It’s impolite and generally risky to point out to a business that it’s getting at best little value and often of substantial negative value (losing on legal issues, not getting bank loans, uninsured losses, advertising campaigns that decrease sales, websites that dissuade visitors from buying, awful real estate leases/purchases, still defective equipment, overpriced utilities, amateurish IT services, clueless consultants, etc.) and every business relies on a much wider range of external service providers than anyone thinks about.
Hundreds of times in putting together loan or investor proposals (very different things and when people tell you to use a business plan for that, that just exposes they haven’t chased money before) I’d go through their CPA’s financial statements and realize taping a “Kick Me” sign on the business owner’s back and sending them into the bank that way would be kinder than sending them in with their accountant’s financial statements. At best the financials have been done entirely to minimize taxes which depend on many of the figures in there and in reality the financial statements are hammered out by exhausted, offsite people even in the biggest companies who just are trying to meet tax deadlines. People who think their financial statements are a realistic and deep portrayal of the actual assets, liabilities, income, profits, cash flow, cost structure, etc. are deeply naive and those who try to manage from them without substantial internal work to make them representative (often an impossible task, they’re so skewed in structure for tax questions) are more dangerous than skilled.
Grossly incompetent internal accounting and bookkeeping staff, more common than not as it’s a specialized hire that most of us really aren’t able to evaluate candidates effectively for, mean numbers are unreliable, appear long after decisions or much can be done with them, and have a lot of hidden costs in areas like collecting accounts receivable, spotting waste or pilferage, tracking vendors’ costs, missing or misassigning many operating and facilities costs so profitability is grossly exaggerated, etc. I’ve reviewed the work of several hundred accounting firms over the years and the ones I’d recommend to a business for useful, accurate work was always a handful and only individuals at those firms (the false pretense that professional firms turn out uniformly good work if they’re large and old is like Santa Claus-warm and reassuring until given a bit of thought on human variation.)
Legal services are another where a friendly lawyer known socially already or referred by a friend is used for many areas well beyond their expertise or resources, but happy for the fees and work. I worked with law firm marketing extensively back in the 1980′s, interviewed and observed hundreds of lawyers and dozens of law firms closely while most of the several thousand businesses I’ve worked with used lawyers occasionally or continually including those with in-house attorneys. Lawyers specialize, often accidentally and without realizing it, but all do and the resources to support a specialty mean even in a 1,000 lawyer firm, only a few are qualified and effective at particular work. So the smart thing to do is use many lawyers, each best suited for the work at hand, but that’s not how lawyers sell themselves.
As general business advisors it’s even stranger as law firms themselves are poorly managed almost as a rule and few lawyers have business training (a liberal arts education and then initial work as a government lawyer in criminal prosecution or regulations is vastly more common) so at best the attorney can provide some very general (and expensive) advice based on their direct experience with similar jams their clients have gotten into. It helps sometimes but when I run into business owners who check everything with their attorney first, that’s a sign of carefully cultivated dependency for billable hours rather than prudence.
Abysmal and even mediocre legal advice is very expensive, often business killing, but only readily noticed when you lose trials and appeals you should have won or avoided entirely. It’s the poor management of risks and contracts where the big costs of poor legal advice are mostly unnoticed, often by throwing too much legal fees at some things and skimping on others that aren’t as noisy or the lawyer didn’t think about.
Insurance advice is one I’ve found far more competent people in than many business services, probably because the competition is so intense and unrelenting as well as writing money-losing policies quickly drives providers out of business.
Using a specialist in business insurance, rather than the same person/firm who specializes in home and auto insurance or life insurance is important as they’ll notice risks beyond fire, burglary, and slip & fall lawsuits that need to be addressed. Product liability, business interruption, employee theft and fraud, premises liability, bonding those handling the money, workplace violence, cumulative medical issues, discrimination/harassment lawsuits, landlord-tenant disputes, jobsite damage, etc..
There’s a bunch of risks out there, more of them usually than anyone can afford adequate insurance for all of, and businesses well covered for the highly unlikely and not covered at all for near certain events (so earthquake yes, employee theft no for example) are what I’ve typically seen (and often been.)
Advertising and other marketing services like website development, search engine optimization, sales literature production, advertising media buys like radio ads or newspaper, public relations services, branding/company image development/graphic design, CRM software, strategic consulting, etc. are probably worth a column here by themselves.
Enormously dumb “marketing” stuff by wildly unqualified people for what’s complex and technical work that needs to be research-based and tracked for effectiveness kills or retards most businesses. It’s like hiring hairdressers for brain surgery.
Pouring money down the ratholes that fools who operate on bluff, uninformed opinions, and little understood trends profit from but you won’t is bizarrely common. I worked in this field after long study and made it to “Who’s Who in Advertising in America” in part by studying what the best practitioners of the century did and learned, benchmarking in other words. There’s been a considerable body of knowledge developed in what works since about 1919 but almost no practitioners study it, so it’s like going to a doctor who never read his medical textbooks or journals and operates on patients based on what doctors in current medical television dramas do.
Big businesses routinely get terrible work in these fields (a third of award-winning ad campaigns actually drive sales down significantly while 40% of the campaigns don’t improve sales or profits at all.)
Defective or mediocre websites, the equivalent of the lousy general brochures and sales literature produced for decades before that are another sinkhole that businesses routinely bet their future on while being quite ill-served. Overpricing this work so it consumes a business’s entire marketing budget for the year is bizarrely common too, like buying a year’s supply of Hamburger Helper in January but not being able to afford the hamburger until November. Printed material with no plan or budget to get it into customer’s hands (generally direct mailing) is as bizarrely common as websites without any search engine optimization or E-Commerce function are common today, done by professionals at a considerable cost.
Often it’s better and cheaper to staff and do this internally (heresy!!!) for deep knowledge of what you offer and who buys it for what reasons trumps all of the huff and puff the external providers rely on since citing actual results is unavailable to them. You can’t be TOO skeptical in hiring and evaluating these services.
Information technology services is another area where it’s easy to pour vastly disproportionate cash down the drain. In the old days it was custom programming or endlessly customizing the reports from a standard software package like Excel, Peachtree, Oracle (!!!), SAP, PeopleSoft, Great Plains, relational databases, E-Commerce platforms, J.D. Edwards, etc. and to a great extent still is.
People who think turning a standard report (albeit those are generally built at the software house by people with no knowledge of the report’s purpose or use, worked with a lot of software houses too) is worth thousands or tens of thousands of dollars are people you can’t afford to have on staff or as external advisors. Making routine decisions seem awesomely complex is another classic IT cost/service problem while making complex decisions like migrating to an entire new package for key or all functions like Oracle or Salesforce or SAP etc. rarely works out as well as promised (2/3rds of major software migrations by the biggest firms fail dismally after years and enormous amounts of money and time. That’s like undertaking a new building for your business with the foreknowledge you’ll end up with a workable building on a 1:3 chance and a big hole full of charcoal and bodies 2:3 chance.
It’s easy to evaluate physical inputs to your business (well it really isn’t, the more I’ve learned about quality variations in steels, plastics, concrete, electrical power, broadband service, paper, cardboard, screws, etc. it tells you “commodity” means you don’t understand what you’re buying and how it works for you) but services are sold so much on bluster, guess, ill-informed referrals or casual acquaintance that they deserve and require much more scrutiny throughout the process of using them. Or it can cost you the whole business, let alone make progress and growth far harder than it needed to be.