Learning to Love “The Numbers” — One Key to Improving Your Margins

“If you can’t explain it simply, you don’t understand it well enough.”

— Albert Einstein

A lot of businesses suffer because their owner-operators have a fear of numbers, a problem that is more common than assumed. This often leads to sloppy accounting practices that undermine profitability, but it doesn’t have to be that way. By dealing realistically with the “math phobia” that afflicts so many, a lot of struggling business owners can stop getting in their own way and begin to improve their margins. 

Having dealt with innumerable successful businessmen and women, I can say that one attribute that they have in common is a love of numbers. They can’t get enough of them— at least of those that accurately reflect the realities and health of their business enterprises. It’s also true however, that many businesses suffer because their owners fall prey to a common American affliction— fear and avoidance of math.

It’s all about the numbers

One of the most popular TV shows in recent years has been Shark Tank, which features real entrepreneurs going before a group of venture capitalists in search of financial support for their businesses. What is most striking about the show is how quickly the discussion turns to the numbers associated with each enterprise in question. While there are personal aspects to running a business such as passion and creativity, nothing matters more to the “sharks” than the demonstrated earning potential of a given business venture. 

As impersonal or even heartless as the process appears at times, it reflects a reality that every serious entrepreneur has to face. Regardless of how “cool” or marketable a given product or service may appear, its fate will ultimately determined by the figures that reflect the profits it’s able to net. And anyone who is squeamish about immersing him or herself in such information will not last long in the hypercompetitive business environment that currently prevails.

Fear of math

“Math anxiety” is a documented American problem— books on the subject abound, featuring titles such as Math:  Facing an American Phobia, Math Anxiety: Relief for Nearly Everyone, and Beat Math Anxiety. I taught statistics at a highly selective liberal arts college for a number of years and was struck by students’ mental blocks when it came to dealing with the most basic computations. 

I ultimately capitulated and began to use a book called Statistics for the Terrified, and even that didn’t completely solve the problem. Despite the commonsense notions that underlie the use of quantitative information, surprising numbers of Americans simply cannot combine common sense with computations.

Math phobia: It doesn’t have to be

The proliferation of math anxiety is both unfortunate and unnecessary. It’s unfortunate because America’s future is going to be dependent upon expertise in the so-called “STEM” disciplines (Science, Technology, Engineering, and Mathematics). A troubling reality is that native-born American students are grossly underrepresented in STEM related college majors due to a widespread aversion to mathematics. Also unfortunate is that many entrepreneurs are afflicted by fears of math, which limits their ability to succeed.

This is not only unfortunate. It’s unnecessary. Rather than there being anything that’s overly difficult or exotic about numbers, it’s the attitude with which so many people approach them.  Many aversions to math come from its associations with poorly written textbooks, blackboards covered with complicated formulae, and dry, boring lectures. 

Also, American schools have a tendency to overemphasize ability, when motivation is a much more important determinant of we can master. It’s not that we need to learn to use our brains in abnormal ways, as so many of us think— the truth is that when we deal with numbers for our own good reasons, our brains take to them quite readily.      

Learning to love the numbers

Quantitative analysis is often treated as a domain that is divorced from the mainstream of life, which couldn’t be farther from the truth. Nature itself is a beautiful reflection of the principles that underlie what we call mathematics, so we need to dump the idea that these principles originated in some educational institution or in the mind of some egghead.

By putting the computational aspects aside and first thinking through the logic of decision making, almost anyone can take the first step toward learning to love numbers.  Counts and computations make much more sense when they’re seen as seen as means to useful ends rather than ends in themselves, so we really need to start with goals that we genuinely wish to achieve. 

Strategic thinking: Asking the right questions 

In terms of business, when we focus on what we’d really like to accomplish in our heart of hearts, how the numbers fit in begins to make sense. It starts with passion, but then quickly proceeds to a process of asking lots of questions, out of which emerges a business model. The emergent model has to be based on quantities, but the even the most math phobic individuals will begin to change their thinking about the numbers involved if they’re truly driven to succeed. 

The counts and computations involved become much less intimidating once you’ve got the proper motivation for doing them— they can even become fun, believe it or not.  The seasoned entrepreneurs I know get genuine kicks out of immersing themselves in the numbers associated with their business enterprises. Interestingly enough, many of these admit to having bad experiences with math in school.

A living example

I hate to go back to Shark Tank, but I will because of an example I can’t overlook at this point. One of the “sharks,” Daymond John, who successfully started his own clothing business from scratch, is now worth several hundred million dollars. He speaks candidly about the fact that he’s dyslexic and has no college education. In fact, he makes it clear that what others would regard as major obstacles to success were no match for his personal drive to achieve. 

I bring up Mr. John at this point because his mastery of the numbers associated with business is astounding. Using a simple pen and pad, he computes business valuations out of figures related to sales, costs of production and delivery, etc. in no time flat and translates these into “yea” or “nay” decisions regarding whether a given enterprise is worth his investment. It’s obvious that he sees numbers as a tool to be exploited rather than something to be feared.

Beware the use of jargon

My point again is that the troubles that so many American entrepreneurs have in managing their books are the results of some unfortunate wrinkles in our culture that have allowed math phobia to worm its way in. One such wrinkle is the tendency for some professionals to resort to unnecessarily complex “polysyllabic” jargon when addressing listeners. All too often this occurs in domains related to financial projections and business valuation.

Sometimes this happens because the professionals involved are attempting to appear knowledgeable, and sometimes it’s because they not good at relating to people outside of their fields. In any case, when you encounter this don’t think that the problem is necessarily at your end. One hallmark of an accomplished professional in any field is that he or she can express his or her technical knowledge in plain English. 

A cue from The Wall Street Journal

If you look at the requirements for submitting op-ed pieces in The Wall Street Journal, one of the criteria listed is that all submissions should be “jargon free.” A top publication in the field of finance, the Journal has little tolerance for commentaries that include stylized polysyllabic technical terms. This in itself tells us that complex and technical language is not necessary to describe most financial issues.

If you can add and subtract…

Although many Americans do suffer from irrational fears of math, all that’s really necessary for understanding cash flow issues in business is good common sense. If you possess this attribute and a genuine commitment to realistic business goals, you’ll find that the computations begin to become less and less intimidating. Despite the mystique that so many people attach to quantitative analysis, it’s really just an extension of logical thinking.

The real challenge in business is learning to ask the right questions. Research on the development of business savvy shows that most new entrepreneurs suffer from the problem of “not knowing what they don’t know.” This leads them to entertain the impression that they know more than they do, which in turn leads them to make costly mistakes.

While this may sound peculiar to some, every experienced entrepreneur that I run across nods his or her head knowingly at any mention of this phenomenon. There’s a good reason for this response— they’ve all personally been through it and been properly humbled by it.

Once entrepreneurs begin to get a handle on what they don’t know but need to, the learning process begins and the right questions begin to become evident. Driven by the right questions, the numbers associated with virtually any business go from being a necessary evil to a cherished friend— one that any entrepreneur can embrace simply by understanding how to add, subtract, multiply, and divide.

Dr. Richardson is the founder of Redwood Enterprises, a business consulting, training, and executive coaching firm that specializes in helping business owners make sure that what they do every day reflects sound strategic planning. He is available for speaking engagements on business related topics. Visit his company’s website at www.redwood-enterprises.com, or contact Redwood Enterprises by phone at 610.326.3670.