Are Your Business Systems Working?

Recently I was asked “how long do you allow a new system to run before recognizing that it is wrong?” Using a cost basis, your budget is kind of that litmus test. If you are going to just use a cost basis, the end of your budget should be the end of the game. I usually do not just use a cost basis, I look for the return basis.

This rule was taught to me by a mentor a long time ago. He said, “If I’m undertaking a certain venture, and if I’m not able to make back 5 times my investment in 90 days, it is not worth it.” For me, setting my required return percentage and time frame was a great way of being able to justify the cost of a venture, but also knowing when to not try anymore.

Do not limit things to a cost-perspective because that can limit yourself from creating a system of enormous value. If instead you are not able to generate the results you are looking for that abate the cost by many times, then you probably do not want to be in that space. Because again, we’re in business because it is a highly leveraged activity that we’re trying to control and create more for ourselves than what we’re putting in.

If we’re just getting break even, or just a little bit better than that, then that may not be appropriate. There may not be enough return for you to sustain somebody else doing that work for you at some other point. Even if you are doing all the work for a particular activity now, in creating a business system, you have to make it self-sustaining. That’s why we set the requirement for a return to be a multiple of what you put in. It needs to be able to sustain itself on you not being there and having somebody else get paid to do what you were there for.