Hot Business: This is the best art of all

“Making money is art and working is art and good business is the best art of all” were the thoughts of pop art icon, Andy Warhol who surprised the world by painting a can of Heinz Beans and calling it art. Art is a lot like work, what is good art, what is bad art? It comes down to blend of guiding principles and ultimately personal taste. It’s a bit like asking, “what is a good investment”? Perhaps managers would be better to think of themselves as artists. Are you a realist, surrealist, or an impressionist? Do you add value, or destroy value? Until the recent introduction of international accounting standards in East Africa, even year-end financial statements were largely a matter of perspective, stressing the profitable points and glossing over the disturbing ones. Somehow we label this segment of our lives and call it “business” as though it was distinct, we wake up in the morning and say: “we are off to work” as though, work is what starts at 8 am and ends at 5 p.m. But it’s all made up, it’s all artificial, it is just a creation. We create the distinction: work, like we create the distinction: art. We know good business when it happens, based on financial ratio analysis and bottom line profitability. Good business is also the ability to ‘just do it’. Its so wonderful when someone says I will do tasks A, B and C and then get it to you by 4 p.m. on Tuesday. And, voila, it happens, no excuses. Now that’s an art! Fundamental to good business is the notion of value added. A product or service has all the fixed and variable costs that go into it, that a management accounting exercise would determine, yet there can be a big difference between those input costs and the selling price, that’s the value added. The flip side of this is value destroyed; creating negative value, making a product or service less valuable than all its component costs. It happens all the time, we just don’t create the distinction: value destroyed, value subtracted. How do you do this? Add in a dash of, inaccuracy, lack of competence, arrogance, just plain not paying attention, slow response times and a business has value destroyed. In other words: bad management. Think of value destroyed like a computer virus that just erases precious files – in a second or so, there goes all the hours of hard work. One of the world’s most successful investors, the realist, Warren Buffet bases his investment decisions on determining a company’s intrinsic value, defined as the “value determined by the facts” not likely the same as the market quoted price. These facts being a company’s assets, earning and dividends, with the most important factor being determining a company’s future earning power, which is really what Buffet is interested in buying into, at a low or bargain price. Interestingly, when asset values are at a low being sold at bargain prices the astute investor, sees a light at the end of the tunnel. That’s the art, seeing a business opportunity that other’s miss. David J. Abbott is a management consultant working in Rwanda dja@abbott.co.ke