It is not always easy to decide when to authorize big company purchases, but you can take steps to ensure when you do it’s for all the right reasons.
In this edition of the Tough Things First podcast, Ray Zinn discusses his personal experience with due diligence.
Rob Artigo: Welcome back to another edition of the Tough Things First podcast. I’m your guest host, Rob Artigo. I’m a writer and entrepreneur in California. Hi Ray.
Ray Zinn: Hi Rob. Good to be with you again.
Rob Artigo: Well no matter the size of the company, purchases are part of just doing business. Companies always end up having to buy something, and it could be pens or it could be machinery. Sometimes those checks could be pretty big, and I understand the way you operated as CEO of Micrel for 37 years was that you were considered a penny-pincher, weren’t you?
Ray Zinn: Well, I don’t know if a penny-pincher was right, but I guess somebody thought … I guess depending on who you talk to, they thought I was maybe a little bit of a Scrooge.
Rob Artigo: Yeah. But you had a reason for that. You didn’t think of yourself as being a Scrooge. From what I hear you saying is, you would deny the label … if anybody said to you you were a penny-pincher, you would say no. You had some other … what would you call yourself?
Ray Zinn: I’d say I’m just a frugal person. I’m careful about how I spend the company’s money. It’s not that I’m being a penny pincher or Scrooge, it’s just I wanted to make sure that they had an equal number of pros and cons. In other words, when I get a request for purchase, oftentimes, all it has on it is the item name and the amount of the purchase, but there’s no justification with both equal number of pros and cons. If you have pros, I want five cons. In other words, there’s got to be an equal number of reasons why you don’t think it’s a good idea, and then let me decide. Don’t you decide for me, worried that I’m going to figure out, “Oh, if he sends me 10 pros and two cons that someone out there sent you a fantastic deal.”
Just the opposite. I think, “Uh-oh, if something’s too good to be true, it probably is.”
Rob Artigo: Why was it important for you to keep a tight rein on spending and be diligent in that way to make sure that the money was being spent properly?
Ray Zinn: Well, it’s obviously. I don’t want them to be buying things that they want as opposed to things that they need. I have to sit there and decide is this something they really want, or is this something they really need? I look for how bad do they need it, not how bad do they want it.
Rob Artigo: When a manager or other employee who deals with purchasing would come to you with their list, or come to you for the first time and you explained to them the deal. “Here, I want your pros and your cons. I want five and five. Give me both sides of this thing.” Was it a tough sell for some employees? And then how did you deal with it?
Ray Zinn: I just tell them that they’ve researched the reasons why we shouldn’t do it, as opposed to just the reasons why we should. It’s a habit that I had to develop among the people because I can look at the cons and say, “Oh, those are just ridiculous. They’re just sticking those in there just to fill in the blanks.” And so I can tell if they have properly looked at both the pros and the cons equally.
Rob Artigo: Would you send them back to their desk and say, “Hey, can you work on this a little more and give me some better cons?”
Ray Zinn: Yeah, absolutely. I’d look at the level of, and the type, of cons that they put in, and I can tell if they’re properly balanced. I know what the company needs, at least I think I do. And so then I would say, “All right, this is an appropriate justification.” And for them now to have looked at the proper reasons why we shouldn’t do it, that means we’ve looked at both sides of the coin and not just one side.
Rob Artigo: That’s fascinating to me. I really think that this is something that if as a former military person myself, if I was looking at operational needs, I’d look at the plan, and I would come up with the outcome of the operation might be in a couple of different ways. And then I would also try to look where along the line am I going to get stopped, and what could potentially throw this thing into some sort of turmoil? I hear you talking about having to do this with purchases, and it sounds like making employees take the time to be thoughtful about the expenditure in a soul-searching kind of way is, is this important. And I can see also an employee saying, “I really … like you said, almost in a window-dressing way, I’m going to put in just a couple of notes here so that he thinks that I did the due diligence, but you were able to spot those moments and call people out.
Ray Zinn: Yeah. That’s when they thought maybe I was being a little bit of a penny pincher or a Scrooge because I’d be so focused on, “Okay. I see all the reasons why you want it, but let’s look at why we shouldn’t do it.” And so, I looked there, and I’m actually more focused on how well they put together the reasons why not to do it than why to do it, because then that tells me they really researched it and thought it through carefully.
Rob Artigo: What are the major points that you would ask people to consider on the con … when you’re thinking about the cons? How do I analyze cons and make a good con list?
Ray Zinn: That is the more difficult thing, but for example … let’s talk about a piece of equipment. So there are obviously multiple suppliers … there should be anyway … multiple suppliers for a piece of equipment. And let’s say one is more expensive than the other, but the one that they want being more expensive has some easier … in other words, we have a better relationship with the company, maybe their service has been a little bit better, or maybe their product quality is better. And so, one of the cons would be, of course, that the piece of equipment that they would prefer is a little more expensive, and so that would be a con, in other words, more expensive.
When they list the con, they could also say, but the supplier that we want has better quality or better service. We have a better relationship. So they can always explain the con in terms of a pro. So I’d be looking for that. Another con would be that depending upon the lead time, let’s say that piece of equipment costs X thousand dollars, and there’s going to be some software support that’s going to take three or four months to patch it together to get it to work in our particular environment, so that’s a con. In other words, how long it takes to put it in place.
Now, that may be a con for all the three pieces of equipment, or competitors, but that’s a con. In other words, it is going to take quite some time, three months, six months, to get it operational. So that’s a con that would weigh in terms of how quickly can we get the thing productive.
Rob Artigo: Well great, Ray. Really appreciate the advice. As always, you can reach out to Ray Zinn with your questions at toughthingsfirst.com. Continue your education and the conversation with all the podcasts, the blogs and links to information about the book, “Tough Things First,” and Ray’s recent work, “The Zen of Zinn,” a collection of writings of inter-related topics of entrepreneurship, leadership, management, discipline, determination, society, people and life. It’s the Zen of Zinn. Thank you again, Ray.
Ray Zinn: You’re welcome. Thank you for having me.