Wednesday, July 21, 2010

Don't kill your Golden Goose

A monkeyI'm currently reading The 7 Habits of Highly Effective People. It's a fantastic book, and several things have already caught my eye. I intend to write about a few independently, and then I will do an overall review of the book. One of the sections in the book that most intrigued me deals with the moral behind the Aesop story of the golden goose. It's one of Aesop's best know fables. It's a short story, here it is in its entirety.

A man and his wife had the good fortune to possess a goose which laid a golden egg every day. Lucky though they were, they soon began to think they were not getting rich fast enough, and, imagining the bird must be made of gold inside, they decided to kill it. Then, they thought, they could obtain the whole store of precious metal at once; however, upon cutting the goose open, they found its innards to be like that of any other goose.

The writer of 7 Habits, Stephen R. Covey, relates this to business in a story he tells in the book. He talks about a seafood restaurant on the east coast that he use to frequent. They had the best clam chowder around. People would stand in line for an hour to get some of their delicious soup. Business was booming.

The restaurant was then sold to someone else. They kept the name and menu the same, so no one on the outside was aware of the change.

The new owners loved the business they were getting, but they were upset to learn the high cost involved in making their prized soup.

It used all the best ingredients, and the best is always costly. So the new owners got a 'bright' idea and decided to use cheaper products in their soup. They thinned it out, watered it down.

Bingo! Now not only was business booming, but their income was shooting through the roof! They were making the soup for a fraction of the cost, and for the first couple weeks no one was the wiser. They of course noticed that the soup was now mediocre at best, but they just attributed it to a natural bad batch. They had come here for a long time, they loved the soup.

But after two or three trips back, after inevitable word of mouth, slowly people stopped coming back. There was nothing to come back for.

In the short term the new owners had doubled, even tripled their profits. In the long run they had torpedoed their own business. They had killed their golden goose.

If you are trading short term success for long term hardship, you are engaged in bad business. Treat your golden goose like the asset that it is. Care for it, nurture it. Instead of bleeding it dry, once you have found a moneymaker go back out and search for another one. If you want ten golden eggs a day, find ten consistent assets. Don't try and get all ten from that one. It will tax and ultimately destroy your cash flow.

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