Advisory No 7 – CAPEX - What would you do if it was your money?

Around 15 years ago at the peak of the change period where Australian TV postproduction and distribution transitioned from analogue to digital, I held a position as a department manager.

Within the management team I was probably the most junior and the least experienced but I did have disproportionate access to the Chairman. 

He gave me dedicated time each month because he understood that my department was a significant source of revenue and, unlike the rest of the business, had very low overheads.  I was representing a department that had been a dependable source of steady income for a number of years.

The pace of technological change had quickened and the department that I’d been hired to manage had been under-resourced for quite some time.  When I started, business was on a downward path.

As a new manager, I felt the only choice was to forward a proposal to spend in excess of $1M to re-launch the business. The alternative was to exit the sector and wind the department down before the inevitable losses started to accrue.

The Chairman’s response was one that I’ve used in every expenditure choice since that day.

He said, ‘What would you do if it was your money?’

The answer was immediately clear to me.  I said, “If it was my money, I’d invest in the future.  We have an established brand and we have customer loyalty, but we no longer have the services our customers need’

So we invested most of that budget.  We lost a number of clients that were too late to save but we replaced all our lost revenue and grew in real terms over three years.

As managers, we’re continually presented with expenditure dilemmas.  All of them represent some kind of risk.  

With technology and equipment in particular it’s hard to know when to buy and how quickly it will date.  But try this out.  Ask yourself, what would you do if it was your money?’  You’ll find the answer is almost always clear.

As my career has developed, I have consistently used this approach that I call ‘commercial empathy’ and I have never struggled over a purchase decision since that day.

The Advisory Partnership works closely with our clients to develop a thorough and intimate understanding of their operations.  This enables us to deliver strong commerical insights.

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