The value of planning

by Neil Friedman
The business plan is your statement of purpose for your business. You can’t forget the reason to be in business.

Every football coach tries to devise a winning game plan. Even the best athletes will fail if they don’t have a game plan that is designed to maximize their strengths and minimize their weaknesses. Concurrently, that game plan must take full advantage of an opponent’s weaknesses and make every effort to negate their strengths. In the business world, the best game plan (business plan) coupled with superior execution will deliver a winning effort—a profitable and growing enterprise.

A business plan is your roadmap to a viable and profitable business. Too many view it merely as a document to acquire an investor or financial institution to fund their dream, but if it is properly used, it can be the difference between success and failure. There is a reason why so many preach that it is an important part of your success, so don’t neglect it. Used as a tool in your company, a business plan should be a frequently utilized document that helps keep you on track and headed towards the goals you have set.

The business plan is your statement of purpose for your business. Simply stated, the purpose of any business is to make money. A goal of any business is to not only grow sales, but more importantly, to grow net profit. A successful business is a well-managed company that has a preplanned profit. No business can exist over the long term without consistent and growing net profit. Therefore, you shouldn’t increase sales without growing profit. It is far easier to manage a million-dollar business making $100,000 net profit than it is to manage a multi- million-dollar business making that same $100,000.

Business is based upon providing a quality service and product to customers. Most business owners are typically not taking advantage of all the available customers in their service area who are seeking a quality company that keeps their promises and charges a fair price for reliable work.

The lifeline of any business is the energy and commitment that its employees display on a daily basis. A business cannot prosper without the energy and commitment necessary from all its employees. If you cannot tell someone specifically what you expect from them, then you cannot expect specific performance from them. Planning, projection (allocation) and measurement are invaluable tools and are required in any business.

Accurate information and measurements are also mandatory for any business, as they are vital to success. The operations of a business must be measured, evaluated and controlled. Knowing the value of the products and services offered is vital to the health of any company. How can a profit be made if each item in the product mix doesn’t have a known breakeven point and preplanned profit?

Members of a business have a responsibility to themselves and to the company. In addition, the business has the right to be run as an efficient and profitable company so that the employees can be taken care of now and in the future.

If the previously mentioned statement of purpose is addressed in your business plan and the plan is followed, you will be successful. Therefore, it is important to create a business plan and use it.

Included in a business plan should be a specific marketing strategy. You know what you want to do to make money, but you must find those who will pay you to do it. This is where your marketing plan comes in. The marketing plan is a process and, just like any process, you have to start somewhere, but where? How about at the end? To get where you want to be, you have to know where you are going. So where are you going? What is your goal? Where do you want to be in five, 10, 15 or 20 years?

After establishing a goal, the next step in the marketing plan is to understand where you are at this point. What is the current state of your business? Is it a leaking rowboat or a luxury cruise ship? If you must transform that leaky rowboat into an efficient ship, then the process will take more time and be more laborious. Getting started is easier once you have an understanding of the current state of the business. Simply start with a goal. The route to the goal is what the sales and marketing plan will decide. If you have any doubt about the goal, straighten that out first.

It is extremely important to note that if you currently have no goal, you need to set one. This is the end toward which all your effort is directed. The route to the goal must be dictated by the product or service provided. Determine who needs or wants the product or service that is to be provided. Finally, determine how to “build a better mousetrap” by becoming the best in your service area.

It is important not to shortchange any step of this process. If you do, it may take longer to complete the project as you find that incomplete research simply will not suffice. You must have the tenacity to perform a documented and regimented routine to have a marketing plan that works — and that plan takes a considerable amount of work. The following steps must be taken in the development of a plan. This is not a roadmap for developing a sales and marketing plan, but a brief outline of the process.

Review and Assess

  • First, analyze the company (an objective look at the strengths, weaknesses, opportunities and threats facing the company). Review how well you actually do what you are in business to do. Analyze what you have been doing to market your products or services.
  • Review the major functions within the company and those companies that provide services to you.
  • Review the sales process, sales trends, delivery of your products or services and pricing. Look at the results for your company and how you stack up against your competition.
  • Assess the company’s market reputation.
  • Within the business and target market, make sure that the positive and negative opportunities are reviewed and assessed.

With the help of your sales staff, determine where you are targeting your sales effort. What are the markets and objectives and who are the decision makers?

Plan the strategies that position your brand to effectively dominate the market. Every company has a brand or brand name whether they know it or not. Can you accurately and precisely define your brand?

Set the target for an effective communication policy.

Establish or review and validate or change the following:

  • The product or service name;
  • The product packaging;
  • The product or service pricing;
  • The method of distribution;
  • The method of selling;
  • Promotion and event policy and planning;
  • Advertising themes and possible media to be used including Internet;
  • Merchandising methods and policies; and
  • The handling of public relations for positive and negative events.

Establish an advertising/marketing/sales budget, methods to analyze its effectiveness and the timetable for it.

Put the plan into effect.

Evaluate the plan and provide systems to monitor and, if necessary, to alter the plan.

Business is a continuous series of processes. It doesn’t matter if the process is marketing your brand or making factory production flow as efficient as possible or controlling accounts receivable. All must be managed and be part of a planned business. Having a plan and properly executing it can be the difference between success and failure.

Developing a business plan takes time, considerable thought and decisive action. Once again, it can spell the difference between success and failure. This is not a one-day exercise—it is your company.

I JUST DON’T HAVE THE TIME…

Everyone has one-hundred sixty-eight hours in a week—how come some people find the time for family, some people find the time to attend workshops, and some people find the time to run more than one business yet others work excessive hours, don’t get out and seem to just live with results that never change?

In “Minding My Own Business,” author Dirk Dieters examines with the attendee the six responsibilities of a small business owner and applies those principles to the attendee’s business. Like other authors and experts, Dieters does not list as one of those responsibilities the requirement that the owner invest all of their efforts and time in the performance of the technical tasks in the business. Your responsibility as an owner is not to do other people’s jobs but rather to lead the company. The business climate is difficult and there is only one guarantee—that the rate of change will accelerate. You have a responsibility to keep your company ahead of that curve. Are you investing the time required in this responsibility? The Fremont Group focuses you by teaching you that there is only one reason for your business to exist—to make your life better. When was the last time you made the effort to look at your business? How is your business making your life better? How is your business making your life worse? As a business owner decisions are actually very simple—we build upon the things that are making your life better and rid ourselves of the things that are making your life worse. To make you a better business owner, The Fremont Group presents the acclaimed “Minding My Own Business”™ workshops. These are customized sessions for business owners only. Attendees universally agree that they leave with not only a better understanding of their business but also with specific actions that will make an immediate difference in their company. Yet the Fremont Group salespersons often hear the objection, “I don’t have the time.”

Irrational decisions are most often the product of either fear or denial. Fear causes poor decisions; poor decisions lead to poor results. We can be afraid of many things—we can be afraid of being wrong. What if the workshop does not provide me with anything that builds upon the positives or rids us of a negative? We can be afraid of repeating a previous mistake. What will people (employees, family, etc.) think if it turns out to be another expensive venture that doesn’t really help? We can be afraid of being weak and at risk of being “talked into things.” People are already questioning my decision-making—what if this is a mistake? And we can be afraid of showing weakness. I am not going to admit that I might benefit from outside help. Companies go where the owner leads it. If it is led by fear it probably will never go where you want it to.

Some may classify denial as a form of fear, however I think that it deserves a classification of its’ own. It is a natural human trait to postpone difficult actions as long as possible. We hope that if we ignore a problem that it will go away. This is the equivalent of being hooked on drugs—we call it “hopium.” Unfortunately it sometimes works—and this just hooks us more. Hopium can paralyze. Just “hoping” that things will change can create a death spiral in a business. Rarely is the confrontation as painful as the problem itself. Things happen when we make them happen. Change takes place when issues are addressed, confronted and solved in a systematic method. If we wait and “hope” for change, we are allowing hopium to control our fate. Denial doesn’t solve problems and your employees know it. They expect to receive training and respect the fact that you seek continuous training in your job of leadership.

We all have the time—it is an allocation issue. Would attendance at the workshop help you build upon the things that are making your life better? Would it help you rid yourself of things that are making your life worse? If the answer is yes to either then choosing not to attend is not a rational decision. Allocating time to anything other than these two objectives is not going to move either your business or your life forward. So why make an irrational decision? In less than three hours you can do something that can make a difference—what else are you really going to do that could change your business and your life? Oh, I forgot—you don’t have the time.

Dirk Dieters is the owner of The Fremont Group, a small-business management coaching firm in Aurora, Colorado. Mr. Dieters has an undergraduate degree in Business Education from Michigan State University and his law degree from Detroit College of Law. He has worked in management consulting since 1995.clip_image002 The Mission Statement of The Fremont Group clearly states his objectives: “The job of The Fremont Group is to make the lives of our clients better through a knowledgeable, trustworthy, truthful, empathetic, forward-looking and focused relationship.”

Mr. Dieters played baseball at Michigan State; coached baseball at Oakland University in Rochester, Michigan; has owned his own small businesses; and at various times has held real estate and series seven licenses. He is married with five children and is the author of the book “Minding My Own Business” published in 2005. He also hosts “Minding My Own Business” Workshops designed for small-business owners nation-wide. He has published articles for the Institute of Management Consultants. Visit their web site at www.the-fremont-group.com.

© The Fremont Group 2007

Management Techniques (Part II)

This is a follow-up to the Management Techniques post. We will walk through the five criteria.

1. Employees must understand what results are expected of them.

This is not as simple as it seems and it is the foundation that most business owners miss in trying to manage. Imagine a baseball manager having a meeting with his key player—but without statistics. “You’re not hitting well enough.” “Yes I am.” “You don’t get enough hits.” “I got two yesterday.” “You should have more home runs.” “I hit one last week.” “This has to change—we will meet again next week.” And how is that discussion going to go next week? This might sound like a common meeting of owner and employee. If you have ever told an employee that they are not doing a good job and they argue with you—you have violated this first principle. How different that conversation would be if you had statistics: “You’re being paid to hit .300 and you’re only hitting .200—what’s the problem?” “I got two yesterday.” “No, you aren’t listening—you are being paid to hit .300 but you’re only hitting .200, what’s the problem?” Silence. “You are being paid to hit 30 home runs a year buy you are on pace for only 10, what’s the problem?” “I hit one last week.” “You aren’t listening. Do you need different working conditions or more training? We’ll be glad to do whatever it takes, but what we really should be focusing on is your bonus—if you hit .333 you get another million dollars, I’ll be manager of the year, the team will win more games and the company will make more money. So what do we have to do to get you to .333? I know we can’t do it in one week but next week when we talk you need to be at .250 or we will have to bring in another player and pay them out of your salary—we don’t what that do we?”

So the first rule is to establish results for each position. Where do the results come from? If you add up all of the results of all of the employees you have what it takes to accomplish your financial plan for the company—your budget. You hold people accountable for the results that are required to meet your budget; you create incentives for results that exceed your budget and produce additional profit.

Conveying those results to the employee is the critical part. It is not enough to have the standards, they are worthless unless they are conveyed to the employee in a manner that they understand. This is where effective job descriptions come in. Employers who create job descriptions that are merely a list of tasks will fail. The list of tasks is the training manual. Real job descriptions communicate to the employee the results that you are paying them to produce. And they must understand that their base pay is contingent upon the production of those results.

Examine your organization in that context—does each employee understand that their pay is contingent upon the production of defined results?

2. Employees must understand how those results are measured.

You can’t manage it if you can’t measure it. In fact, you can’t manage people. People do whatever they want to do. What you can manage is results. And you can create an environment where people are not comfortable not producing their results and therefore they actually want to do what you want them to do. You will be unsuccessful if the measurement of an employee’s results are not: (1) done in a way that is simple enough for them to understand; and (2) done frequently enough for those results to become the focus of their day. In fact, the ideal system has the employees themselves calculating their results on a regular basis. This means that the employee must have enough information to be able to calculate their results.

3. Employees must know if their results have met the minimum level of expected performance.

An effective system causes employees to calculate their results and compare them to the standards established for their position and pay grade. This ties into a system of employee reviews. There is a collateral advantage to this. As an owner the most critical information that you need is the ‘bad news.” Good news is nice—but what is critical is that you know immediately if something is going wrong. If the employee knows that they are being held accountable for a result and sees that that result is not going to be achieved, they will let you know immediately so that they can negotiate a change in the required result. At this point you have a critical juncture. You can either treat the news as an excuse or a reason. The difference between an excuse and a reason is the excuse isn’t true. If an excuse is offered you must choose to either replace or retrain the employee. If a reason is offered you must change the standard and change your plan (budget) to accommodate the new reality. Your success is determined by the excuses that you are willing to accept.

4. The frequency that employees must report those results and be held accountable must be determined by their level of authority.

Many owners fail to distinguish between the levels of authority that they grant to an employee. The lowest level of authority it the authority to do nothing—watch. The next level of authority is the authority to recommend. The third level is the authority to act and report immediately. The fourth level is the authority to act and report periodically. The highest level of authority is the authority to act independently. Not recognizing this hierarchy is a laziness driven fault that dooms many employees to failure. It is tempting on the owner’s part to “just hire good people” and trust them to do good work. This is absolutely wrong. Every employee must progress through these stages before they can reach the top—and many never will. It is also a fluid scale. Employees can move up and down this scale regularly. Ideally their base compensation is also tied to their level of authority. You are setting up an employee for failure if you just “toss them in the water and see if they swim” and even worse you are inflicting the cost of turnover and failed results upon your business. If left undirected the employee chooses their own level of authority—do you really want the results of your business left to the chance choices of new employees?

5. There must be immediate feedback for unacceptable results with a meeting where the manager asks two questions—“Why did we fail? And what are we going to change tomorrow?”

Those two questions are the key to management. If an employee knows the results that they are required to produce; they know (and possibly even participate in the calculation of) the measurement of those results; they know if their results have met the established expectations for their position; and they are reporting those results on a regular basis there are only two relevant questions to ask—why did we fail and what are you going to do about it to change it tomorrow?

The implementation of these five principles is the cornerstone of an effective organizational structure.

MICRO-MANAGEMENT

Everyone knows that micro-management is wrong but few people really know what they are talking about when they use this term. Micro-management takes place when the supervisor (owner) is more concerned with the process than with the result. This is a critical distinction. Employees resist being held accountable for the “way” that they do something but understand being held accountable for a result that they did not accomplish. When the emphasis is shifted to the result, then the manager can use a failing result as an opportunity to train in the process. If the manager merely harps upon the process insisting that it be done the way he or she did it then they will fail in their corrective action.

Do You Own A Job or a Business?

When the owner is spending more time doing other people’s jobs than he is doing his own he has a problem. His job is to run the company and when he is doing other people’s jobs, he isn’t doing his.  Working in the business means doing the tasks that should be done by and employee. Working on the business means doing the tasks that should be done by the owner. The owner who does employee’s jobs doesn’t own a business he owns a job.

An owner starts his own business in order to achieve his goal of being his own boss. He discovers that he may not have a direct supervisor anymore but his income is still dependent upon him performing the same tasks that he performed in his employment and in addition to that he is swamped in “paperwork” and employee problems. He may (or more likely may not) have a greater income, but his hours and responsibilities are so greatly increased that all he has is a bigger job than the one he left. If he had put in this many hours and this much effort for his former employer he would probably be ahead of where he is now. All that he tried to achieve was self-employment and he has achieved that.

There is a significant difference between owning a business and owning a job. Having a business means that he makes his money off the efforts of others, rather than off the efforts of his own. You should make money off of every employee; therefore any business with employees should make money.

Owning a job

Some people are content with a job. As long as they are content with the hours, inability to get away, and their current compensation then they need not be changed. When a person has a job they end up with excessive work hours. They are doing the job of one or more employee and trying to do their own job (run the company). They cannot get away because systems and controls have never been established that allow them to delegate the functions of operations to others. They have no way to really know that the functions are being properly done without being there. Their compensation is limited to the number of hours that they are willing (or able) to work. They have no hope of opening a second location because the operations depend upon the personal attention of the owner and he can only be in one place. They can never sell their business because they are the business. If they left, there would be no business. Eventually the assets are sold but they years of sweat equity go uncompensated. They are good at some of the tasks and not as good at others. As their business grows they are required to do more and more tasks that they are not good at. Eventually they get overwhelmed, fail to grow and die.

Owning a business

A business owner owns a few hard assets and his systems. Why does a 1000 square foot building sell for hundreds of thousands of dollars if it is a McDonalds? Because it has ironclad systems that produce a pre-determined return based upon location. McDonalds is completely SYSTEMS DEPENDENT. Most small businesses are PEOPLE DEPENDENT. McDonald’s systems allow for the least qualified person in each position and they are so strong that the people are irrelevant to the success of the business. Most small businesses purposely become dependent upon the most qualified person in each position and become held hostage by their employees. Since the value of most small business pales in comparison to the value of McDonalds, we can assume that a SYSTEMS DEPENDENT business is better than a PEOPLE DEPENDENT business. This can only be achieved through a conscious effort on the part of the owner to do his job rather than other people’s jobs.

In order to own a business you must try to own a business. That means that significant time and resources must be spent working on the business rather than working in the business.

Fremont Offers Extraordinary, One-Time Discount On “Minding My Own Business Workshops”™

The Fremont Group, a non-profit corporation dedicated to bringing quality and affordable management consulting services to small business owners, is using a substantial grant to subsidize workshops for small business owners. The workshops are based upon the book, “Minding My Own Business” written by Dirk Dieters specifically for small business owners. Regularly $875.00 the workshops are being offered from July 15th through Labor Day for a Summer-Recession discounted priced of $150.00! The workshops are one-on-one sessions—just you and the professional for 2-3 hours where each aspect of your business is examined. You learn the six responsibilities of a small business owner and are able to rate yourself in each category. Additional follow-up work is also offered on a sliding scale according to ability to pay.

“Minding My Own Business Workshops”™ have been successfully presented in nearly every state. Success is defined as the owner agreeing that they are leaving with something that they can immediately use to make a difference in their business. If that standard is not met, your fee is refunded. An $875.00 fee has never been refunded.

Take some time to examine:

  1. What is the minimum, mandatory percentage of profit that your business must make? Do you have a plan in place to produce it? What is your planning process? How do you hold yourself accountable?
  2. Do you have cost controls in place that will produce that minimum, mandatory percentage of profit? How do you use your budget? (Do you even have a functional, variable budget?) How do you project your cash flow? (Or do you run your company by mailbox management?) Is there a real AR/AP policy and procedure?
  3. Are your employees responsible for the enforcement of those cost controls? How do you hold people accountable? Do you have rational incentives in place? How do you control turnover? Recruitment? Development? Training? Retention? How do you use your job descriptions?
  4. Is your sales system really working? Are sales produced by people or by a system? How do you sell internally? Do you have a sales plan in place that is designed to really win the game?
  5. Are you keeping all of the money that you make? Do you have a tax plan in place? How do you review risk management?
  6. Are you having fun? Are you the highest paid employee? Can you take time off? Does your business make your life better or worse?

All owners can benefit from this workshop. Only those who are ready to change should attend.

Strategic Planning for Dummies

The owner’s job is to lead the company. Leadership is having a plan and getting your people to focus upon their part of the plan.[1] Answer the following questions:

· How much money are we planning on making this year?

· What will be required in sales according to the plan?

· What will be required in Gross Profit according to the plan?

· What overhead level is permissible according to the plan?

· Other than money, what other results must the business generate this year?

These issues are at the top of the pyramid. These are the financial issues that must be addressed. The company must have a financial plan. The owner’s additional goals can only be met if the financial goals are met. Once those have been clarified, other goals can be fulfilled. The business is supposed to make the owner’s life better—it is not supposed to be the owner’s life. The owner must also define the other goals that they wish to achieve. Then, of course you must have a plan designed to do it.

The Plan

Imagine a football coach. We all know that he has a game plan established for every game. He would lose his job if his game plan said, “if everything goes right we will only lose by a touchdown.” This is done is small businesses every day. The financial plan of a company is their Profit Plan. How are we planning on making our pre-determined profit? What sales are required? What gross profit is required? What overhead levels are required? What is our plan for overhead absorption by profit center? Obviously your game plan must be designed so that the targeted performance produces your desired result. Once established (and the more specific the better) then it becomes the role of your Organizational Structure to focus your people on their individual results that they must produce in order to perform their part of your plan. The company’s financial reporting monitors these results so that people can be held accountable and incentives established and monitors the company’s progress in relation to the plan.

Every plan must address the following objectives: first it must assure that the business continue to function and stay in business for the next week, month, six months, year, etc. Second, the business must make money and third the business must grow. Any plan that does not address all of these objectives is fatally flawed. Business continuation is obvious but often overlooked. There are cycles to the business and the owner must be prepared to be able to withstand the “down” cycles. The owner must also identify and develop a management plan that includes key management succession and a structure to shift reliance from people to systems to assure business continuation. No employee (owner included) should have the ability to hold the company hostage. Lastly the business must grow. This is vital not so much for the owner’s short-term return but rather it is required for retention of employees. A growing business offers more opportunity for employees and is more likely to retain the better people. Failing to grow eliminates those opportunities and causes the better people to leave—are reverse Darwinism—that is eventually fatal. Without retaining and challenging the best people succession of management is compromised.


[1] “Nobody puts a proposal for a new comprehensive strategy on your desk and asks you to make a decision about it. You have to put it there yourself. And once you use your view of the big picture to formulate a strategy, you have to call on a wide range of skills to achieve a series of objectives. You must devise a business strategy tailored to your goal. You need to communicate the goal and strategy to…all the employees. You have to give greater responsibility to people at the front line and then create a secure atmosphere where they will dare to use their new authority. You must build an organization that can work to achieve the goal and establish measures that guarantee you are moving in the right direction. In short, you have to create the prerequisites for making the vision a reality.” Moments of Truth, Jan Carlzon, HarperPerennial 1989.

Are You Simply Too Nice?

INABILITY TO MAKE DECISIONS/THE OWNER IS “TOO NICE”

Leadership requires decisiveness.[1] If the employees feel reluctance on the part of the owner to take action, they loose respect for him as a leader. The company’s direction must be clearly defined, the systems and procedures clearly communicated, and company policies must be firmly and fairly enforced. “Mistakes can usually be corrected later; the time lost in not making a decision can never be retrieved.”[2]

“A leader, then, is a person who is orientated toward results more than power or social relations….the results-orientated leader does not dictate the methods for achieving the results and, moreover, does not need to claim the victories as his own.”[3]

Ron Battles, Director of the Small Business Development Center of Everett, Washington[4] was asked to name the biggest mistake in small business. He stated, “Being slow to adapt to business conditions even though you think you’re fast…. I had to do something but if I had done it a year earlier, I would have been a lot further along. As a business owner, if there’s a decision to be made you have to make it quickly. If you don’t make it you lose the timing of that decision.

Employing people creates a stewardship. You owe it to your employees to provide them with a secure company, opportunities for growth, and respect. Many owners misinterpret this stewardship and do not make the hard decisions. What they often do is cause the entire company to suffer in an attempt not to “hurt” one of them. The owner’s job is to deliver to the shareholders a pre-determined profit, maintain the quality and integrity of the company, and to grow. The owner must do his job as well as he expects others to do theirs.


[1] See also, Who Moved My Cheese.

[2] Moments of Truth, Jan Carlzon, HarperPerennial 1989

[3] ibid

[4] The Everett Business Journal, September 2000.

Commentary–How To Solve Health Care And The Impact on Small Business

In the past 15 years I have had the experience of working with over 4,000 small business owners. Being from Detroit I have also heard the auto industry arguments repeated over and over. And having a family and spending two-thirds of my time self-employed, I have experienced personally many of our health industries issues. Below I am going to present some seemingly unrelated facts and issues and then show how they link together into an obvious and yet comprehensive health care solution for our country.

The uninsured. The statistics are clear—there is somewhere around 45 million people in this country who do not have health insurance. For them, our health care system is not available. Unfortunately this number is inadequate—it is a transient group. The actual number of people who at some time during the past year who did not have health care is approximately 50% higher than that figure. Ignore the illegals—that is red herring. Not having health care means that at some time during the year over 20% of our country’s population is one accident from bankruptcy. This is simply unacceptable in a country of our wealth and means.

The government. The government currently pays over 60% of all health care bills in the country. Between the old, the young and the poor (and our elected federal representatives) the government already pays the majority of health care costs.

The hospitals. A local hospital reported that 50% of their billings were unpaid—the result of treatment provided to uninsured. The hospitals have a choice of closing or passing those costs on to those who can pay. Therefore we are already paying a significant portion of health care costs for people who don’t have insurance.

Small businesses. Most small business owners would love to provide health insurance for their employees unfortunately most cannot afford it and those that do see this cost escalate so rapidly that it has become, after materials and labor, their highest cost. As the recession hit more and more of these companies dropped benefits or their insurance all together. This will only increase the number of uninsured and cause great hardship for those who lose their insurance and are unable to acquire new insurance because of the ubiquitous ‘pre-existing condition”—i.e. life.

Big Business. Not to defend or to point blame regarding the legacy costs of the auto industry but how do we expect our multi-national companies to compete with foreign companies who do not have to pay health care costs? Only in the United States has health care been tied to employment. The health insurance industry boomed following World War II when employers were looking for benefits that could attract the top workers. There was a period of significant competition for the returning workers and also a period of extremely high individual tax rates[1] making tax-exempt benefits very attractive. As health care costs were still relatively low and many health issues were not covered (pregnancy, mental health, etc.) the employer cost was not significant. The health care benefit also created an “employee retention” device that created a barrier to employee mobility and therefore drove down wages.

The entrepreneur. There are numerous persons beyond age 50 who are working for a company but want to start their own business. The main reason for them remaining with their company is not lack of money or backing—rather it is their inability to get health insurance if they leave their employer. This backs up the labor market making it more difficult for younger people to be hired and advance and stops the innovation that comes from new, small businesses. Just who wins from this stifling of innovation?

The insurance companies. Insurance companies are for-profit businesses which is fine. The way they make money is to take in more money than they spend. Therefore significant resources are put into keeping out of their group persons who bring with them the risk of a high cost. It is estimated that 25% of the administrative costs of insurance companies is spent in screening out applicants, which obviously is still more cost effective to that firm that allowing them in.

Health care as a commodity. Another red herring that is floated about is that health care is a commodity—it is not. When diagnosed as needing your gall bladder out you don’t call 3-4 doctors and hospitals and shop the costs—in fact you couldn’t do it if you wanted to. People don’t make lax decisions as “poor consumers” of health care rather they are subject to what their doctors tell them. In order to maintain the trust of the doctor-patient relationship this is required. It is not the same decision as where to take your car for an oil change. Therefore trying to apply “free market” (as if there was one anyway) principles to health care issues is absurd on its’ face.

WHY HAVE HEALTH INSURANCE AT ALL?

Prior to World War II there really wasn’t health insurance so how did we get by? The answer is simple—if you couldn’t afford it (or you couldn’t find a doctor who would treat you without payment) you died (and doctors ended up with a lot of chickens!). If we decide that that system is acceptable then we can eliminate health insurance. What health insurance did however was create a health care industry that could never have flourished without this source of funds. Go into a major hospital today and look around—an entire industry surrounds you that grew from the ability of the majority to pay health care bills. And this is a good thing. From it has come advancement in medicine and care that would never have taken place. The flip side is that with this care available to the majority but not to all, is our current system of rationing that care the most effective and rational? Should the elderly and poor receive care that many in the middle class cannot despite the fact that the same middle class people who are denied the care are the people who are paying for others to receive it through their taxes? Our current system of rationing health care is irrational.  So it is not a question of if, rather it is a question of how.

THE SOLUTION

Whenever simple solutions are not implemented it is a result of those in power having a vested interest in perpetuating the problem rather than in implementing solution. Here is the simple solution:

  1. Expand the existing medicare system to cover everyone, however scale back the coverages based upon age. Prior to age 65 your coverage is only for two things; (1) basic preventive care and (2) catastrophic. Not only do you receive a comprehensive physical every year it is mandatory. Some individual responsibility must be placed upon the consumer and at least this minimum of getting an annual physical should be required. So now we have a screening of everyone for preventive health care issues. As to the catastrophic I will leave the actual amount to the actuaries but once health care bills reach a certain threshold–$250,000, $1,000,000?—then our national health care kicks in.
  1. Keep health insurance in place privately but now it need only cover the “gap” period between the annual physical and the catastrophic threshold. Tied to this is a requirement that any applicant be accepted eliminating “groups.” As all persons are now in one “group” the risk of care of that group can be determined and there will be real competition between insurance companies. It could be a requirement that persons have received their annual physical in order to remain eligible.
  1. Eliminate the tie of insurance to employment. There is no rational reason for it and think of the consequences—small businesses just became more profitable as their former health care costs fall to the bottom line; multi-national businesses are now able to compete on a more level playing field with foreign companies; entrepreneurs can leave their employment and thereby expand innovation and create new jobs—everyone wins.
  1. Implementing 1-3 would significantly lower the overall cost. As more preventive care was implemented and the absurd costs in the system for keeping people out are eliminated the overall cost drops. Much of the cost of the uninsured is paid anyway by the people who can pay and therefore the increase in costs caused by their coverage is much less than one would think. The private “gap” insurance would be extremely inexpensive as the insurance company no longer has the risk of the catastrophic claim or the administrative expense of screening. Taxes would have to be raised to cover the difference, however my family in a group policy was paying nearly $2,000 per month anyway—if taxes went up $10,000 per year I would be a significant winner!

SUMMARY

Unfortunately I must repeat, “Whenever simple solutions are not implemented it is a result of those in power having a vested interest in perpetuating the problem rather than in implementing solution.” Congress is it’s own “special interest” group. They can raise money by creating fear of change and with money comes reelection and power. They have a vested interest in the perpetuation of the problem that is detrimental to our national interest.

Dirk Dieters, owner of TFGDenver

Note that this post is an opinion—we welcome your comments below


[1] For those who forget, there actually was a time when there were individual income tax brackets over 70%! Today’s taxes are extremely low in relationship.

WILLINGNESS TO ACCEPT EXCUSES

Your success is limited to the excuses that you are willing to accept. When an employee comes to you with his excuse for not meeting the predetermined level of performance your leadership immediately comes into play. You must listen to what they say and then determine if you have been given an excuse or a reason for nonperformance. The difference between an excuse and a reason is—an excuse isn’t true! The nice part of being the owner is that you get to decide what is the truth. There are occasions when there can be a reason—a legitimate, true reason why performance could not be accomplished. That is why you have to listen to the employee. When a true reason is put forth you must then modify your plan. The performance that you had planned cannot be met. However it is far more common that your employee (or yourself) will come to you with an excuse instead of a reason. If you accept their excuse you have limited your success. More likely you should inform them that you do not accept their excuse and that you still expect the pre-determined performance. Employees are like children and they will push. If you give in you have turned the company over to them.