is truly just jaded attempts at crushing your dreams?  Ask yourself these questions...

Does this person love me?  Or, do they at least like you or care about you?  There is the possibility that a loved one will be more cautious than optimistic, as they don't want to see you suffer a setback.  Someone who is just a casual friend or acquaintance might be more encouraging, as its more important to them that you like them.

Alternatively, what is the likelihood that this person despises you to the extent that they would actively attempt to prevent your success?  If the person disparaging your plans is an actual avowed enemy, feel free to ignore their criticism (and, perhaps, avoid interacting with them socially at all).

Think back to those hopeless "American Idol" contestants.  The judges don't critique them because they hate them, and many of the contestants families offer them excessive encouragement out of blind (or, in this case, deaf) love.  The judges are able to be objective because of their personal indifference to the individual.

Does this person stand to gain or lose from my failure or success?  If you are discussing a new business venture with someone who would be a direct competitor, they probably are not rooting for your success.

However, if they are a spouse or someone with whom you are financially entwined, it's possible that their criticism is coming from a place of caution.  While they might share in your success, they also stand to lose along with you in the event of failure.

Also beware of "friends" who are willing to build you up but not invest in you.  There are people who will encourage you into risky ventures in the hopes that you will remember them in your success, but who will abandon you should you fail.  While someone is patting you on the back, make sure they aren't also trying to hitch onto your coattails.

 Am I paying this person and, if so, what am I paying them for?  Obviously, as people in the business of providing financial guidance, we believe in the value of business coaching and related fields.

However, we do not see the value in "yes men".

There seem to be two types of people you can hire to help you with your business:  The first type is how we at The Bookkeeper fancy ourselves.  We want to help you succeed, but we don't think you're paying us just to give you "'Atta boys!"  We want to help you set and achieve realistic goals and, if that means saying something you're not happy with, well, that's part of the service we're being paid for.

The second type of business professional (one that seems to be becoming more popular lately) is the professional encourager.  They provide endless affirmation and assurance that, "If you can dream it, you can do it!"

They are paid cheerleaders.

And, as long as you know what you're getting into and that's what you want, that's fine.  By all means, pay someone to tell you what a great job you're doing; it's your money.

But be aware that all of those good vibes do not guarantee your success.  There have been countless business ventures that have failed despite entrepreneurs really believing in them.

Therefore, we hold to a less popular old saying:  "When two people in business always agree, one of them is superfluous."

Disagreement can be healthy.  We live in an imperfect world where not every idea is a good one and not every venture will succeed.  Recognizing that can help you to recognize who is acting as a critic out of "hate", and who is doing it out of love.

How much are you paying for your free lunch?

"There's no such thing as a free lunch."  Anyone who has taken even the most basic economics course has heard it.  But what does it mean, exactly?

The "free lunch" idiom is frequently used to simplify the concept of opportunity cost, in that, even as you accept a free lunch, you miss out on other opportunities during that period of time.  Investopedia defines opportunity cost as, "The cost of an alternative that must be forgone in order to pursue a certain action.  Put another way, the benefits you could have received by taking an alternative action."

It's a fairly basic definition and it's one that most business owners theory.  However, for many entrepreneurs, the desire to keep costs low can cycle into a "do-everything-yourself" mentality, which, in turn, lends to missed opportunities.

To better illustrate this issue, consider Janice, professional photographer (and fictional entrepreneur we created for this example).

After experiencing a great deal of amateur success, Janice has decided to become a professional photographer full-time, and open her own studio.  She determines that her new business needs the following things:

  • A photographer
  • Photo editing
  • Someone to answer the phone and schedule appointments
  • A website
  • Bookkeeping

None of this looks too hard to start with, and Janice figures she can handle most of it.  She's got the photography and photo editing skills already and, until she can afford to hire a receptionist, she can just take business calls on her cell.  There are plenty of places online where anyone can build a free website, and she can keep track of her own business financials throughout the year and figure it all out with TurboTax in April.  For a great photographer and hard worker, this shouldn't be any problem.

Of course, things don't go as simply as Janice has predicted.  Her phone rings with appointment requests while she's in the middle of sessions and, by the time she calls the prospective customer back, they have already booked with someone else.  Her shoots run long because she has to change backdrops, arrange props, etc. by herself.  Her days are so busy she has to stay up late working on photo editing.  The website she built is...okay, but comes across as generic and slightly amateurish.  She's not entirely sure how her bookkeeping as going because, with everything else going on, it's been the last thing on her mind.

On top of all that, she's started to notice that her business needs some things she hadn't planned for, including:

  • Photographer's assistant
  • Studio cleaning
  • Basic legal documents

For the sake of comparison, let's assume Janice continues to do all of this herself.  Let's look at how much money she is saving.

Receptionist                             -     $9/hour

Website                                      -     $500

Bookkeeping                            -     $500/month

Photographer's Assistant   -     $12/hour

Cleaning                                    -      $8/hour

Basic legal documents         -     $300

It looks like Janice has saved her business a lot of money through her strenuous efforts and "can-do" attitude.  However, we have to factor in the opportunity costs.

Let's take a look at what each of these things Janice is doing herself, each "free lunch", cost:

Receptionist                             -     Missed income from lost appointments; positive word-of-mouth; professional image

Website                                     -     Lack of professional image; loss of referrals; missed income

Bookkeeping                           -     Missed deductions; increased risk of audit

Photographer's Assistant   -     Shoots take longer so fewer of them can be scheduled, leading to missed income

Cleaning                                    -      Time and energy diverted away from more profitable activities, such as photo editing and networking

Basic legal documents         -     Increased legal vulnerability; loss of time

So, when you weigh all the opportunities to genuinely build her business which Janice has lost while she was busy doing everything else, how much money did she really save?

Now, this isn't to say that you should farm out every task you dislike (particularly early on, when small businesses are susceptible to cash flow woes).  However, it is key that, before committing yourself to something outside of your wheelhouse, you measure the benefits of DIY versus outsourcing.  In many cases, the opportunity costs will be greater than you think.

What makes an owner?

If you're reading this, chances are you want to be a business owner, or you already are one.  And, if you're the sort of person who wants to run their own business, it's probably not because you plan on working a daily grind into your 60s.  You probably have a dream for your business, and for your role in it.

Maybe you see yourself hanging out nightly in the VIP section of a nightclub you opened.  Or managing your wealth long-distance, answering emails on a satellite phone while you recline on a tropical beach.  Perhaps your vision of success is your business doing so well that you can yacht away to somewhere without any cell phone reception at all.

Here is the problem we see time and time again...A new business owner spends so much time daydreaming about what their position should be, they don't put in the work to make their dream into a reality.  The result is owners frustrated because, "I didn't start my own business to work myself this hard!", and failing businesses.

So, how does an owner achieve success?  A few things to keep in mind...

You should be your most dedicated employee.  No one has more stake in your business than you.  So why expect anyone else to work harder for your business than you do?  Employees take their cue from the boss.  An owner who puts in their hours and maintains high levels of work ethic and professionalism shows the employees that the business is being taken seriously, and inspires them to follow in that same example.  Unfortunately, many owners adopt a "Do as I say, not as I do" style which lowers employee morale and motivates them to do their job...when the boss is looking.

To assess your success in this area, take a step back, and think of yourself not as "the owner", but as one of your own employees.  Ask yourself these three questions:

  1. Would you hire you?
  2. Would you write you a letter of recommendation?
  3. Would you fire you?

If what you're giving your business would be unacceptable from anyone else you hired, it may be time to reimagine your role as the owner.  And...

Play to your strengths.  You know a business type that makes a killing?  Dental offices.  So why don't I open a dental office?  Because I am not a dentist.  It makes no sense for me to try to start a business about which I have no knowledge, just because I'm hoping it will somehow prevail and make me a lot of money.

Unless you're simply a brilliant, Richard Branson-esque entrepreneur (in which case, Thanks for reading!  Need a bookkeeper?), your business should involve a field in which you are an expert, or at least be something you have a strong passion for.  Also, you should be leveraging that expertise and that passion in the most appropriate area of your business.  (You are your own best employee, remember?)

For example, say you have a business detailing cars.  You are a dynamite car detail-er, and, between word-of-mouth recommendations and repeat customers, business takes off.  So, you hire four more people to detail cars, and you step back to do "owner things", like marketing and money management.

Only problem is, you have crippling social anxiety and couldn't add 2+2 without a calculator.  So, you end up not doing the marketing because you hate it (and, truthfully, aren't that great at it) and you get your finances in a huge tangle.  Meanwhile, customer satisfaction slips because those car detail-ers you hired can't match the level of service you're provided in the past.  And in your rush to get to what you envision is the role of the "owner", you've hired too many additional people, anyway.

So, how should you play it?  First, stop thinking about what an owner is "supposed" to do and just do what you're supposed to do.  Keep detailing cars yourself (take on one or two people you can train) and hire somebody else to do the marketing and the books.  If detailing cars is what you know and what you're good at, why take your best employee (again, you) off of that to do something else?

And, sure, maybe you don't want to detail cars forever.  Maybe you really want to reach that place where you're just relaxing on the yacht.  That's why you have to...

Have patience.  So many businesses fail when they attempt to expand too quickly.  (We recently compared this to buying hotels too soon in Monopoly.)  Likewise, we see a lot of businesses run into trouble when the owner decides they'd rather work like Don Draper than Peggy Olson.  (If you're not familiar with "Mad Men", then just substitute anyone who doesn't work very hard versus anyone who does.)

If there's something your business needs which isn't being done, and you refuse to do it yourself because, "I don't do that; I'm the owner," you're not likely to find long-term success.  You can't just rely on your employees' hard work; you have to contribute your own.