You are running a successful profitable business. You are cash flow positive and everything seems to be going well. It is only human nature for CEOs to explore new revenue opportunities for expansion. The CEO one days walks into the office, grabs three high performers and pulls them into a meeting. “I have thought of a brilliant new business idea that can make us a ton of revenue. Here is the new project, and I would like you to start spending one third of your time on this project. We will pay you overtime if required.” When I have my meeting with the CEO to discuss this new project, an answer I often get is “Well, I’m leveraging my existing staff who are really good performers and I am giving them more responsibility. It’s a win-win because they get more motivated and we can explore a new venture with minimal additional cost to the company.” This is a very common misconception for a few reasons. 

A high performer at an established business with established processes will not necessarily succeed at planning a new business venture. They are very different skills sets. I have seen CEOs fail to appoint a project manager that owns the new project and spreads responsibilities among several different people. If you think about the analysis required to establish a new venture, they include: 

• Creating a budget
• Pricing analysis
• Competition analysis
• Process Map
• Execution

These individuals are often being set up for failure if they have not had the experience of project managing a new business. The CEO is effectively taking individuals who were very good at their current job and asking them to do something completely out of their comfort zone.

Here is where opportunity cost kicks in, which is often ignored. When junior employees are asked to work on a new venture by the CEO, this becomes their new priority, even if they are told they must fulfill all their responsibilities in their current job. The instructions came directly from the CEO, they are excited about the concept of working on a new venture and often junior employees do not know how to prioritize tasks. They will default to doing what is more exciting. As a CFO, my attention on managing financial statements is taken away as I need to help with the new budgets. There are always unforeseen hard costs that kick in as well. Sometimes you end up having to pay for marketing research or legal fees are incurred to investigate the legalities of contracts.

 Now let’s fast forward three months. Here is likely what has happened:

• The project is woefully behind schedule. The three employees are confused about who is taking ownership of the project and what responsibilities they have.
•  There is no clear budget and the viability of the project remains unanswered.
•  The core business begins to suffer because they have taken their eye of the ball, and revenues and profits begin to slip in the existing business.
• You eventually make a decision to shelve the project. Tens of thousands of dollars have been sunk and the company is in a worse position.
•  You have three employees that were happy strong performers, that now feel like they have failed the company. As a result, morale has been shot to shit.

I advise my clients that any new business venture must start with a preliminary budget created by senior people, even if we must guess at some numbers to determine if it is even viable. A huge revenue opportunity does not always translate into profitability. All costs (opportunity and hard) need to be assessed and a timeframe of when the new venture is expected to start generating revenue must be determined. A manager level personnel should be assigned as owner of the project. If the company has an existing manager with project management experience that is under capacity, great. If not, this individual needs to be hired.

You absolutely cannot compromise your existing profitable business. If your staff are at full capacity, go out and hire new staff either to work on the new project or place them into the existing business so there are no interruptions. If your current cash cannot support this new venture, I recommend business owners not to proceed with the project or go out to raise the cash. I am all for cutting expenses generally, but half assing a new business venture is recipe for disaster. By allocating the correct amount of resources and taking a calculated risk, you increase your chance of success significantly, while being tight on the purse strings results in a certain failure.mely expensive project. Therefore, it literally pays to hire an accounting professional early on, to set the accounting system up internally so that it tracks information that you will very likely need for a capital raise.