Jeff Judy

Jeff's Thoughts - June 4, 2014

Do You Know The Total Cost of Growth?

The other day I was out for a walk and I passed a small garden in a well-kept yard, where the flowers were putting on quite a display. The secret? In a front corner of the garden stood a small sign carrying the words, "Grow, dammit!"

Now, I suspect that the true secret behind that lovely garden was a lot of work and some investment in materials and plants and tools. It came at a cost, in other words. For some people, a perfect garden like that is worth the cost, and for others, it is not. That's a choice we make deliberately ... at least, it should be a conscious choice.

The truth is, many people succumb to peer pressure, to the belief that every home owner should have a lovely garden. When the weather first warms up (an event which carries perhaps a little more urgency here in Minnesota than it does in some places), they leap into gardening with a vengeance. They dig, they rake, they fertilize, they lay out everything again and again. They spend a lot of time, and sometimes a lot of money, on it.

And then, after a month of weeding and watering and fighting pests, they realize they hate that garden. They would much rather be, say, fishing, or golfing, or watching baseball. A great garden is lovely, but it is not worth it to them.

They fooled themselves into taking a path that didn't suit them at all, probably because they thought they should do whatever the neighbors do. But they didn't consider the total cost involved. They may have calculated the cost of plants and maybe some fertilizer to start, but the ongoing costs, especially in lost recreation time, were woefully underestimated. Those costs are only worth it to the person who takes real satisfaction in sitting on the ground, pulling weeds.

I have mentioned in recent issues of Jeff's Thoughts that at the conferences and training sessions where I present, "growth" is a constant discussion topic. Some people are obsessed with getting more of it. Others are worried about the impact of the people who are obsessed with getting more of it.

But "growth" is too vague a concept. You can only decide how much you want to pursue "growth" if you ask the question, "What will growth cost us?" And you need to answer that question with a total cost estimate.

For instance, there are direct costs of marketing materials, of making sales calls, of staff time applied to selling and servicing. But there may be costs in credit quality, meaning you have to decide how far you are willing to adjust your standards to gain that growth.

And what about concentrations? Are you willing to put a ton of eggs in one basket, just to make sure you have lots of eggs?

Who decides what growth is worth, what trade-offs are justified? If you don't take the time to do a cold, hard assessment of those trade-offs -- or if you believe that great growth and low portfolio risk happily co-exist -- the "decider", to borrow a well-known phrase from a former President, is your competition, whose practices you are matching. How do you know they are making good decisions?

Whether it is flowers or credit, just copying your neighbors is hardly a sure way to get rewarded for a lot of work. If you do not take the time to explicitly identify and quantify the trade-offs in your pursuit of growth, expect a lot of weeds and pests in your future.