Top Six Signs You're Engaged in Lizard Tail Budgetting
Lizard tail budgeting?
Some lizards have a defense mechanism, where they can shed their tail when a predator strikes -- leaving the aggressor with a decoy prize. And the lizard can then escape -- and grow their tail again.
Some people in large companies call this "operating with some expendable fat" of with a cushion.
Either way, it might be adding 10% or more to your overhead. Wouldn't you like to eliminate it? Then why are you encouraging it? You don't think you are?
Here are the top five signs that you are encouraging bloat and bad behavior -- and that you are rewarding management for making bad business decisions.
1. Do you ever "freeze reqs"?
If so, you are rewarding people who over-hired and kept low performers -- and increased your cost base and run rate.
And you are punishing responsible managers, who hired cautiously and managed out low performers -- and kept their run rate low.
What's the alternative? Manage to a budget. And expect your teams to do the same thing. This doesn't mean budgets are static. They will change. That's okay.
2. Do you ever deny "backfills" when a low performer is managed out?
If so, you are encouraging managers to retain poor performers, or, worse, keep bad corporate citizens within the company. For some managers, a poor worker is better than no worker. For other managers, keeping their run rate high is critical (see #4).
3. Do you ever prevent internal transfers?
Managers may think they are being smart -- holding on to talent, keeping their run rate high -- but if you make it harder to find a new job internally than externally, your best performers will take the hint, and pursue their careers elsewhere.
4. Are you imprecise or don't even bother to establish a budget?
'Nuff said.
5. Do you ever base next year's budget on this year's actuals?
This practice encourages managers to keep as many people on their budget, and fit as many expenses into their budget, as possible -- not because it's a good business decision for the company nor for shareholders, but because it gives them a bigger budget next year. Or at least more cushion. (See #4.)
6. When budget crunches occur, do you "reduce by a percentage" or do you "set a new target"?
If you "reduce by a percentage" then you encourage people to carry fat in their budget (a lizard tail) so that when the axe falls, they can protect their core operations. Over time, this cushion is a dead weight, putting downward pressure on margins, demoralizing employees who see the waste on the front lines, and again rewarding bad behavior. You wouldn't run your own business this way.
In contrast, everyone understands that budgets change, and that a conscientious business owner manages their expenses to a budget. If you cannot trust your general managers to manage a P&L, you probably have the wrong general managers.
All this said, remember that you are running a business, and sometimes extraordinary situations require you to do the "wrong things" (#1-6). The key phrase in that sentence is "extraordinary situations." It's akin to whether you perpetually focus on quarterly results instead of long term growth -- that is, behave in survival mode rather than growth mode, even when growth mode is what an "owner" would focus on.
If you find you are doing these "urgent pivots, consequences be damned" as a standard practice, please disclose that material information so I can sell my stock in your company.