When you are a startup or a smaller business, it can be easier to tell whether you are actually making money. I recall working with a lot of small business owners and many of them literally were of the mindset, “Is there money in the checking account at the end of the month? Is it more than I started with?” And that was their KPI for success. With a small business you can also grow at incredible percentages, showing increases year over year of run rate and customers count. I mean, think about it. If you have 4 customers, and you get 9 or 10 more the next year, then you can say you had “over 200% YoY growth!”.

For a larger enterprise, the reality is that those percentages can slow down. There comes a point where it’s maybe harder to grow purely off of revenue and instead need to spend some time focusing on efficiency. In a startup with only 10 people it can be very obvious where the inefficiencies are. But how do you do that for a 10,000 person enterprise?

So the question is whether or not you are actually structured and operating in a way that makes money. To dive into this, let’s do a thought experiment.

Let’s say this enterprise-size organization has some recurring business process that happens all the time, that a significant portion of the team is doing. At some point, some entrepreneurial person is going to assert, “I can fix this! Give me a team of three people and we will make this more efficient!” So a new team of three people is formed, new people are hired, and they start doing the process for everyone.

But did this actually save the company any money? Let’s say the original process took 100 hours, and this new team does it more efficiently, so they can get it done in 50 hours.

Does this sound familiar? This is an extremely common occurrence. But three new people means the company is now paying for 3 X 2,080 hours more a year, or 6,240. If the team is saving 50 hours per execution of the process, that process needs to be done 125 times a year for this to have saved the company money. If upon further inspection, that process was only being done 70 or 80 times a year, you literally have NOT saved the company money.

Now I realize there are more factors at play here. Maybe there’s a quality of life issue with the people who were originally doing the process. Maybe there’s opportunity cost recovery with the people who now don’t have to do that process any more. But my point is, if you are doing this solely to be more efficient and show an improvement on your financials, you actually might have made things worse.

There’s a lot of reasons this situation can arise. Managers are trying to grow their team size (for their own empire-building), or trying to appear as if they are innovating, or are honestly trying to make things more efficient. But as a business leader in the enterprise space, foundational financial analysis is a key skill, and a key activity that needs to be done when structuring your teams and processes for success.