I’ve been writing lately about what I’ve learned from blogging. Last week, I singled out a comment that I found extremely helpful. This week, I want to talk about the opposite.

Since this is a moderated forum, spam and insane nonsense rarely make it to the page (except for this guy.) Thank you, editors! That still leaves room for people who disagree with my opinions — which make perfect sense to me — or who think they somehow indicate that I’m an inhuman monster (see some of the comments on this post about hiring.)

I’m going to disqualify ad hominem attacks from my list of unhelpful comments. I want to highlight, instead, a couple of ways that I have found advice to be less than useful. Doing this, I hope, will be helpful for small-business owners who must constantly decide whose advice to take. Here are four types of advice to watch out for:

The Complicated and Expensive Solution

Some commenters seem to believe that there are more resources available to a struggling business than my experience would suggest. The following is a comment from my post on soliciting employee ideas:

Here are my recommendations for helping to increase productivity and improve processes.

1) Identify the problems that would ultimately save the company the most time or money. Pick the top three.

2) Identify each step in the top three processes. Put a time or cost number to the step in the process. Eg. The average costs is $15 (labor and shipping) to provide finish samples to each prospect. Most prospects request samples three separate times before placing an order. That’s $45 just for samples. Don’t forget the opportunity cost of doing something else with the time spend handling samples.

3) Offer the employees a “commission” on the savings achieved by improving the process. Put the employee’s portion of the savings into his bonus pool for quarterly rewards.

At first glance this seems to be good advice. But if you don’t have a fairly sophisticated information infrastructure in place, with consistently good inputs being maintained regularly by people who care about what they are doing, it can be impossible to implement ideas like this.

Think of the amount of record-keeping this scheme would require. Who sets it up? Will you be collecting data on paper or electronically? Who trains your workers to do the proper inputs? Who makes sure the data is collected every day? Who tabulates it into useful form? Who figures out whether it makes sense and how to interpret it in a way that helps?

My experience with data is that, in real life, it’s so noisy that it’s almost impossible to draw conclusions. There’s a ready solution for these problems: plenty of money and management time. How many small, struggling businesses have both?

On the other hand, a business that doesn’t work toward understanding itself is at a serious disadvantage. It’s easy to get caught in a death spiral where ignorance leads to bad decisions, which eat up the money required to change course, which can only be generated by good decisions, which only come from good information. I’ve struggled with this and am still struggling with it. And apparently I’m not alone. Here’s a comment from my post about my goals for this year:

I noticed one common thread of advice that seems unrealistic. Comments suggest outsourcing, bringing on a new employee, training someone else, delegating, etc. In my case, I find lists very similar to Paul’s, yet outsourcing and delegating simply isn’t an option. As a start up, we simply don’t have the funds, or the stability, to bring someone else on. And it’s my impression my wife and I are not the only ones in this situation when it comes to starting a new business.

I make lists of goals to fight against the overwhelming thought of everything that still needs to be done in order to keep moving forward. Does any one have any advice on how to complete a long list similar to Paul’s without the option of help or delegation?

Chasing frantically after my bliss,

Roger

A few years ago, when I was exactly where Roger seems to be, I had a simple rule: when prioritizing, start with the thing that will bring the biggest check the fastest. In retrospect, that was kind of dumb.I should have been starting with the thing that would make me cash-flow positive.

What’s the difference? A big check is useful for immediate needs, but figuring out how to arrange things so that revenue consistently outpaces spending is more important. When management bandwidth is limited, you may have to turn your back on a revenue opportunity in order to set up a better system for tracking cash, or to analyze the electric bill, or to spend time checking local wage rates to make sure you aren’t paying too much for labor. I ignored every one of those issues for years while I scrambled for more sales, and it cost me hundreds of thousands of dollars. When I fixed those leaks, as explained here, I suddenly had cash. But I don’t want to give the impression that hard work is always rewarded — I was lucky, too, in that demand for my products has increased in the last year. If it hadn’t, all my tinkering would have been in vain, and the company would have failed.

Conventional Wisdom

I’ve been assured many, many times that I should be looking for repeat customers. For instance, from My Week in Cash Flow:

“I read your comment above about running into former happy clients, and wondered if it would help to focus on people/companies that are more likely to give you repeat business. A small company will buy maybe one or two conference tables, but an architect or an interior designer might order many, and do it repeatedly.”

There are lots of businesses where the repeat customer is the best customer. Restaurants come to mind, as well as professional services, and there are many others. But Google has made possible another type of business model, because the cost of finding people who are looking for something just once has become much less expensive than maintaining a long-term relationship with occasional buyers. I’ve made a conscious decision to build the business around non-repeat clients, and here’s why:

Architects and interior designers are the obvious target market for repeat sales. However, having a third party with design responsibilities makes it hard for me to steer my clients toward products that are profitable for us to produce. I much prefer to be the designer on the project, as we know the ins and outs of table design and manufacturing much better than architects, who are generalists.

Also, a significant number of our potential clients need a table made on short notice. That’s a profitable market segment that requires a nimble and responsive sales and manufacturing team. Architect jobs tend to require the opposite. It can take three times as many sales hours to sell an architect job. In the same number of hours, I can sell three times as many tables — at higher margins.

So in my experience, the potential for profit is greatest with one-time buyers. But aside from that, here’s the point I’m trying to make: I know my business well. I know what’s working, and I have learned the hard way that I don’t have enough resources to deviate from something that’s successful. All small-business owners have to put their eggs in a single basket to start. The first thing they need to do is to understand that basket and to try to make it work for them. If that doesn’t work, then try Plan B. And I hate to tell you, but if Plan B doesn’t work, you probably won’t get to Plan C unless you have unlimited money.

The Trustworthy Source Who is Just Plain Wrong

Much of the advice I got from my former partner was, in retrospect, simply incorrect. It took me quite some time to recognize this, because he is an intelligent man of great integrity, because he was far more experienced in business than I am, and because he believed what he said. In retrospect, I know that we failed to make profits because his main ideas on how to build the company — by adding production capacity without increasing efficiency — was a bad fit for our industry.

Woodworking production was going through a major technological change and we didn’t fully grasp how that would play out. My mistake was that I didn’t seek opinions from other sources. Moral of story: ask for opinions from everyone you can think of, and then sort them out using your own brains and experience. And remember, there’s one universal measure of whether an idea is good or not: does it make you money? Yes, I know that there may be other considerations. But as long as you obey the law and at least consider the Golden Rule, profitability is important.

The Wisdom of Crowds: Not Always

In the post about hiring that I alluded to earlier, I asked a question (“Should I fire a recent hire and replace him with a better qualified candidate who became available after the first hire had been made?”), got a bunch of answers, stuck with my gut instinct on my decision, took a public lashing and reversed myself. Here’s the interesting thing: in this case my first decision turned out to be the better one. Eight months after the fact, the first guy I hired is gone, with no regrets from any of his former co-workers — and the second guy is one of the best workers I have ever had.

One thing about blogging, or asking advice in general, is that it’s nearly impossible to present every nuance of a situation. That means that the consensus of what should be done is based on a subset of the facts, while you have them all. Also, the crowd doesn’t have skin in the game, so its point of view may reflect the fact that it has no incentive to puzzle through every aspect of the problem.

There are a couple of ways this played out in this case. First of all, I couldn’t discuss at length the personalities involved (for obvious reasons.) Second, the commenters didn’t place the same weight on the facts presented as I did. They were extremely concerned about the impact of my decision on my existing workers, while I was more worried about the cumulative cost of a lesser-performing producer. They discounted the difference in scores on our aptitude test, which in my experience is the single best predictive indicator of worker quality, and instead assumed that O.K. would be good enough in my shop. It isn’t. My take away: when the crowd is in agreement on one course of action, recognize that it may be because it doesn’t know as much as you do — and be ready for the possibility that its advice is flawed.

To sum up: think carefully about the advice you get. Can you actually execute it successfully? Is it just boilerplate that doesn’t apply to you? Does your respect for the source override your problems with the advice? And does consensus in the advice you are given mean that the crowd is correct or that they don’t have as much information as you do?

Last thing: I hope you don’t get the feeling that I don’t like the commenters on this blog. On the contrary, I think they are the most interesting part of the experience, and I greatly look forward to reading them. So please, please, please: fire away. And enormous thanks to everyone who has taken the time to post thoughts.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.

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